Good morning, everybody, welcome to Banco Santander's conference call to discuss our financial results for the first quarter of 2023. Just as a reminder, both the results report and presentation we will be following today are available to you on our website. I am joined here today by our CEO, Mr. Héctor Grisi, and our CFO, Mr. José García Cantera. Following their presentations, we will open the floor for any and all questions you may have in the Q&A session. As a reminder, if you would like to ask a question, please press star five on your phone. With this, I will hand over to Mr. Grisi. Héctor, the floor is yours.
Thank you, Begoña. Good morning to everyone. Thank you for joining us. Let me just share with you what we will focus on today. First, I will talk about our Q1 results within the context of the strategy we outlined our Investor Day. José will review our financial performance in greater detail. Finally, I will conclude with final remarks. Before we start, let me briefly remark that during the first quarter, the financial system has experienced situations which have confirmed that our strategy and unique business model are key factors that allow us to deliver solid and resilient results, even in times of market volatility, as we have demonstrated today through our first quarter performance. As we announced at Investor Day, we have entered a new phase of shareholder value creation.
We are focused on maximizing value creation, aiming for the first time ever to deliver double-digit growth in tangible net asset value per share plus dividend per share with solid capital generation and efficient capital allocation that will allow us to improve our profitability and provide more returns to our shareholders. We will achieve it thanks to, first, our unique combination of local leadership and our global scale and network that very few others can replicate. Our business model based on customer focus is scale and diversification, which provide us growth, cost, and profitability, competitive advantages, which is underpinned by an ambitious transformation plan that is already making Santander a digital bank with branches. Today, we deliver a solid Q1 with great progress in all our strategic objectives. TNAP plus EPS improved 5% in the quarter.
A strong capital generation increased our fully loaded CET1 ratio to 12.2%. Disciplined capital allocation improved the percentage of RWAs that create value and return on tangible equity reached an extraordinary 14.4%. In a difficult environment, we are growing customers and volumes. Deposits increased 6% year-over-year, which drove a double-digit revenue increase with good cost control. At the same time, we have maintained very solid liquidity ratios as a result of our conservative financial management strategy and a credit quality that remains stable, with cost of risk well below our target, in line with the medium low risk profile of our business. These trends resulted in a profit of EUR 2.6 billion, the highest in the last five quarters, while profitability improved. We also delivered strong capital generation.
All in all, we're on track to reach our 2022 targets. I will provide more details later. Moving on to the income statement. Firstly, as we usually do, we present growth rates both in EUR and cost in EUR. There was no material difference this quarter. Secondly, in January, we recorded a EUR 224 million charge related to extraordinary banking tax on revenue in Spain. EUR 202 million accounted in Spain and EUR 22 million in DCB. Excluding this impact, profit rose 10% compared to the same quarter last year, 8% in cost in EUR. We have positive and negative one-off impacts in Brazil which do not affect profit. To better explain the business trends, they have been netted in the underlying P&L. José will go in more detail on this, please.
Thirdly, the most notable movements in the quarter were strong top-line performance supported by NII and higher fees, supported by a global and network businesses. Costs have started the year in line with expectations, growing point below inflation. We demonstrated the sustainability of our results with double-digit growth in net operating income, which rose to EUR 8 billion. From a credit quality perspective, loan loss provisions continue to normalize. José will go into more detail on all these points later. This is a great start of the year. Good business dynamics that are translating into double-digit revenue growth. We think on increasing year-on-year across our regions and global businesses.
We are implementing our One Transformation project, which is helping us improve the efficiency ratio to within the range of 44%-45% that we established for 2023, and which makes us one of the most efficient global banks in the world. Our cost of risk remains contained in line with our target of keeping it below 1.2% at the end of the year. Our ROTE grew quarter on quarter to 14%, 14.4%, 15.3% if we do not annualize extraordinary banking tax in line to reach our year-end target. We generated capital equivalent to 17 basis points after having completed the second share buybacks program to reach a fully loaded CET1 ratio of 12.2%.
In summary, very positive trends, which we expect to consolidate in the coming quarters as we progress towards the 2022 financial targets that we provided during our 2022 annual resource presentation. As we announced at our Investor Day in February, we are building a digital bank with branches that makes our customers' lives easier, with processes and products that are simpler and more attractive to them. This, together with our global network, are helping us to improve the levels of our activity, revenues, and cost. This approach, combined with a disciplined capital allocation, are the cornerstone of our value creation model. Now, I will dedicate some time to explain how are we progressing. Our customer focus is driving volume and revenue growth across the group.
We are progressing well in the initiatives that will help us to improve the way we serve our customers. Let me explain some of the most relevant ones. We're also taking advantage of our network effect to better serve our multinational corporates and SMEs through our regional coverage model that is growing at very high rates. Multi-Latinas and Multi-Europeans are increasing revenue 53% and 72% year-on-year, respectively. We're also moving fast in the construction of our branch of the future to offer a best-in-class omni-channel experience across all the group. A good example of this is significant advances made in the digital onboarding processes in Mexico. We have a program that aims to better serve our customers through the use of data which targets 80% of our customer base.
It would help us to personalize our product offering, improve interaction with our customers, and provide them with the best user experience. We have developed a common mobile app across Europe as a tactical solution while we implement the common front across all the group, which is already live in Spain, Portugal, and Poland, and will be also released in the UK in the end of 2023. Customer reception has been strongest demonstrated in Portugal, where we have improved from number five to number two by customer satisfaction. That is NPS through the mobile channel since the app was released. Our efforts to become a fully customer-centric bank are allowing us to grow the number of customers, loans, deposits, and transactions per active customer at a very significant pace, as shown on the right side of the slide. Customer focus is not enough.
Simplification and automation are also needed. We are making a good progress in simplifying our product offering and fully automating our front and back-end operations. This is reflected in our leading position in efficiency and significant growth of 10% in net operating income per customer year-on-year. As we have discussed, One Transformation is improving our local bank operations. We are bringing our 160 million customers onto a common operating and business model while converging into a common technology. We are simplifying our product offering to improve our customer experience and reduce the cost. We also have already simplified our product catalog by 42% since we started the project two years ago. We are reducing also administrative and operational tasks in branches.
We aim to optimize around 80%-90% of the overall customer-related processes. We are progressing well. Spain, for example, has already optimized 40% of the processes in the scope for 2023, and is expected to provide significant improvements. We are leveraging our global technology capabilities to accelerate digital transformation in Europe to make our processes fully digital end to end. Finally, we are migrating our core banking system to the cloud, a project which we call Gravity, making it more efficient, modern, and scalable. This should result in the annual efficiencies of around EUR 150 million upon full implementation, with a 67% return on investment and a payback of three years. Overall progress at the group is at 30%.
Once we have completed Gravity in Santander U.K. for a corporates platform, migrations in CIB and Chile are expected to be concluded before the end of 2023. These are just a few examples of our ambitious transformation program that will bring Santander's operations to the next level. Moving to our global and network businesses, the revenue is growing above the average and already represents 39% of the group's total revenue. Several actions and initiatives to drive revenue growth are already in full swing. CIB is still growing strongly after record highs in 2022. We are strengthening the centers of expertise with value-added products and services, developing global and regional platforms, focusing on our areas of strength, such as energy, transition infrastructure or projects, trade finance, among others.
In the U.S., we are reinforcing CIB coverage teams, strengthening product capabilities, and fully leveraging the integration of APS to expand our ability to distribute risk assets. Wealth management and insurance revenue were 42% year-on-year. We are working to maintain the positive trends by scaling up alternative and institutional products and promoting collaboration between wealth management and CIB, offering private banking and asset management products and services to our CIB clients and vice versa. In PagoNxt, which is also growing strongly, we have progressed with the migration of Santander payments in Spain to our payments hub platform, and already manages a significant part of the payments in Europe. Merchant acquiring expanded its innovative value-added services, which is reflected in 27% year-on-year growth in total payment volumes.
Auto revenue felt affected by new lending and the performance of our leasing business in SCUSA, as well as the negative sensitivity to interest rates. We have recently announced an agreement with Stellantis in Europe to become its key financing partner. We expect to increase the outstanding portfolio by 30% to EUR 40 billion by 2026. At the same time, we continue to leverage relationships with OEMs, importers, and mobility providers to grow our businesses in North and South America. We further strengthen our balance sheet and capital position. Our overall risk profile remains medium-low and is proving to be predictable based on our diversification. Cost of risk stood at 1.05%. Provisions continued to normalize year-on-year as suspected. LLPs performed well in the quarter as provision dropped 3%, mainly driven by South America and North America.
At the same time, we delivered strong capital generation. Our CET1 ratio reached 12.2% after having absorbed the full impacts from the second share buyback program and extraordinary banking tax in Spain. José will provide more details in a moment. We will continue to leverage our transformation plan to deliver increased profitability and shareholder value creation. On profitability, as I mentioned earlier, our ROTE closed at 14.4%, up 100 basis points in the quarter. If we do not analyze extraordinary banking tax in Spain, ROTE would have been around 15.3%. Earnings per share grew to EUR 0.15, 11% higher than the 2022 quarterly average, supported by strong profit growth and lower number of shares following the buyback programs.
Additionally, in the quarter, we delivered 5% growth in shareholder value creation as a result of our disciplined capital allocation and share buybacks. At current share prices, buybacks continue to be one of the most effective ways to generate value for our shareholders. We completed last Friday the second 2022 share buyback program, having repurchased around 7% of our outstanding shares in the last two years, which provides a return on investments of approximately 21% to our shareholders. These results demonstrate that Santander has a strong model and risk management capabilities that work very well, even in the toughest environments. José will go now into more detail on the group's performance in 2023. Please, José.
Thank you, Héctor, and good morning, everyone. Following our CEO's presentation, I will go into more detail on the group's P&L, risk profile, and capital performance. Starting with the income statement, I will explain the account line by line in the following slides, but let me make a few initial comments. As it has been mentioned, we had some one-off results in the quarter related to the reversal of tax liabilities in Brazil for EUR 261 million, EUR 211 million in NII, and EUR 50 million in tax recovery. Two provisions made to strengthen the balance sheet totaling EUR 474 million, which net of taxes is EUR 261 million.
These movements had no impact on profit, and we have decided to net them in the lines of the underlying P&L and ratios to facilitate comparisons with previous quarters and to better understand the underlying business dynamics to frame them against the year-end guidelines we gave at the Investor Day. Additionally, the P&L includes the extraordinary banking tax in Spain, which did have an impact on attributable profit. On the right-hand side, you can see the upward trend in profit quarter-on-quarter, 23% if we exclude the banking tax, which was driven by top-line growth. Going into detail on the main lines and starting with the quarterly trends in cost in EUR, we maintain our strong revenue improvement.
In the first quarter, revenue was 3% higher than in the fourth quarter of 2022, EUR 1.5 billion higher than in the first quarter of 2022, boosted particularly by NII, which increased EUR 1.2 billion, but also by fees, almost EUR 300 million more. We have a balance sheet with very positive sensitivity to interest rates, mainly in Europe, which coupled with healthy volume growth and an active margin management led to a strong NII improvement in the last few quarters. In the first quarter 2023 was a solid quarter despite lower day count and seasonal factors in the Americas. We had good fee income growth supported by value-added products and the network effect. Trading gains, a small portion of our total revenue, growth driven by customer-based CIB transactions.
Here is important to take into account that 97% of our CIB revenue is customer-driven. Finally, other income increased as the fourth quarter was affected by the Deposit Guarantee Fund contribution. Group NII rose 14% year-on-year, supported by volumes, interest rate increases, and margin management, as I just said. In terms of volumes, loans were up year-on-year with double-digit growth in DCB and South America. North America rose 6%, and Europe was stable with falls in Spain and Portugal, mainly driven by prepayments of mortgages to individuals. Overall, loans grew 3% backed by consumer and mortgages. Likewise, deposits increased 6% with Europe growing 4% and South America, North America, and DCB growing around 10%. I will go into more detail on our loan and deposit structure later.
Interest rate hikes mainly benefited Europe, Mexico, and the corporate center, the latter driven by higher liquidity buffer remuneration. On the other hand, Brazil was impacted by a change in mix towards lower risk products, and Chile and DCB were affected by their negative sensitivity to interest rates. Group net interest margin improved from 2.45%-2.63% as we continued to actively manage our margins. We are very disciplined managing the cost of deposits and the repricing of loans. After the market movements at the beginning of the year, our deposit datas are on track with the numbers provided at Investor Day. We expect this positive NII performance to continue in 2023. Turning to net fee income, it rose 7% year-over-year, reaching more than EUR 3 billion, which is explained by more customers and more transactionality with them in retail banking.
S-CIB, which stood out with a 16% growth in all regions, but especially in Europe. Very positive trends .in PagoNxt and cards. In wealth management and insurance, we had a good performance in private banking and insurance, and volumes in asset management recovered in the first quarter with a net new money of EUR 1.7 billion. Finally, in auto, volumes growth across the board continue. However, fee income in Europe was affected by the new insurance regulation in Germany. The evolution of fees reflects the improvements we make to our model to be more capital light. Moving on to costs. The first thing to highlight is that despite inflationary pressures, costs continued to increase below the rate of inflation.
This was the case mainly in Europe, where costs in Spain, the U.K., and Portugal fell around 3%-4% in real terms, as salaries in Poland and Latin America tend to be more directly linked to changes in inflation. Our efficiency ratio is one of the best in the sector at 44.1%, having improved both year-on-year and quarter-on-quarter. Outstanding performance in Europe, improvin its efficiency ratio by six percentage points year-on-year. We will continue to deliver on our cost and efficiency targets and as we expect to further reduce our cost per customer, and as a result, continue to improve the net operating income per customer, as Héctor just explained. Credit quality remains robust, and the cost of risk is well under control.
Loan loss provisions grew year-over-year, driving the cost of risk to converge towards the through-the-cycle average as expected. The main changes by countries were the following. Improvement in the cost of risk in Spain and Mexico, credit normalization in the U.S. from the very low levels we saw in 2021 and in 2022. The behavior in the first quarter was much better than we thought. Poland increased its loan loss provisions impacted by higher Swiss franc mortgage provisions. Finally, in Brazil, we had higher loan loss provisions year-over-year on the back of individual consumer lending, as well as overall portfolio growth. On a quarterly basis, loan loss provisions fell. The three-month cost of risk in the quarter was 4.4%. This performance was supported by the high quality of our portfolio.
The non-performing loan ratio continued to improve, falling to 3.05% from 3.26% in March 2022. The main improvements came in Spain and DCB, in part due to portfolio sales in the period and as well as Mexico. The portfolio distribution by stages remained stable. On the right-hand side, there is a brief overview of our loan portfolio structure. Around 80% of loans are mostly concentrated in mature markets. If we look at the segments, our mortgages have low average loan to values. The consumer lending portfolio is well collateralized, short-term, and has high returns. The SME and corporate portfolio is well covered, as well as over 50% has guarantees. Finally, a high weight of our corporate investment banking portfolio is investment grade.
Finally, let me comment briefly on our exposure to commercial real estate, which is controlled and diversified across countries. Our exposure to CRE is 6% of total Group's drawn and committed exposure. This is concentrated in the U.S., the U.K., and Spain, accounting for 75% of the total. Over half corresponds to social housing in the U.K. and multifamily in the U.S. The NPL ratio is 1.6% below the Group's total NPL ratio. In the U.S., we have a total of $21 billion of total drawn and committed exposure, with an average loan-to-value of between 50%-60%. Office 3 is just $2 billion, and it has an occupancy rate of 92% compared with around 80% for the sector as a whole.
Let me also go into more detail in Brazil and the U.S., two countries that have raised some questions in the past quarters. In Brazil, the Brazilian economy has been performing well in recent years, and interest rate hikes were implemented promptly and decisively to contain inflation growth in early stages. This environment accelerated the credit cycle and increased cost of risk in 2022. From now on, we expect interest rates to remain stable and probably start to come down after the summer. Additionally, during the last few years, we have been working on improving our portfolio mix in order to structurally reduce our cost of risk. We have enhanced our customer profile. The weight of new vintages with the best ratings has increased. We have been more selective in new business to increase our exposure to lower risk, secure portfolios like mortgages, agro or payroll.
All in all, given our risk management, the enhanced portfolio mix, and new lending profile, we expect to remain on target. Excluding one-offs in 2023, cost of risk should remain stable compared to 2022. Regarding the U.S., despite the bumpy start of the year in the country, the messages we gave at Investor Day have not changed. We expect normalization of the cost of risk to continue throughout 2023, but remain below pre-pandemic levels. We have actually had a better start of the year than initially anticipated in terms of credit quality, which was supported by stable used car prices and better late-stage delinquency payments. Our focus in auto at the moment is on quality and profitability over volumes. We were able to further increase the share of auto loans funded by deposits.
We have demonstrated that our conservative structural risk management and solid liquidity places us in a very strong position to face very challenging scenarios. At the end of the quarter, our liquidity buffer comprising high-quality liquid assets exceeded EUR 300 billion, 97% of which were level one assets. Two-thirds of this liquidity buffer is in cash, which is equivalent to 20% of our deposit base. Our liquidity is strong and stable, with ratios well above regulatory requirements. The group LCR remained in line with year-end at 152%, and the NSFR around 120%. The ALCO portfolio represents 6% of total assets, which is below industry average.
The duration of the available-for-sale portfolio is very low. The current mark to market of the whole held-to-collect portfolio would have an impact equivalent to only 2% of our fully loaded CET1 capital. This demonstrates that impact from the change of the value of our bond portfolio on capital would be very limited, even in a very adverse scenario. Customer deposits are our primary source of funding and are mainly based on sticky retail deposits in our core markets. This diversified and stable funding structure supported year-on-year growth as deposits rose with positive performances across almost all countries and segments. The quarter-on-quarter decline in deposit balances is explained by the seasonal drop in CIB clients' deposits, while retail remained stable in the quarter. Some customers using savings to prepay mortgages given the rising interest rates in Europe.
We have seen some flows from current accounts to time deposits and mutual funds. We have not seen any unusual deposit movements in recent weeks following the troubles of banks in the U.S. and Europe. In fact, we actually saw net inflows in the group in deposits in February and March of over EUR 2 billion. Regarding capital, we ended the quarter at 12.2%. Let me give you some color about the variations in the quarter. 24 basis points of organic growth, which was basically driven by the strong profit generation in the quarter, partially offset by Risk-Weighted Asset growth. This includes a negative 4 basis point impact due to the extraordinary banking tax in Spain.
25 basis points drop from shareholder remuneration, which includes the total impact of the 2022 share buyback program, 15 basis points, and the accrual of the cash dividend, 10 basis points for the first quarter, taking into account a 50% payout. 11 basis points were related to the update of the regulatory framework, mainly following the EBA's clarification of its interpretation of CET1 minority interest calculation. Finally, a positive seven basis points from markets, basically available-for-sale. We have increased our fully loaded capital ratio while delivering on our capital productivity targets, as you can see on the right-hand side of the slide. Improved front book ROWA to 2.8%, continued asset rotation, and increased the percentage of risk-weighted assets which deliver returns above the cost of equity.
All in all, a disciplined capital allocation, which combined with our model, gives us confidence in the sustainability of our commitment to remuneration to our shareholders. I will hand it back to our CEO for the conclusions. Thank you.
Thank you, Jose. To conclude the presentation and open the Q&A, I will briefly outline some final remarks that are our vision for the coming quarters.
Growth in customer volumes, robust revenue performance, double-digit NII growth driven by positive sensitivity to rising rates in most countries, and customer margin management. Fee income grew at high single-digits, driven by our CIB payments and payment businesses. We expect this trend to continue in the coming quarters, mainly in Europe and Mexico. We are implementing our One Transformation Plan. Our aim is to serve our customers more efficiently and foster process automation and simplification, supporting our efficiency improvements. We will accelerate One Transformation further in the coming quarters. We have already identified business opportunities across the group, which will enable us to maintain strong global and local businesses revenue. Finally, we have a solid balance sheet in terms of liquidity, solvency, and risk profile.
We will remain focused on maintaining a medium, low risk profile and on capital efficiency and asset rotation to ensure a solid capital ratio. As we embark on our new strategy phase, all these plans should increase revenue and improve efficiency and profitability of our banks, with the overall aim of supporting shareholder value creation and sustainability and profitability. As previously explained, our outstanding results in the first quarter puts us in an excellent position to meet our 22 financial targets. However, we may meet them in a slightly different way than initially anticipated, depending on the evolution of the macro environment. We are convinced that we are going to achieve our 15% ROTE target, but probably through a higher contribution from Europe and Mexico and a potential lower contribution from the US. Finally, we're also optimistic regarding our medium-term targets that we announced at Investor Day.
As I told our shareholders at the annual general meeting, these targets are specific, ambitious, and achievable. We have the vision of where we want to go and the right strategy to get there, and we have the best team in place to put it in motion. I am convinced that we will progress quarter by quarter to achieve our targets. Thank you very much.
Thank you, José and Héctor. We can start the Q&A session now.
If you wish to ask the question, please press star five on your telephone. We already have the first question from Ignacio Ulargui from BNP Paribas. Please go ahead.
Hi. Good morning, everyone, and thanks for taking my questions. I just have two questions. The first one is on the outlook at group level for NII and fees. If I just look to 1Q, you have met the guidance provided by the bank in Investor Day and for 2023 of double-digit revenue growth. As the year goes by, I think that target gets challenged a bit. I wanted just to get a bit of your thoughts on where should we, particularly on NII, where should see the acceleration coming, and based on the comments that you made at the end, Héctor, a bit of what would be the outlook for the US NII after the performance of the first quarter. The second one is on cost of risk.
Have you seen a decline in NPLs in Brazil? Just wanted to get a bit of your thoughts about how should we expect cost of risk evolving from here in Brazil and whether we have seen a peak in NPL or it's just a seasonal effect? Thank you.
Okay. Hello, Ignacio. Thank you very much for your question. Okay, first of all, as I basically discussed, it's quite important to understand that we will achieve what the numbers that we set at Investor Day and also our guidance, given that with the combination that the group is giving you, okay? As I basically said, we're gonna be a little lower in Brazil and the US, and we will be much better in Europe and in Mexico, okay? It's quite important to understand exactly the combination and the work we manage in the group to get to the levels that we want, okay? Europe is the one that is gonna give us the strongest performance for the full 2023, okay? Mexico should be up what we call low double digit, okay?
We expect also, as I said, weaker performance in Latam with exception of Mexico, the U.S. and DCB. The U.S. is down mid-single digits. DCB will be low single digits decline, and Brazil is basically mid-single digits growth backended, and we expect improvements towards the end of the year, okay? On the cost of risk, I will have José basically give you some ideas. Yeah. If I may complement the NII. In Europe, we have not seen the full repricing of our portfolio, obviously, because as you know, mortgages reprice every 12 months. We still have a long way to go in the repricing of mortgages in Spain. Again, they are 12-month Euribor based, and in Portugal, it's six-month Euribor based.
We still have, again, a way to go to reflect the full impact of the repricing or the rebasing of our portfolio in Europe. In terms of cost of risk in Brazil, as I, as I, said during my presentation, we expect cost of risk to remain fairly flat in 2023 relative to 2022, excluding the one-offs.
The cost of risk in the first quarter was 4.4%. The BRL 474 million provision that we took in Brazil in the first quarter to strengthen the balance sheet was used more or less one-fourth for one-off cases, for specific cases, and the rest, it was just to strengthen our balance sheet. In that sense, the 4.4% of the quarter is clean. It excludes one-off cases, and it reflects the true asset quality evolution of the quarter. For the rest of the year, as you know, the interest rates are expected to remain high, we expect a better performance of our individuals portfolios because these are very short-term, and obviously they, most of them have matured already and we have been adding high-quality new vintages.
We might expect some more challenging evolution in the corporate sector. Again, all in all, excluding one-offs, more or less flat year-over-year. Thank you, José and Héctor. Can we have the next question, please?
Next question from Francisco Riquel from Alantra. Please go ahead.
Yes, hello. So wanted to ask about the following the recent turmoil in the sector, I wonder if you as a management have changed anything within the group in terms of liquidity and interest rate risk and/or if you expect any regulatory changes in this front in general. More specifically, I wonder if you can elaborate a bit more default in deposits during the quarter. You mentioned seasonality in CIB, so you expect to recover those deposits in the coming quarter. Also, you can update your guidance in terms of deposit betas by the end of 2023. You were previously guiding for 25%-30% in Spain or 45% in the UK, 50%, over 50% in the US.
Just lastly, last question in terms of the ALCO portfolio in Spain, if you have changed your plans. You were aiming for EUR 16 billion on average in 2023 in terms of size. You are already above, as seen in the slide, so you can also update on this. Thank you.
Thank you, Francisco. I mean, first of all, let me tell you, I mean, given the turmoil and everything, I mean, the group is actually responding quite well. We have seen all the levels in deposits basically maintain themselves. Individuals probably is the most important part, in which, 85, 80%-85% of our deposits are basically individuals, families, et cetera, which are basically very solid and very stable. In that regard also, I mean, I mean, with all these times you always be prudent about how you manage things, but I can tell you that all units are performing really well in that sense. In terms of the deposits, it's always cyclical. Yeah, the decrease in deposits was mainly in CIB, as we described.
It was actually not very meaningful to the total size of the portfolio. We expect basically to get them back and is the normal flow of the business, okay? In terms of the betas, I will have José give you a little bit of detail on that. Paco, in the first quarter, we had a drop of around EUR 21 billion in CIB deposits in Europe, but that was seasonal. If you look at the fourth quarter, we had quite a strong increase as... Again, this happens every quarter. This quarter was a bit more, a bit higher than in previous quarters because we also grew a lot in deposits with our customers in Europe in the fourth quarter, so associated basically with year-end balance sheet performance.
This is not recurring, this is seasonal, but again, it doesn't really affect the structure of our deposits. We always try to take advantage of the opportunities. We had an opportunity in the fourth quarter, took advantage of that. It's normalizing a bit in the first quarter of the year, but I would expect the seasonal behavior to happen every year. Betas, where are we? Let me tell you where we are. In Spain, we have in retail banking, beta today is 6%. Average yield is 22 basis points. In CIB, in Spain, European branches and global CIB, betas are between 80%-100%.
In Spain, if you look at the whole of the Spanish balance sheet, the cost is 80 basis points with a beta of 25%. We guided for the year to between 25%-30%. We are still this will hold, because again, most of the CIB business has already repriced, we expect a slow increase in the repricing of retail banking, still within the 25%-30% for the year. U.S. beta is 35% at a cost of 167. Betas were a bit higher in the first quarter, not significantly higher, very much in line with the average of the system. In the U.K., beta is 25%. In the first quarter, betas were 30-35%. We guided to around 50% for the year.
We look, if we look at our interest rate sensitivity relative to the figures we gave at Investor Day, very much in line, in line with Europe and the U.S..., and probably a better outlook in the U.K. Finally, ALCO. Yes, we expected more or less 16%, sorry, EUR 16 billion average in Spain. We are already there. We might be above, a little bit above that, but it basically depends on the opportunities we see to gradually increase the size of the portfolio. Remember that we are very far from a neutral ALCO portfolio. We have a negative balance sheet, which is what we want to have. We gradually want to close that negative sensitivity.
Actually buying an ALCO portfolio or rebuilding an ALCO portfolio in Spain is not just a matter of 2023, it's probably also a matter of 2024 and even 2025. Again, we will react to what we see are the market opportunities.
Thank you, Héctor and José. Thank you, Paco, for your questions. Can we have the next question, please?
Next question from Carlos Peixoto from CaixaBank. Please go ahead.
Yes. Hi, good morning. Thank you very much for taking my call. The question, sorry. First question would actually be on NII, and I'm sorry if it's a bit of a recap on previous ones, but I was just wondering if you could give us again the outlook for NII in both Brazil and in the U.S.. I was also wondering if you could confirm, just to make sure that I understood correctly, you have that there is a EUR 210 million one-off positive effect in Brazil NII in that quarter. Second question would be actually on fees and basically the discussion that we have is at European level regarding the inducement fees, namely potential rebates.
I was wondering if you have, if you could give us some visibility around the potential amount of fees that could be impacted if there were to be an inducement ban being introduced at European level. Thank you very much.
Hi, Carlos. Begoña here. Sorry to do this to you need to repeat all of your questions. The line was terrible. We couldn't understand a word here. Can you start again, maybe slightly slower and see if it goes better?
Trying again, hopefully you'll hear me better. As I was saying on NII, the question was really on the outlook for the U.S. and Brazil, if you could recap it. Also I was asking to confirm whether there was a EUR 210 million positive one-off in the Brazilian NII, just to make sure that I got that number right. The second question was on potential inducement bans in Europe. What type of impacts would such ban have in fee income for Santander?
Okay. You know, I mean, to give you exactly how do we see the NII, okay, is exactly the guidance we give is 211%. Okay? Sorry about that. Brazil is mid-single digit growth, okay? We're talking 8.9%. The U.S is 6.1%, is down mid-single digits, okay? That's exactly the number. Okay. Thank you, Carlos.
Thank you, Carlos, for your questions. Can we have the next question, please?
Next question from Sofie Peterzens for J.P. Morgan. Please go ahead.
Yeah. Hi. Here is Sofie from J.P. Morgan. Thanks for taking my question. I know there has been a lot of questions already on net interest income, but could you kind of give a little bit more details around when you expect net interest income to peak in your core European markets? NII was slightly down in the U.K.. Do you think we have seen peak NII and net interest income will kind of on a quarterly basis not improve further? When do you expect net interest income on a quarterly basis to peak in Spain, and when do you expect it to peak in Portugal? My second question would be around the cost of deposits in Mexico. They increased almost 1% quarter and quarter.
Could you just detail what drove this increase in cost of deposits in Mexico? My final question would be on core equity tier one. You saw 11 basis points of regulatory capital tailwinds in the first quarter. How should we think about any further tailwinds or headwinds on the capital side to come, and could you kind of give details on the magnitude of any potential headwinds or tailwinds to come? Thank you.
Thank you, Sophie. Okay, really quick. I mean, as José was explaining you, in terms of NII, what we see in Europe, we're still not where we believe we're gonna be. I mean, the mostly the majority of the portfolio will reprice in probably April and May, okay? The portfolio is still repricing, and we're gonna see those impacts mainly in Spain exactly at that time, probably to the mid through the cycle of the year and towards the end. It's also is gonna depend on what's happening with the deposit impact and how the market is basically gonna react towards that. In that sense, we see that. In the U.K., we're basically seeing things stable, okay. We basically see that we're still basically building up the way the portfolio is being going.
Portugal, we expect also to continue better towards the end of the year, okay. Also, the terms of what you was talking about growth in deposits in Mexico, you're right, is still lagging behind, okay. The growth in customers in Mexico is starting to peak. What is important to do in Mexico was actually to change the onboarding that we had with clients, okay. That was part of the things that we'd we needed in order to compete head to head against our competitors. In that regard, you're gonna see an increase on the deposit base in Mexico in the following quarters, given also the new payrolls that we have contracted that are coming into the portfolio.
You're gonna see a very good increase in time deposits, as basically the market has turned very competitive, and we are also being focused on profitability. What we've been doing in Mexico is mainly maintain our deposit base of individuals while the costly deposits from corporates, we're basically leaving them aside also to have much better margins, okay? In terms of capital, José, would like to comment?
Yes. Yes, Sophie, as you said, we had the Q&A from the EBA was a positive 13 basis points. We had two basis points negative from other updates, model updates, and regulatory updates, basically in corporate investment banking. We would expect, I don't know, just a few basis points per quarter of negative headwinds from regulatory and models for the rest of the year. Very, very small charges per quarter. In terms of organic capital generation, if you do simple math, in the first quarter, the share buyback corresponds to two quarters, and we had the full impact of the Spanish tax, which was fou basis points. The first quarter only corresponded one.
If you do a, let's say, clean organic capital generation, we generated 10 basis points, 10-12 basis points in the quarter, which is what we have always said. We, you know, organically generate, 10-15 basis points per quarter, that's what we expect for the rest of the year.
Thank you. Thank you, Sophie, for your questions. Can we have the next question, please?
Next question from Ignacio Cerezo from UBS. Please go ahead.
Hi, good morning. Thank you for taking my question. I've got one in the U.S. and one in Spain. The one in the U.S. is if you can elaborate a little bit on the cost of risk drivers in the future, breaking it down between probability of default, loss given default. What kind of measures are you taking to alleviate basically the increased installments on the auto business, in particular for clients, that gives you comfort basically that, again, provisions are not going to go above the COVID levels?
The one in Spain is you can give us a little bit of color in terms of the breakdown of your deposit base between retail, corporate, and large corporate, and what kind of behavior are you basically seeing in each of those segments from a customer point of view, how pushy, especially the retail side actually are being these days in terms of chasing additional remuneration? Thank you.
Thank you, Ignacio. Let me explain to you exactly what's going on in the U.S., okay? In terms of cost of risk, we expect the cost of risk actually to be better than we expected at the beginning. What we saw a little bit, some of the vintages on 22 started to being a little bit more complicated than we expected. It's quite interesting to see that normally, when you see customers in those vintages starting to get delinquent for more than 90 days, usually we repossess between 90 and 95% of the autos, okay? What's been happening, and it was been quite surprising, is that Whenever we see the clients going delinquent beyond 90 days, we see that they basically are calling us, restructuring, and start paying us back.
We have seen a decrease of repos from around 90%-95% to around 59%-60%, okay? That's basically 30 points. That's why you see the cost of risk is getting much better in the U.S., okay? To your question basically of going back to pre-COVID levels, what's going on there is that we have changed the mix of the portfolio. Pre-COVID, we have a lot more in subprime and deep subprime. Today, we have a much larger part in the portfolio of prime and near prime in the business. That's why the portfolio is never gonna go back to the level Silcat. Also, in 2019 we have Bluestem, okay? If you remember, we actually eliminated that JV back in 2021. That was basically very complicated in terms of cost of risk.
That's another part of that. The portfolio is actually much better because of that, okay? In that sense, we believe that the cost of risk in the U.S., even though is normalizing because it's going back to pre-COVID levels, it's not gonna be as bad as it used to be, but it's much better than we expected at the beginning, okay? To conclude. In terms of the breakdown in deposits, I don't know, José, if you would like to-
Yeah.
Give them to Ignacio, please.
In Spain, in Spain, the Spanish business, we have EUR 246 billion in deposits. Individuals and SMEs is EUR 229 billion. Corporate clients, EUR 18 billion. When we look at the public perimeter, that it includes the branches and CIB. In the branches, we have EUR 15 billion, and in global corporate investment banking, EUR 38 billion. For the total is what you see in the accounts of EUR 301 billion. Thank you. Nacho.
Thank you. Thank you, Nacho, for your questions. Can we have the next question, please?
Next question from Carlos Gonçalves from Société Générale. Please go ahead.
Hi. Thank you for the presentation. Just a couple of questions, because most of the doubts have been clear. On the U.K., we've seen how cost of deposits also starting to accelerate. If you could elaborate a little bit on the structural hedge and when do you foresee the peak in net interest income? Because you've said this year is gonna be more of a flattish NII, if I understood correctly. Does it mean that we still have to see the benefits of the structural hedge going forward in 2024 and 2025, or how do you expect NII to combine competitive dynamics and the structural hedge upside?
The second one, if you could just explain a little bit better what was this change in the EBA criteria to have that positive impact on capital? Just to understand the rationale. Thank you very much.
Okay. I'll take the two of them. Let me answer the second one first, which is easy. What basically the EBA has ruled that minority interest in local currency does not need to be adjusted with the exchange rate. Obviously if capital is eventually used, let's say Brazil, if capital is eventually used in Brazil, it will be used in reais, not in euros. Before this, the interpretation was that the capital needed to be adjusted through the exchange rate. Now obviously because the capital will be used in local currency, doesn't need to be adjusted. That's a net between positives in some countries like Brazil and slightly negatives in some countries like Mexico, where the currency has appreciated, net-net 13 basis points. U.K..
In the U.K, yeah, we still have around GBP 100 billion structural position, which will help NII going forward. We would expect mortgages to go down this year more or less, around 5%. Volume's a bit down in the year, but very positive NII sensitivity to rates, and we still think rates might go up a little bit. We would expect NII to go up mid single digits. It probably a bit more than mid single digits. That's the expectation for this year in the UK. Thank you, Carlos.
Thank you, Carlos, for your questions. Can we have the next question, please?
Next question from Marta Sanchez Romero from Citi. Please go ahead.
Good morning. Thank you very much. My first question is about the NII from your euro balance sheet. The problem we have is that transfer prices across the different constituents of that balance sheet make it very difficult to track your NII performance and compare it with your peers. You guided at the capital markets day that you would make EUR 1.7 billion of extra NII in the euro balance sheet this year through the curve at the time. Could you please update that number today and how it breaks down between Spain, the corporate center, the digital bank, other Europe, and Portugal? The second question is on the U.S. deposits.
Expanding your deposit base was one of the pillars of your plan to improve profitability there. That is now becoming more and more expensive. Where do you see the cost of deposits in the U.S. by year-end? What are you doing to differentiate yourselves and being able to raise deposits without having to pay too much more than your competition? Just a quick one, if you could update us on the UK on what you see for mortgage margins, please. Thank you.
Sorry. I'll take the first one. Marta, I will get back to you with a breakdown. Basically, it's all a euro balance sheet. It's not that difficult to do the sensitivity, but I will get back to you. The sensitivity remains the same. Remember we said EUR 1.7 billion using the forward rates, forward curve rates, as of December. In the first quarter, the curves have remained. After having moved up and down, they are basically where they were at the end of December.
We would still expect for the next 12 months, a sensitivity similar to the one that we have experienced in the first quarter, and in line with that guidance, we gave, because as Héctor explained, we would see the repricing of our mortgage books in Spain and in Portugal to gradually gain speed throughout the year.
Thank you, José. Okay. Let me tell you, Marta, about the U.S. deposits, okay? The U.S., basically, accumulated beta has reached around 35%, and the cost is around 1.67%, okay? The higher interest rates reflected on the saving accounts have been showing improvements on the time deposits. What I can tell you is the majority of our deposits in the U.S. basically is individuals, okay? That's the bulk of them, okay? They have proven themselves very stable. We have really not lose any deposits at all in the individual side. We have seen a little bit of movement in the mid-corporates, okay? Which we are basically diversifying deposits, but nothing material in that sense, okay? What is important to tell you is that we don't foresee really high increases on that.
I mean, there is a lot of competition in the market, but our deposit base has been even with this situation, maintained itself very stable. We don't foresee that we're gonna have a huge increase, even with the competition from some other players that we have seen in the market, okay? We are not changing our assumptions at this time in the way we see the deposits in the U.S., okay?
The final question is UK mortgage margins. Yeah, the margins for that specific business are under pressure. We would expect slightly weaker margins in the mortgage business going forward. We are right now we have a market share of 11.3% when we look at stock mortgages in the UK. But when you look at the first quarter, we have originated on average around 6% or 7% of the market, because we are focusing on only on high-quality mortgages that obviously have slightly lower margins. But again, the combination of all our structural position, volume growth, and margin management in the UK should lead to mid to high single digits in NII in 2023.
Thank you. Thank you, Marta, for your questions. Can we have the next question, please?
Next question from Andrea Filtri from Mediobanca. Please go ahead.
Yes, thank you for taking my questions. I have one question and two quick clarifications. The first is, essentially, if we take your Q1 numbers and the clean underlying number you provided, and we just very basically add up to the end of the year, we would reach EUR 11 billion profits in 2023, when consensus is well below that. Where do you see consensus being too conservative on your on the estimates for 2023? The 2 clarifications, the first is on Brazilian cost of risk. You indicated a flat-ish evolution, excluding one-offs.
I just want to make sure I understood correctly that the EUR 474 million charged on provisions this quarter is not a one-off. The guidance you're giving is at 4.4%-4.5% cost of risk in 2023. The second is again on the guidance you have given before. I didn't understand if it was related to NII growth or volumes when you said Mexico up double-digit, U.S. down mid-single-digit, Brazil up low single-digit. Thank you.
Okay. Let me take consensus and cost of risk in Brazil, and I will try to clarify that. Where is consensus below where we think we might be? I think we are a bit more constructive on fees, and I think the first quarter shows very good performance of fees, basically on the back of the contribution of our global businesses. You've seen in the presentation that our global businesses, CIB, Wealth Management, PagoNXT, are doing very, very well. Also cost of risk, we guided for lower than 1.2% cost of risk. We are at 1.05% in the first quarter. Probably the market is a bit skeptical about our capacity to keep cost of risk under control. Those, I think, are the two.
There's a bit on NII, it's not significant, and a bit on cost. Generally, I think it's provisions and fees. Cost of risk in Brazil. The EUR 474 million is not in the P&L, and that has been used to reinforce our balance sheet in Brazil. Around one-fourth of that for one-off cases, and the rest is just the generic strengthening of our balance sheet in Brazil. The 4.4% cost of risk in the first quarter is clean in the sense that it doesn't have any one-offs for specific cases. From now on, as I said, I would expect if interest rates remain at 13.75 until after the summer, probably we are going to see cost of risk drifting upwards because of the gradual deterioration of the corporate sector.
By no means in excess of the cost of risk we had last year. That's why we're saying more or less cost of risk in line with 2022, excluding the one-off, which is already excluded in the provisioning number in the first quarter. I think that clarifies my comments. Then on Mexico?
Yeah. On Mexico, what I can tell you is that, you're gonna see very good growth in terms of NII, okay. Because of, you are positive in the sensitivity there. What you're gonna see is very positive growth in terms of fees, because we are growing clients in a very good way, okay. Mainly credit cards is one of the main drivers. CIB is an important driver of fees, okay. You're gonna see that the cost of risk is actually very much under control, okay. You're gonna see an all in all very good performance in the country, given that particular situations, and also that economic situation in the country is doing very well.
Thank you. Thank you, Andrea, for your questions. Can we have the next question, please?
Next question from Britta Schmidt from Autonomous. Please go ahead.
Yeah. Hi there. Good morning. I've got a couple of questions on the deposit development in Spain, the decline. Can you maybe split the trends between corporate and retail deposits there? Also a follow-up question on the cost of deposits in Spain. There was quite a meaningful increase Q on Q. Do you swap any of your deposit base, and is that included in the number? Lastly, of course, there was also loan yield expansion. Regarding the management of your net interest income in Spain, do you look more at the customer spread, or do you look at the individual costing of the balance sheet? A couple of follow-ups on Brazil.
Could you just clarify that last year's cost of risk, excluding one-off, was around 460-470 basis points, I think. Another question on the Polish FX saga. Do you expect there to be more provisions to come for the Polish Swiss franc mortgages? Lastly, one question on the regulatory outlook. Do you expect there to be any rethink, either in Spain or on a global level, of deposit insurance charges and the funding of deposit insurance funds? Thank you.
Okay. Deposits in Spain. As I said, EUR 21 billion-EUR 22 billion drop from corporate deposits. Flat, slightly down, retail deposits in the quarter. Basically, when you look at early mortgage repayments, they are very much aligned. If we look at February and March, as I mentioned, positive trends in both retail and corporate deposits, because again, the EUR 21 billion drop was associated with the year-end balance sheets of our corporate deposits. I'm not sure I understood your second question well. Your question was if we swap deposits or.
Yeah.
No, we don't. Obviously. No, no. We don't swap the deposits. We manage net interest income, sorry, interest rate risk through the asset side, not through the liability side. How do we manage NII, if I understand correctly? Do we look at the customer margins, or how do we manage that? I don't understand well your question, but obviously, again, interest rate risk management is mostly managed through the asset side, and we look at the overall net interest margin of our interest-earning assets. Brazil, the cost of risk.
The cost of risk is around 4.58%, excluding the one-off that we had. Okay? In terms of the mortgages that you asked for Poland, up to now, the portfolio basically is 48% reserved, okay? That's exactly. We are actually looking at what we're gonna do depending on how the portfolio evolves, okay? We are now at 48% coverage of the total portfolio.
Thank you. Thank you, Britta, for your questions. Can we have the next question, please?
Next question from Alvaro Serrano from Morgan Stanley. Please go ahead.
Hi. Very quickly, hopefully. Two questions from me on provisions. On the U.S., I know you touched on an earlier question on it, but I just wanted to understand the car prices so far have been better, certainly year to date. You're looking at your securitization data, that's also doing slightly better, and the NPLs are down. Why didn't the provisions in a seasonally lower quarter, they didn't go down as much? Is there a lag effect here? How quickly do secondhand car prices feed into the model? Maybe some hand-holding there. I don't know if you could be more specific on your updated views for the full year cost of risk in the U.S..
On Brazil, I don't know if you've touched on this, but should we expect any more top-ups or one-offs in Brazil, beyond the recurrent cost of risk that you've already touched on, José? Thanks.
Alvaro, in the provisions on the U.S., okay, it's very important that you understand that. I already explained exactly how the vintages are performing. The previous vintages are basically performing quite well. Okay? The thing is, there are a couple of things. First of all, if you remember with the stimulus, we actually dropped quite a lot the amount of provisions that we had. What we're having right now is we're having to make some of the provisions that the portfolio needs to have in order to basically be in the same level that we need to be with IFRS. Okay? IFRS, as you understand, the new definition of default that was put in place two years ago didn't hit us as much in the U.S. because the portfolio was performing completely different. Okay?
When you turn that portfolio to IFRS, the NOD, the new definition of default, basically requires you to create a lot more provisions, even though you may not need them because the portfolio is performing well beyond 90 days. Okay? I don't know if I'm explaining it correctly because it's quite complicated. What I'm trying to tell you that IFRS does not I mean, sees that the portfolio could be so irregular in the way it performs. Okay? Normally a portfolio in Europe beyond 90 days, et cetera, I mean, will go for repossession. A portfolio in the US is not performing exactly like that. It's actually, beyond 90 days, it's performing much better.
The client might pay you one installment, second installments, and then would pay you, not to pay you one installment, and then will pay you again, et cetera. Okay? That's why you see those difference and the movements in the provisions on the car prices. Even though you're right, car prices are better than, are much better than we expected, and the Manheim is actually at better levels. At the end, cost of risk in the US is gonna be around 2%. Okay? It's exactly what we, what we think. In terms of-
Let me.
Yeah.
2% compared with 3% pre-pandemic.
Correct.
All right. As we were saying, it will gradually normalize, but it is actually performing a little bit better this year, and it will not reach pre-pandemic levels because of the change in the mix that Héctor was referring to. This year, we would expect it to be around 2%.
Okay. In terms of Brazil, is exactly, Alvaro, as José just explained you. Rates in Brazil at around 13.75%. Inflation is actually just below 7%. What José was explaining you, if the rates continue to be that way, there might be the possibility that some of the big corporates or medium-sized corporates start to suffer. We don't see that the individual portfolio would suffer because it's shorter term, it's managing a different way, and it's a little bit inelastic to the rates. The corporate portfolio, in the mid corporates mainly, and SMEs could suffer because of that.
At the same time, individuals is improving. You can see that actually in the first quarter, cost of risk isolated at 4.4%, because we are growing in high-quality retail loans, and the old vintages are maturing very, very quickly. Even with that possible, and we don't know, but it might happen, possible deterioration in the cost of risk in the corporate sector, we would still expect to be in line with the guideline that we gave at Investor Day for a flat cost of risk year-on-year, excluding one-offs. No, the answer is no, we don't expect any significant one-offs for the rest of the year.
Thank you. Thank you, Alvaro, for your questions. Can we have the last question, please?
Next question from Fernando Gil de Santivañes from Bestinver Securities. Please go ahead.
Hi. Thank you very much for taking my question. Just two quick one on liquidity and LCR ratios. How do you see the year-end LCR ratios at a group level, Spain, Portugal, and the U.S., please? And can you please remind us of the TLTRO maturities that the bank has? Thank you very much.
TLTRO? Oh, you tell them.
No. Okay. No, the LCRs. Very difficult to predict, but around 130-140 in every unit at least. For the group, it might be a bit higher than that because of the liquidity of the corporate center. When we look at specific units, 130 or above. TLTRO, we have EUR 25 billion left, so we have repaid EUR 65 billion. This EUR 25 billion will mature gradually until 2024. The EUR 25 billion, EUR 4 billion in Santander Spain, EUR 18 billion in Santander Consumer Finance, and EUR 3 billion in Portugal.
Thank you. Thank you, Fernando, for your questions. Thank you all for your attendance. Santander's Investor Relations team is at your disposal for any and all questions that you may have.
Thank you, everybody.