Hello, and welcome to the 9-month 2021 earnings presentation hosted by Banco Santander. My name is Annie, and I'm your event manager. During the presentation, your lines remain on listen only, but if you require assistance at any time, please just press star then zero on your telephone, and an operator will be happy to assist you. I would like to advise all parties this conference is being recorded. We will be taking questions today, and to ask a question, please key star one on your telephone to join the queue. Thank you.
Good morning, everyone. Thanks for joining this Santander Nine-Month 2021 Earnings Presentation. As every quarter, our Group CEO, Mr. José Antonio Álvarez, will address the highlights on the group performance. Then the Group CFO, José García Cantera, in detail will comment on the different business areas trends before the CEO jumps into the key takeaways. Obviously, we'll have plenty of time to answer your questions. José Antonio, please.
Okay. Thank you, Sergio. Good morning to everyone. Thank you for joining us in the Third Quarter Results Presentation. I think the results show the business momentum we are having with another solid set of results in Q3. The operating income Pre-Provision Profit is growing 11% year-on-year in constant euros. Revenue was up 8%, right, driven by the rise in volumes, loans, deposits, mutual funds. This comes along with a growth in the income. It cannot be the other way, increasing customers and greater digitalization that leads to strong broad-based revenue generation, efficiency improvement, and higher profitability.
Specifically going through the numbers, Q3 2021 profit was around EUR 2.2 billion, +2% quarter-on-quarter in constant euros, +5% in current euros, on the back of some euro average depreciation against the currency. Year-on-year it's different, but in the quarter, the euro depreciated a bit against the basket of our currencies. Nine-month 2021 group attributable profit, EUR 5.9 billion. Excluding Q1 extraordinary items, nine-month 2021 underlying profit, EUR 6.4 billion. The numbers speak by themselves. We maintain our cost discipline and solid credit quality, the latter reflected in our cost of credit below 1%.
Regarding capital, the strong capital generation in the quarter, +48 basis points in Q3, enables us to reach a fully loaded Core Equity Tier 1 ratio of 11.85% at the top end of our 11%-12% target range. We continue to deliver and sustainable growth in profitability. Return on Tangible Equity stood at 12.6% and tangible net asset value grew in the quarter and the dividend per share rose 6.5% year-on-year. The board, as you know, has approved a new remuneration policy for 2021, with a 50% payout set at 40% underlying profit, 50% cash, 50% buyback programs. Entailing distribution approximately of, in the region of EUR 1.7 billion .
In short, we are well on track to outperform the full year 2021 goals that we established at the beginning of the year and to reach our medium-term underlying Return on Tangible Equity target in the region of 13%-15%. Moving to customers. Well, great success on digitalization has been a key driver of the revenue and net operating income growth. We recorded and still increasing total customers, and in turn, our customers are increasingly using our products and services through contact centers, digital channels, and the branches. As a result, digital customers rose by more than 5 million year-on-year. Digital transactions were up 39% year-on-year and grew across all the countries between 20%-50%.
Digital sales as a percentage of total sales stood at 54% in nine-month 2021, +10 percentage points year-on-year, with growth in all products across the board, mainly in the ones related with Individuals, mortgages, consumer deposits, investments. If we look at the last quarter, digital sales reached 57% of the total. This is important, we are top three in banking by NPS in seven markets in which we operate. Moving to the group's income statement. Exchange rates had a small positive impact in the quarter, as I mentioned before, but year-on-year, the still negative impact, -5 percentage points in revenue and -3 percentage points in costs.
Looking at the results in constant euros, revenue growth, particularly customer-related revenue, we demonstrate cost discipline in an environment of rising inflation. Certainly inflation is rising, particularly not only in Argentina. This has been the case in the last couple of years. Also in Brazil and Mexico and Chile, we have significant inflation. Now in Europe. Additionally, we have a significant reduction in our loss provisions, although they reflected some increase in the quarter, mainly in the U.S. We deliver a nine-month 2021 underlying profit of EUR 6.4 billion, +87% year-on-year. No extraordinary items in the third quarter. We recall that we recorded EUR 530 million restructuring costs in Q1.
I will give you a brief overview of the performance of regions and global business, and our CFO, José García Cantera, will elaborate further. Very positive performance across all of them. Once again, the U.S., Brazil, and CIB performance is outstanding. The global business performing very well, Wealth Management & Insurance, and PagoNxt delivering in line or better than our expectations, our guidance that we gave to you. Underpinned, as usual, by our geographical and business diversification. Each of our three regions contributed roughly 30% to the group profit, Europe 29%, North America 29%, South America 30%, and Digital Consumer Bank the 12%. If we analyze the quarterly trends in core lines, sustainable revenue growth, NII up 1%, positive performance in trading gains in Q3.
The quarter-on-quarter comparison was favored by the Single Resolution Fund contribution in Q2. On the other hand, net interest income, net fee income remained stable, impacted by seasonality in Europe and strong figures in CIB and Corporate and Investment Banking business across the board. I will run you through this in more detail in the following slides. Cost control in the context of high inflation and increased expenses related with greater activity. Higher LLPs, mainly in the U.S. and to lesser extent in the U.K., both as both had some provision releases in Q2. As you already know, in the U.S., LLPs tend to have some seasonality in the second half of the year.
NII was 7% higher compared with nine months 2020 and 1% quarter-on-quarter. On the back of higher volumes, loans grew EUR 8 billion in the quarter, deposits grew EUR 15 billion. Regarding margin, much like in previous years, we saw general repricing of liabilities, Europe, North America, and Chile, and improving loan spreads in U.K., Poland and the U.S. In addition, there was a positive impact year-on-year of the TLTRO that you well know very well, naturally, no impact on quarter-on-quarter. Finally, average interest rates remained lower than in nine-month 2020, despite increases in Latin America, Brazil, Mexico, and Chile, where the rates went up, and recently in Poland. These increases will positively impact NII in the coming quarters.
When we go to the fee income, we continue with the recovery from the lows in the second quarter in 2020. The entire range of products show higher activity year-on-year levels, with some seasonality in the quarter, mainly in Europe. You have the figures in the slide. All the activities show a greater activity. Payment volumes grew significantly, cards are growing, cards turnover are growing at a significant speed. In consumer activity, trends continue to improve with strong signs of recovery year-on-year. In Q3 mainly, the motor finance business has been affected by new vehicle sales that are affected, as you know, by the shortages in the supply chain of the OEMs.
While we have a strong activity, the strongest, probably the strongest activity we have seen so far in the used vehicles space. In addition, CIB and Wealth Management & Insurance generated sharp increase in fee income, representing about 50% of the group's total fee income. Wealth Management & Insurance fee grew 11%, underpinned by the significant increase in assets under management and insurance written premiums. CIB fees grew 19%, with on the back of very good activity in DCM, ECM, and M&A. In short, fee income recovered pre-pandemic levels across our footprint, except for the U.K., due to regulatory changes regarding overdrafts since April 2020. On the cost side, we continue to see, and this is new, significant rises in inflation in all countries, particularly in Latin America.
In this context, group cost rose 3.7%. In real terms, excluding inflation, costs were 1% lower after absorbing higher IT expenses, digital developments, increased activity, and labor agreements. Our efficiency ratio improved more than 120 basis points year-on-year to 45.6%. That is a very good number in the industry. Mainly driven by Europe, we recorded the highest efficiency gains. In Europe, costs were 1.5% lower, making headway in our cost reduction plan, which we expected to accelerate in the coming quarters, increasing synergies. Of note, Spain, with a 7% decrease, efficiency in the region, as I mentioned before, stood at 50%, having improved 7 percentage points year-on-year.
In North America, costs increased 8%, mainly driven by technology expenses, digitalization amortizations, and a $50 million donation to our community foundation in the U.S. that was recorded in the quarter. Of note was the performance in Mexico, -2% in real terms. Efficiency in the region stood at 44%. In South America, increase in costs +9% was greatly distorted by the very high inflation in Argentina. In real terms, costs declined 3% in the region. Brazil, -6%, Chile -1%, and Argentina was flat in real terms. Efficiency in the region is still at 35% with continued improvement. Finally, the consumer bank costs increased due to changes in perimeters, i.e., the leasing company that we bought in Germany, Sixt Leasing, and the joint venture in Italy that we launched this year.
Finally, loan loss provisions, well, we have a cost of credit in the last twelve months of 90 basis points. In the same period of 2020 was 1.27. Taking into account the first nine months of the year, only the cost of risk was 83 basis points, performing better than expected due to lower provisions in most markets, mainly in the U.S., the Digital Consumer Bank, Brazil and Chile, together with the net releases in the U.K. The NPL ratio was virtually flat quarter on quarter, year on year and slightly lower quarter on quarter. Total loan loss reserves is EUR 24.5 billion with a coverage ratio of 74%. In addition, I would like to remind you that the majority of the overlay that we recorded last year is sitting on the balance sheet.
We expect to make some releases in Q4 on the back of new macro scenario, which will enable the cost of risk to reach around 80 basis points by year end. This is our best estimation if nothing changes in our view of the macro scenario. Finally, on capital, I would like to highlight the strong organic generation in the quarter, 48 basis points. The figure is mainly supported by our net profit, risk-weighted asset management through securitization, through good securitization mainly. Neutral impact from dividend accrual on the back of the new dividend policy that you already know. Additionally, we recorded 16 basis points related to regulatory, unrelated model-related capital impact and another 17 basis points mainly market performance.
All in all the Core Equity Tier 1 ratio increased by 15 basis points to 11.85% on a fully loaded basis, very close to the maximum level of our range, 11%-12%. The phasing you have in the slide, 12.26%. Additionally, I would like to comment on the solid results achieved by the group in the EBA stress test. In accordance with our expectations, we outperformed clearly our peers. That show that the resilience of our business model in scenarios, the stress scenarios. When we go to the ratios you have in the slide, the Return on Tangible Equity progressing well, EPS is progressing well, tangible net asset value per share is still progressing clearly.
Also noteworthy is the return on risk-weighted assets will reach 1.8% versus 1% one year ago. Well, you already know our dividend policy. Once the ECB lifted the recommendation not to pay dividends, well, the board approved a payout at 40% of underlying profit. We are making distribution for value of EUR 1.7 billion, well, half in cash, half in buyback. As of today, around 30% of the buyback program was already executed. This is where we are in this regard in our dividend policy. Finally, going to ESG. As you know, the bank has strong commitments to ESG.
Well, we have stood for the sustainable and inclusive growth of people and business for many years, and we continue working on improving our financial products to support our customers in the transition towards a low carbon economy. We have set ambition to be net zero by 2050, being a founding member of the Net-Zero Banking Alliance, among other guidelines, requires the bank to set decarbonization targets for carbon-intensive sectors no later than September 2022. In this regard, we have set and disclosed the first specific Net-Zero Banking Alliance targets for power generation. That is to reduce emissions more than half in our power generation portfolio by 2030. In this regard, in Q3, we joined the Partnership for Carbon Accounting Financials.
It's important to have general standard to harmonize all the numbers that are being published, and we are committed to have a standard under which we publish all the numbers related with this. As regards to the green finance, as you know, we are a market leader in renewable energy. We mobilize in nine months EUR 17 billion, EUR 51 billion since 2019. As you know, we are leader in financing renewables. In our core geographies, we continue to lead the renewables project finance league tables year-to-date. Number 1 by number of deals by Bloomberg and top 3 by volume in Dealogic. We have issued on our own EUR 1 billion green bonds, EUR 3 billion total to date as part of our sustainable debt plan.
On the social side, as having a strong presence and being a market leader in Latin America, naturally, our main goal this is to financial empowerment strategy in the program that we call Santander Finance for All, helps people access to the financial system. Set up and grow micro business and also offers financial education. Our microfinance initiatives have already been launched in Brazil, Mexico, Uruguay, Colombia, and it was launched in Peru in Q3. We have reached 6.2 million financially empowered people since 2019, of which 1.3 million are micro entrepreneurs, and we are making progress in the share of women in senior leadership position.
When it comes to governance, the board, the composition of the board, diversity in the board, in terms of independence, and also gender and diversity in all the dimensions. We also include ESG metrics in our executive bonus scorecard. In addition, our work in our corporate culture at Santander Way were reflected in the results of the year global engagement survey, where the level of employee commitment reached 80%, considerably higher than the sector average rates. Finally, I would like to point out that our different ESG initiatives have got significant external recognition along the year. I now hand over to José to elaborate over the different business units and regions.
Thank you, José Antonio, and good morning, everyone. Like always, I will start with a brief summary of the regions, and then I will move into the main countries in the following slides. In Europe, we continue to grow our business while we advance in a common and more efficient operating model. We had volume growth year-on-year and quarter-on-quarter in almost all markets, and we expect these trends to continue in the coming quarters. This led to revenues growing strongly at 12% year-on-year and, as José Antonio mentioned, outstanding cost management with a strong efficiency improvement, and we also had low cost of risk at 48 basis points. This in turn led to net operating income growth of 30% and doubling of profits.
In North America, we had accelerated volumes, although U.S. figures, as I will explain later, are affected by the disposals in the year-on-year comparison. We had a strong profit growth year-on-year, boosted by cost of credit improvement, mainly in the U.S., and revenue increase, excluding disposals, total income was up 7%. Return on Tangible Equity in North America was 13%. In South America, we continue to strengthen our regional ties, reflected in solid double-digit customer and volume growth. Profit was up 31%, and Return on Tangible Equity stood at 20%. In the Digital Consumer Bank, we saw strong profit growth in the third quarter, leading to double-digit growth year-on-year as well. Now let me go into the main countries. In Spain, the stock of loans was flat in the quarter as mortgages offset the decrease in Companies.
Mortgages recorded the highest new business volumes in the last three years. Results in the third quarter were boosted by strong net operating performance. Revenue rose 11% in the quarter, while cost dropped 4%. Regarding provisions, we remain cautious in Spain, but we expect the cost of risk in 2022 to be approximately half of that of 2021. Year-on-year revenue grew 4%, mainly driven by net fee income, especially in transactional and insurance products. Our cost reduction efforts were reflected in a sharp fall, 7%, improving efficiency by 6 percentage points, while loan loss provisions remained stable. This obviously was reflected in the almost 50% growth in profit.
We expect balance sheet trends to continue in the coming quarters, which should lead to a stable net interest income, while fee income could expand at mid-single digit rates. Costs should maintain its downward trend. In the U.K., the main trends recorded in previous quarters continued. Net interest margin kept improving based on deposit repricing and volume growth. The mortgage book grew 4%. As you can see in the slide, downward trending costs accelerated as our transformation program delivered savings, partially offset by IT investments and regulatory related programs. As a result, the efficiency ratio improved 13 percentage points in the first nine months of the year. We recorded another quarter of zero loan loss provisions. Return on Tangible Equity in the first nine months was 11.5%. Like in Spain, we expect balance sheet trends to continue in the coming quarters.
Assuming no hikes in rates, net interest income should stabilize, while fee income would grow at low single-digit rates. We expect to reach a cost-to-income below 50% next year, while the cost of risk should gradually normalize. Brazil showed another excellent quarter in terms of volumes, profit, and profitability. We maintained a strong growth rate in new mortgage lending and reached a record high in card sales. We gained 1.6 million new customers just in the third quarter. Turning to results, profit was 30%, almost 30% higher year-on-year at EUR 1.8 billion, and Return on Tangible Equity increased to 22%. We had positive NII performance due to larger volumes and a slight increase in average interest rates, while net fee income also grew in insurance and capital markets especially.
We reached record efficiency levels, with costs up 1%, while inflation was up 10% year-on-year. Loan loss provisions decreased sharply with a very positive cost of credit performance, which fell to 3.6%, one percentage point less than a year ago. In the coming quarters, the structural double-digit volume growth rates should be maintained, which will continue to push up net interest income and fee income. We expect to be able to keep costs growing below inflation and to maintain cost of risk at similar levels. In the U.S., the work conducted over the last several years allowed us to be uniquely positioned to benefit from current market conditions. In volumes, loan performance was impacted by Bluestem portfolio disposal. Excluding Perimeter, growth was 2% year-on-year, with auto originations increasing 16% versus the same period of last year.
Customer funds showed a strong performance also, growing 13%. Year-on-year performance is affected by Puerto Rico and Bluestem disposals, so I will comment on the year-on-year results on a like-for-like basis. Net operating income increased 17% on the back of resilient NII growth of 7%, strong auto leasing results, and fee income. At the same time, provisions decreased sharply, although we are starting to see signs of normalization. We are very proud to announce that this quarter, Santander U.S. donated $50 million to the Santander Consumer USA Inc. Foundation in order to fund a multi-year program focused on transforming lives of low-income students, young adults, and families across the country. This program will target closing the digital divide and aiding students and families in education programs to boost digital and financial competencies.
In addition, in line with group strategy to deploy capital to the most profitable business, and to accelerate growth in the U.S., in the third quarter, we announced two transactions that we have already shared with you. The proposal to acquire all outstanding shares in Santander Consumer we don't own, which is around 20%, and the agreement to acquire Amherst Pierpont Securities. Both transactions are still subject to regulatory approvals. In the coming quarters, we expect high single-digit growth in loans supported by consumer and CIB. Revenue should continue to grow, driven by double-digit growth in NII, while fees might contract slightly. Cost-to-income is expected to remain at similar levels. In Mexico, lending started to show signs of recovery in the quarter as Individuals' positive performance partially offset corporate loan normalization.
In the third quarter, NII was favored by volume growth and higher interest rates, while fee income performance was impacted by insurance seasonality in the second quarter and lower financial advisory fees. Costs were affected by inflation, IT projects, and new outsourcing legislation. In September, cost of risk stood well below 3%. We expect NII plus fees to grow at high single digits next year, while costs should increase below inflation and cost of risk should remain fairly stable. In the Digital Consumer Bank, activity trends generally continued to improve. New lending was 11% higher year-on-year. However, in the third quarter, the microchip shortage hampered production and consequently the new auto market, particularly in the first part of the quarter.
Despite this, in terms of total income, September was the best month of the year-to-date, driving the strongest quarters since 2019, thanks to recovering fees in Germany and strong consumer lending and flat used vehicle volumes. This together with 3% falling costs and the SRF contribution in the second quarter, resulted in a 32% increase quarter-on-quarter in underlying profits. For the coming quarters, we expect strong cyclical growth in consumer finance demand. Cost to income should remain below 40%, and cost of risk should gradually normalize. Turning to the global businesses, in Corporate and Investment Banking, we held leading positions in the rankings of structured finance in Europe and South America, and DCM and ECM in most countries where we operate. We are one of the world leaders in financing and advising on renewable energy.
Outstanding third quarter results shown by revenues, which was up 12% year-on-year, and the efficiency ratio remained a benchmark in the sector at below 38%. Loan loss provisions started to normalize as well. In wealth management, total assets under management increased double digits year-on-year. Commercial flows year-to-date in private banking and Santander Asset Management reached EUR 14 billion. These flows account for more than 3% of total volume managed. In insurance, gross written premiums rose 5% year-on-year. In summary, total fee income generated, which includes the part accounted for in the commercial networks, grew 11%, and total contribution to the group profit increased 16% year-on-year. Now turning to PagoNxt.
In nine months, revenue increased 41% year-on-year, boosted by the strong jump in fees, 45% at constant exchange rates. We are clearly on track to achieve our expected second half revenue growth of close to 50% versus the first half, and to reach EUR 1 billion of revenue in the medium term. Now, talking about the three components of PagoNxt, starting with Merchant Solutions. Getnet continued to deliver significant growth. The number of active merchants and total payments volume grew across all geographies. Getnet Brazil continued to increase market share in the country, reaching 16% in total and over 30% in e-commerce. We are developing an integrated offer for European customers with Getnet Europe and the integration of Wirecard's technology assets and talent acquired last January.
All in all, we reached a total of 1.2 million active merchants and a total payment volume of EUR 81 billion in the nine months, up 53% year on year. In trade, our initiatives to support our clients in international trend to expand beyond their domestic markets continue to evolve favorably. One Trade already connects our customers in eight countries, reaching 7,300 active customers from 4,100 in March 2021, an 80% increase in the last six months. Ebury already has over 15,000 corporate customers, growing over 500 new companies per month. Revenue is growing at over 20% versus the first quarter. Finally, in consumer solutions, Superdigital began to operate in Argentina in the third quarter.
Looking forward, we expect revenue in PagoNxt to continue to grow strongly in line with 2021, which puts us on track to achieve the EUR 1 billion revenue target in the medium term. Lastly, we expect to reach more than 2 million active merchants in the medium term. To finalize, let me now go over the Corporate Center. Underlying attributable loss of EUR 1.6 billion in the first nine months is higher than last year due to lower gains on financial transactions. Remember that we had positive foreign currency hedging results in 2020. On the other hand, we have no material differences in NII and costs, and significantly lower provisions due to charges in the first nine months of last year for certain holdings whose valuation was affected by the crisis. Now let me turn it back to the CEO for his final remarks.
Thank you, José. Once again, I think we are presenting to you solid results in the third quarter, consistent across geographies and business, and supported by the right metrics, volume growth that translate into higher revenue, efficiency improvement, credit quality is solid, better credit quality. We continue to build capital. Finally, our Return on Tangible Equity is now clearly higher than our cost of equity. As a result of this strength, following the lifting of the restriction of the ECB recommendation, we resume our dividend policy. We continue to focus on improving our profitability while helping our customers and the society in general.
We aim to grow our customer base, I should say, keep growing our customer base, strengthen the loyalty by improving their satisfaction, help them in digitalization, support them in financing and growing their businesses in a sustainable way with a positive impact for the whole society. In short, we are seeing a business normalization and our strength underpin our great confidence in our profitable growth ahead. For that reason, we are confident to continue to show progress towards our medium-term target, Return on Tangible Equity 13%-15%, as I said at the beginning of this presentation. Thank you very much for your attention. Now we will open the call for questions that you may have.
Indeed. Thanks, José Antonio. Now we can proceed with the Q&A session. First question.
Thank you so much. Thank you. The first one is coming from the line of Alvaro Serrano from Morgan Stanley. Please proceed, sir.
Good morning. Thanks for taking my questions. My first question is on capital and maybe if you can provide some guidance. Thanks, José, you've provided already quite a detailed guidance on the P&L. On capital, as we think about 2022 as well, can you maybe give us some guidance of what remaining headwinds? Are we past the bulk of the headwinds now for several years, or is there anything remaining? Any thoughts on Basel IV, if that's an additional impact or not? Then I had another question on costs. You've given the EUR 1 billion, sort of, guidance. You gave that EUR 1 billion cost-cutting guidance in Europe. Costs in the group were slightly higher in the quarter.
I wonder if you can give us your thoughts on billion guidance, and particularly in the U.K. Why is it proving so difficult to cut costs in the U.K.? It feels like it's been years now since we've been discussing the cost plans in the U.K. not delivering. What's proving so difficult, and do you think you can get to that billion target? Thank you.
Okay. I will address the cost issue, and I pass to the CFO, the capital question that he can elaborate in more detail. On the cost issue, and particularly, you're referring specifically to the cost cutting in Europe, we commit EUR 1 billion nominal reduction in cost in the four core businesses, Spain, U.K., Portugal, and Poland. We are progressing well in Spain and Portugal. In U.K., we are a bit behind, but I do think that we are at the running rate. This year, we're gonna be at a running rate of EUR 600 million nominal cost reduction. For next year, I remain confident that we can reach the EUR 1 billion cost cutting. The lack in the U.K. is mainly due to some compliance investments that we are making, and this force us to make these investments. We remain committed to deliver the EUR 1 billion that we told you in 2022 by 2022.
With regards to capital, this year we don't expect any more regulatory charges. For next year, we have a small impact from minorities and we will have some impact from updating the models, but this should be significantly smaller than the impacts we had in 2021. We would expect to be at the upper end of the range throughout the year. Basel III, well, we need to see the final legislation. We've seen a draft that was leaked a few days ago with ILM equal to one. If this is confirmed and the treatment of equity stakes and some other smaller changes, the impact on Santander is going to be very small. As you know, we will not be affected by the output floor. With ILM equal to one and some other adjustments, I think the impact will be really small.
Thank you. Operator, next question, please.
Thank you. The next question is coming from the line of Fernando Gil de Santivañes from Barclays. Please go ahead.
Hi. Good morning. Thank you for taking my questions. The first question comes on Spain NII, and how do you see trends, pricing, and volumes going forward? This would be one. The other would be to touch a little bit on the U.S., and how do you see the franchise long term without the agreement with Fiat developing? Thank you very much.
Okay. NII in Spain, well, let's talk where the market is right now. We see significant activity, good activity in the mortgage individuals space, mortgage and consumer lending, good activity in this front. Not that good in the corporate sector, where the demand for credit is relatively low. The NII has been affected largely, as you know very well, by the level of Euribor. Assuming that the Euribor remain where it is, we see a NII that is gonna be in line with what we had in what we are showing today.
Assuming that the Euribor remains that, naturally, the balance sheet, with the ALCO positions being very small, the sensitivity is towards higher rates. On the U.S., you asked specifically about the franchises who signed the franchise with the agreement of Chrysler. Well, Chrysler, the agreement expires in 2023, but this doesn't mean that we do not continue to do business with Chrysler. As you know, Chrysler bought their own finance company, but it's gonna take a while before they get they are able to underwrite the whole business.
Particularly in the subprime and near prime space, where we are the specialists, and we expect to keep significant part of the business. On top of that, we are diversifying out of Chrysler. Naturally, we have now, like, three different providers. One is the what we call internally core business, that is additional subprime that we generate in our own, that is the bulk of the business. The other is Chrysler, in which we have the prime, the near prime, and the subprime, and that comes from Chrysler. The prime, normally we dispose 100% of them, or the majority of them, and we keep normally the near prime and subprime, where we are specialists.
Going forward, I do expect some impact from this, but not being very significant and not change the dynamic of the franchise, mainly taking into account that we are, and for sure we were gonna get agreements with other originators, being digital originators, as we are working already with them, or being traditional originators or other OEMs that may substitute some of the volumes we are getting now from Chrysler.
Thanks, Fernando. Next question, please.
Thank you. The next one is coming from the line of Francisco Riquel from Alantra. Please go ahead.
Yes, thank you for taking my questions. First one is a general question about Brazil. The bank in Brazil is performing very well, delivering RoTE above 20%. However, the macro risks are increasing, with inflation running up, about north of 10%, concerns on fiscal spending driving long-term yields up, GDP growth expectations revised down for 2022. In this context, the general question is. How do you see the main KPIs in Brazil in the current macro environment? Mainly the volumes, margins, the costs, and the cost of risk. The second question is about the other revenue lines.
If you can explain more details on what you include here in this EUR 500 million in the third quarter, particularly in Spain, which was much higher than expected, and also in the consumer businesses, Digital Consumer Bank and in the U.S. If you can comment also on the nature of these revenues, whether they are recurrent or not. Thank you.
Okay, thank you for your question. Brazil, you asked a very general question on Brazil. Let me make two starting points. One, we are performing well in Brazil, as you recognize, on the back of market share gains. We are gaining market share across the board, but mainly in the retail space: credit cards, insurance businesses, mainly those business that, well, on the lending side. There is a mix effect. We are not growing that much at this stage now on the corporate side. We are growing mainly in the retail. You mentioned what you call, I don't know how you qualify the macro environment having high risk on the back of the fiscal policy and all these things.
The inflation naturally has been growing significantly. On the back of this, the central bank is increasing rates, as you know, and probably continue to do so, and the prospects for the inflation are not to come back to a certain level. It's not different than when the expectations we have in the mature markets that the inflation now is running high and will come back at some point. You asked specifically a question how this affect our KPIs going forward, this macro environment and the cost of risk and all these things. I do not expect a material impact in the cost of risk other than the one reflected that comes from the mix.
Yeah, naturally, the cost of risk as a total, probably is gonna be higher on the back of having the retail business growing in high double digits, and the corporate business growing probably mid-single digits or a bit higher, but significantly lower than the other. Other than this, I don't see a significant impact coming from this side. The critical question here is our capacity to keep the momentum in the business and being a market leader, real market leader in the way we are doing the digital transformation. Our commercial activities is going very well. As a matter of fact, we are about to reach 1 million credit card sales per month. That is quite a number.
Comparing that we were probably one year and a half ago, two years ago in half of this, half a million or less than, so is the growth. We have high confidence in keeping our business momentum, our commercial activity with good control of risk. Naturally, the environment is gonna be volatile, because we face elections next year and some volatility may be expected around elections, presidential elections next year, and some measures could be taken looking at the elections next year. On the other revenue lines, mainly Spain, I think is equity method, yeah?
The deposit guarantee and contributions to the SRF in the second quarter. Is the volatility associated with both.
There are some businesses that we account by equity method that are going back to normal, and probably you should expect this line to keep growing, yeah, in a sustainable basis. Because those are businesses that, well, some of you know, the Merlin Properties in Spain and the likes that you know, that, well, given the economic scenario, we expect this to keep growing in the coming years.
Thanks, Paco. Next question, please.
Thank you. The next one is from the line of Adrian Cighi from Credit Suisse. Please go ahead.
Hi there. Good morning. Adrian Cighi from Credit Suisse. Two follow-up questions from my side, one on Brazil and one on capital. On Brazil, we've seen NII increase in the quarter by 8.5% in euro terms. My understanding is that the first-year impact of rate increases, which you reiterate again, is a negative impact of EUR 63 million from a 100 basis points rate increase. This year, the central bank has increased rates by over 400 basis points. Are we seeing the impact of these increased rates in these results, i.e., is the underlying results even stronger, or are these rate increase impacts somewhat delayed, and should they expect them in the coming quarters? We're clearly in the middle of a very aggressive cycle.
Any insight of how the timing and quantum of impact from these would be much appreciated. Sticking with Brazil, we've seen some pretty big moves in FX in recent weeks. Can you update us where your hedging is on this? Briefly on capital, you had a 17 basis point headwinds in the market and others. Can you give us any color as to what drove this, given that there are some relatively limited spread movement this quarter? Thank you very much.
Okay. Let me take first the question in Brazil. I will pass the hedging to the CFO, and I will elaborate also on the capital, yeah. On the capital swing into market. Brazil, you are saying, you know, well, we have a negative impact when the rates goes up. That's true in the short run. In one year, it's minus BRL 63 million, 100 basis points. We increased four. You said, we see the rates increasing 400 basis points. That's true. But when you look at the numbers and the volumes, what you see is the volumes in retail with very high margins growing close to 20%. Okay? The mix effect is very strong. We translate this into 11% growth in NII.
We are missing here, like for like, we should be growing the margin in the region of close to 20% year-on-year. We are growing 11%, and partially due to this increase in rates that you rightly pointed, that affect us in a negative way. I should say that the EUR 63 million is on one year. Probably if you take this quarter-on-quarter, the impact is more negative at the beginning and less negative as the time goes, and we are able to reprice assets and liabilities. The effect that you mentioned is due to this. I pass the question to the head. The capital, the market is basically mark-to-market on the available-for-sale portfolio, the impact we have had in Brazil, Mexico, somehow, and U.S.
No, see, yeah, the three, largest impacts in terms of the, available for sale portfolio have been Poland, Brazil, and Chile, in the region of EUR 500 million each, from the beginning of the year. This explains basically the impact on capital. In terms of the hedging, well, we continue to hedge the capital ratio. FX movements do not affect the capital ratio, and we continue to hedge expected profits, or when we think that the market is running ahead of itself. Now we have some currencies already hedged, for next year. Again, this is tactically and it depends on our view of the market relative to what the market expects. Again, the most important is the hedging of capital, which we continue to do, so the ratio continues to be fully hedged.
Thanks, Adrian . Next question, please.
Thank you. The next one is coming from the line of Sofie Peterzens from JP Morgan. Please go ahead.
Hi, this is Sophie from JP Morgan. Just two follow-up questions. Just the first one, going back to Brazil net interest income. I get that you have the mix effect, but if I look at the loan growth in Brazilian terms, it was up only 2% quarter-over-quarter in the third quarter, but net interest income was up 5% quarter-over-quarter in Brazil. I was wondering, did you have any ALCO increase, ALCO performance in Brazil or something else that kind of helped the net interest income in Brazil or it was purely the mix effect? Then my second question would also be a follow-up question. I recognize that on the regulatory front, you are saying that next year the regulatory impacts will be less.
Could you just remind us how much all the minorities are worth? Fair point? Is there anything else that we should be aware of in terms of Core Equity Tier 1 impacts outside the regulatory impacts? Thank you.
Okay. Going to Brazil, the other issue on top of the mix and the different growth path between retail and corporate business is the ALCO portfolio, yeah. Naturally, as the ALCO portfolio now is much smaller and the NII is much smaller than it was, given that the size is smaller and the spread is smaller. Those are the two components, yeah, of this. Yeah, no more than that. On the regulatory front, I pass the question to José.
We have this year. Well, again, this is subject to regulatory approval, still. But the Amherst Pierpont impact will be around 9 basis points. The buyback of exclusive minorities will be 10 basis points. If we get the regulatory approvals before the year end, we will account for those this year. In terms of pure regulatory charges next year, the change in the accounting of minorities will be another 10 basis points next year, which is the only significant regulatory impact that we expect next year. On top of that, again, we will have new models, which could cost us a bit of capital. But again, when we look at the sum of regulatory plus models next year relative to 2021 will be significantly smaller.
Thanks, Sophie. Next question, please.
Thank you. The next one is coming from the line of Carlos Cobo Catena from Société Générale. Please go ahead.
Thank you for the presentation. Have a couple of questions. One is on Stellantis. You've already touched on the impact in Europe, but it's been reported that they are in the process of reassessing their partnerships in Europe. I was wondering if you could explain a little bit on that from where are you in the negotiations and if there's any. If you see any risk of losing some of those joint ventures or any of that, the part of relationship with them. Secondly, if you have considered a different approach to capital allocation in the group. And if not, why not?
Because, running with a tight capital ratio versus the market perception, it could be preventing the stock for really, rerating further, and perhaps unlocking some capital somewhere else in the group, even if you see some earnings could help you to, run with, more comfortable capital buffer that the market may reward. If you don't agree with that view, why is that? It'd be nice. I know it's an open question, but it'd be good to hear your thoughts. Thank you very much.
Okay. Taking the question. The first one, Stellantis, the partnerships in Europe. We are naturally talking to them and well, we are, I would say, fairly optimistic on continuing the existing relationship. It may be the case that we whether we continue to be the preferred partner for them, or I do expect we continue to be the preferred partner for them in the coming years. I do not expect any material change on this. If any, I think it should be positive. On the back of the performance of the joint ventures. It's not other things. When we started the joint venture, the joint ventures were making EUR 250 million net profit.
Now they are making more than EUR 500 million net profit on the back of this excellent, outstanding performance. We expect this to continue going forward. You mentioned capital. Well, our view is different. The board took the position our target on capital is 11%-12%. Well, you say more comfortable, uncomfortable with the capital. We are close to the upper end of the range, and absolutely comfortable with this for two reasons. When I look at the market, I look at the credit side, our CDS is the lowest in Europe. Among the largest bank. From the credit standpoint of view, no need. When you look at the stress test, our scoring the stress test is by far lower than the stress scenario.
That sustains our view why we should be in the 11%-12%, and we are already at the upper end of the range, and we plan to remain there. Yeah. We will be at the end of the year, and next year, we will be around this. That's the view. José, you want to add something?
Yeah. No, just a couple of comments. Among the largest banks in Europe, we are the bank with the lowest capital requirement of all. Our MDA CET1 buffer stands today at 340 basis points. Being capital a scarce resource and the most expensive one, I think José Antonio has said it all. Again, we are the bank with the lowest capital requirement among the largest in Europe.
Thanks for the question, Carlos. Next one.
Thank you. The next one is coming from the line of Daragh Quinn from KBW. Please go ahead.
Hi. Good morning. Thanks for taking my question. One just verification on the comment you made on the cost of risk into Q4. I think you mentioned a release of provisions and that would lower the provision charge, if I understood correctly, to 80 basis points for the full year compared to 90 basis points as of September. Just wanted to clarify that. Just maybe again, on capital, you know, you've indicated you're at the high end of your range. Not expecting too much change on that in Q4.
With lower regulatory headwinds in 2022, and given your guidance on profitability, I'm just wondering, maybe can you not be more specific on why the CET1 ratio wouldn't be moving above that range that you've given? Is it that those higher profits are being offset by higher RWA growth? Thanks.
Okay. Let's address the two questions. The first one is the cost of risk. I said, in the presentation that, we need to update our macro scenario. You know, the overlay that we made last year that remains in the balance sheet and an addition of EUR 2.5 billion has two components. One is coming from the macro scenario, the other one comes from collective assessment of the different portfolios.
When we update the macro scenario in the fourth quarter, I don't have the final number, but I guess that the majority of the provision related with the macro scenario in the region of, I don't know, EUR 700 million-EUR 1 billion maybe released in the fourth quarter, assuming that the scenario is what we have in mind right now, and this will lead to the cost of risk in the whole year in the region of 80 basis points that I mentioned before. The second question is on capital.
Well, when we look at the capital, we have a range that we and the board think that is the right range for the bank, for the perception we have about the risk that the bank is facing. Remember that looking forward, naturally, you mentioned risk-weighted assets and potential capital ratio going beyond 12%. This may happen, naturally, because the capital generation, given our expectations on Return on Tangible Equity, is gonna be significant. At the same time, we continue to see the bank as we expect to grow. I do expect in the emerging markets to keep deploying capital, growing the business, while I don't see any reason why we shouldn't grow in Latin America more than 10% a year.
In Europe, probably less so. On average, having a risk-weighted assets growth in the region of, I don't know, 6%, 7%, 5% higher than the one we have had in the last two or three years. Well, if we are right, our Return on Tangible Equity in the region of 13%-15% allow us to pay a combine and pay a healthy dividend, and at the same time to grow the risk-weighted assets significantly more than we did. If finally, we are not growing at that pace, naturally the ratio will grow beyond the 12%, and in that case, the board, it's up to the board to take the appropriate decisions in relation with capital.
To me, the capital we have, we still have some regulatory models things in 2022. Beyond 2022, Basel III for us is not an issue at all. We don't have impact of the output floor. If the ALM comes equal to one, operational risk is not gonna be an issue for us, and I would say we will have a clear sky to navigate with a risk-weighted asset growth in the region of medium- to high-single digits. Growing and rewarding, having a consistent dividend policy that our shareholders, particularly retail ones, like very much to get paid in cash, yeah?
Thanks for the question. Next one, please.
Next question.
Thank you. The next one is from Mario Ropero from Bestinver Securities. Please go ahead.
Hi. Good morning. My first question is related to NII in Spain. You mentioned that you expect NII stability going forward. What are the assumptions regarding TLTROs embedded in this stability for NII in Spain? Are you assuming that the current conditions will remain in place for the whole year 2022? A more general question on the return target. I know that you have a midterm time guideline for the target. Would it be possible to give some indication for next year, perhaps, on the ROATE target? Or maybe, if you can, give us some indication about whether you expect ROATE to continue improving versus 2021 year level. Thank you.
NII in Spain, the conditions we're assuming are the current ones, yeah? I'm not assuming any increasing rates in the cards, yeah? I'm assuming that we navigate more or less on average with the same level that this year. You know, the Euribor one year is the main, the one who has the largest impact, but not only, okay? In general, as you know, we don't have ALCO positions in Spain, so our position to higher rates is pretty strong, probably the strongest we have had in many years. That's what is on the back of my projections is 2022, and rates being similar to 2021. If those are lower, it affects my projection.
If those are higher, it will be a big positive for Return on Tangible Equity. I do expect the Return on Tangible Equity in 2022 being higher than in 2021. It's not our policy at this point to give guidance to you. While you can project easily, you see trends in our business and some indications that we gave you, particularly on provision in Spain, where the cost of risk is gonna be significantly lower. José already gave you an indication of where we expect to navigate on this. You can make your own numbers and you get easily into what may be the development of the group next year. For sure, I do expect higher Return on Tangible Equity in 2022 than in 2021.
Thanks, Mario. Next question.
Thank you. The next one is from Andrea Filtri from Mediobanca. Please go ahead.
Thank you for taking my questions. On, you've given some detail on the reversals you expect in overlay provisions. Can you tell us where you expect them? I may have missed if you have given indications on guidance on where the cost of risk outlook is going in the U.S. I don't know if you could share with us if you expect any impact from IFRS 17 implementation, on capital. Is the impact from the implementation of the addendum rules over with what you've taken this quarter? From the important securitization activity that you're having, should we expect a negative impact in the future on NII? Thank you.
Okay. The guidance cost of risk in Spain, where particularly in the SME space this year will be. Oh, sorry. I don't know if you could hear me. I don't know. The mic was off or on. Sorry. The guidance of cost of risk in Spain, we expect lower cost of risk in the SME space. I made these comments in the previous quarters, that we were taking a prudent view on the SME portfolio in Spain. As you've seen, we've been building significant amount of provisions this year in relation with all the events that have happened around the pandemic and all the lending related with SMEs.
We expect this to come materially down next year once we feel comfortable with what the evolution of the expected losses that we have already in our balance sheet for future events, expected events on the credit side. You mentioned also the U.S. cost of risk. The U.S. cost of risk this year was extraordinarily low. This next year is gonna go up. It's not gonna go up to the levels we've seen before, because still the environment is helpful. The situation of the motor industry with the used car price being at very high levels probably make us to be more optimistic than what is the average across the cycle for 2022.
It's gonna go up, no doubt, compared with this year. You mentioned securitization being negative. Securitization, we use this as a tool, traditionally, as a tool of funding. In the last two or three years, it's a combination of funding plus capital. The market is in a situation in which we are doing securitizations and releasing capital at incredibly low implicit cost of equity, as low as 2% or something like that, yeah. If the market remains in this situation, probably we're gonna be relatively or very active in securitizations, particularly on the consumer portfolios, where the market is eager to buy these kind of portfolios and implicit capital costs when your securitization is staying very low. It's not the same for all the assets.
José, you want to add something?
Yeah, no. In terms of IAS 17, that refers to leases, if I understand correctly, and we are not aware that there will be any changes to this. We will look into it and get back to you. No changes as far as we know, related to the leasing accounting.
Thank you.
We need to leave it here. Thanks, everyone, for joining. Obviously the IR team is at your disposal for any follow-up. Thank you.
Thank you, guys. Take care. Bye.
Thank you so much, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.