Hello. Good morning, everyone. Welcome, and thank you for attending our 2024 strategic plan presentation. I'm here today with Mr. Manuel Menéndez, our CEO, Mr. Pablo González, our CFO, and Mr. Jonathan Joaquín, our Business Officer. Let me explain in just 30 seconds the logistics of this event. First, our CEO will go through the presentation during 40 minutes, more or less. Then, we will open the floor to Q&A, 45 minutes with Q&A live and answering the questions received through the website. That's all. With no further delay, I will hand it over to our CEO. Mr. Manuel Menéndez, please.
Thank you, Juan Pablo. Good morning, everyone, and thank you for taking the time to attend the presentation of our 2024 strategic plan. As you know, after the merger, we are now a larger retail bank with a strong leadership in some geographies and with the aim to increase our market share in other dynamic economies. We have a good track record in terms of cost reduction, low risk profile, capacity to generate capital, and strong liquidity position, which is a very good business opportunity to put that liquidity we have to work. Going now to slide 4. This strategic plan is ambitious for us to focus on what we think we know to do well. We will focus on the different things that either one of the two major banks used to do better and take it to the entire organization.
From this starting point, we have identified three pillars that will guide us towards reaching our targets during the plan. First, accelerate commercial activity by higher specialization, mainly in mortgages, consumer lending, mutual funds, insurance, and payments. The second pillar is to keep improving efficiency through process engineering and automation, operational centralization, and continual evolution of the branch network while promoting digital channels and increasing remote sales force to 500 employees. The third pillar, advanced risk management, will support the commercial growth through streamlining credit management, scaling current digital and remote capacity, and improving the effectiveness of the pre-approval, pre-approved models. Another two important elements are on the basis of the strategic plan. Digital banking as an enabler to execute the mentioned strategic pillars, and sustainability as a driver of our commitment with society.
In the annex of the presentation, you can find more information about this, basis of the plan. On slide 5, this is a page, where we show the macro scenario that we have considered to elaborate the business plan associated with our strategic plan. You can see we have been very conservative with interest rates and get the Euribor twelve-month curve flat until 2024. The metrics on GDP growth and unemployment rate are in line with most recent research publications. You can see on the right that we expect some lending growth both from corporates and households, supported by the recovery of the economic activity. Going now to slide 6, main financial targets. With the execution of the strategic pillars and the above mentioned macro scenario, we have quantified the main financial targets of the plan.
On profitability, we expect to reach a return on tangible equity above 8%, adjusted to a CET1 fully loaded ratio of 12.5%. The way we envision getting there is doing things that mostly depend on us. First, generating more fee income, thanks to a high penetration with our existing customers, reducing costs as we have been doing in the past, and normalizing the cost of risk for the entire period to around 25 basis points on average. On the balance sheet, we will focus on growing the performing loan book, where we expect a 500 yearly growth with residential mortgages as the main engine of that growth.
I would like to highlight here that we were able to achieve a high growth in the last 3 years in a deleveraging economy. We also want to keep growing on our mutual funds business. You can see we expect a 14% yearly growth rate. This may sound ambitious, but it is something that we have made in the past over the last 2 years. We have the internal knowledge and the customer base to achieve this target. Finally, we will keep accelerating the reduction of NPAs, and our target is to be below 5% by 2023 and below 4% by 2024. These targets are ambitious, but prudent at the same time. We will comment later more in detail, but let me highlight now that we are applying a flat curve. We do not expect the TLTRO to renew.
We are including more than EUR 30 million in regulatory costs in 2024, related to the resolution funds contribution that will disappear, and we are cautious in our insurance business and business assumptions until we close the reorganization of this business with our partners. All in all, we are confident we can achieve these targets under current market conditions. On the right-hand side of the page, you can see our capital targets. We expect to generate EUR 1.5 billion in capital in this period. Our tangible book value per share, including dividends, would grow by 6% annually without taking into consideration any share buybacks. Finally, we expect to maintain a 50% payout ratio with a mix between cash dividends and share buybacks while maintaining a 12.5% CET1 fully loaded management target.
Going now to section two, key initiatives. In this section, we are going to review the main business lines that play a key role in our strategic plan. Specifically, these are the following, mortgages, customer lending, mutual funds, insurance, and payments. Starting with residential mortgages, as you know, this is a key product for us. We have got one of the best mortgage franchises in Spain, and we think we have the expertise. All in all, it is a very profitable product for us. Our aim is to grow the loan book at a 7% annual growth rate. We expect to achieve this growth with the rollout of best practices where we are able to generate very good quality mortgages through non-branch channels.
For example, we have done 66% of total 2021 new lending from non-branch channels with the best internal practice, which allows us to grow in specific regions with limited physical presence, like Madrid or Barcelona. We also have a best-in-class underwriting process with factories and automation that allows us to have a time to cash below 25 days, which is very important for both customers and for our partners. This product is very profitable, as I said, with a low risk profile, allowing us to improve cross-selling, where we are able to sell, on average, three more products with the mortgage. In addition to the mortgage business, our ambition is to become a reference on providing a complete product range for households.
These target growth will translate into an additional EUR 65 million of NII in 2024 versus 2021. Going now to consumer loans, slide 9. Consumer lending is a business where we think we have a relevant market share gap. At the same time, we have a low yield compared with our peers at around 6.5%, but with a very low risk profile, with an NPL ratio below 3% as of September 2021. We will focus on increasing this book with existing customers. This, our ambition is to grow the book by around 50% in the next three years. We have identified two internal levers that will help us achieve this growth. The first one is the percentage of our clients that has a pre-approved loan.
The second one is the number of those clients that take a loan. By just applying the best practice of these levers, we would increase 2021 new lending by 50%. Actually, the success rate of 4% is the current internal best practice that we aim to extend to the entire organization. In order to increase the number of clients with a pre-approved loan, we will use installed capacity, and we will also leverage on the third pillar of the plan by continuously improving our pre-approved models and extending them to our large client base. Our target is to reach 40% of the consumer base by 2024. This growth target would translate into an additional EUR 45 million of NII in 2024. This is now on slide 10, assets under management.
As you know, this is a very important lever, especially taking into account our current balance sheet, where we have a high liquidity. Our current loan-to-deposit ratio is 75%, and we have a huge customer base to work with. The plan is based on two elements, product mix and increased volumes. Regarding product mix, current internal best practice mutual funds margin is around 90 basis points, which is 30 basis points higher than the former internal practice due to a better asset mix. This improvement in asset mix was achieved by the internal best practice in just two years. If we extend this internal best practice, we will get an additional EUR 35 million contribution per year. Regarding volumes, we are expecting an annual growth of 14% during the plan, and we could almost reach current sector penetration of mutual funds over total customer resources.
We have been able to achieve a 10% growth on the combined entity and 20% on the internal best practice per year over last years. This, together with our existing deposit base, makes us confident to achieve this ambitious target that would translate into an additional EUR 45 million per year. Together with the product mix improvement, we are targeting an EUR 80 million increase per year by 2024 versus 2021. I'd like to point out that our ambition is to have over 75% of mutual funds ESG compliant with Article 8 of the European Union Sustainable Finance Disclosure Regulation by 2024. Going now to insurance business on slide 11. Insurance business is a very important segment for the bank. As of the first nine months of the year, it has contributed 10% of the gross margin.
On non-life insurance, both Liberbank and Unicaja have their own agreement with Caser, but there is no need to negotiate a new contract in the short term. On life insurance, as you know, we have three agreements with Aegon, MAPFRE, and Santalucía, which are, which we are now renegotiating. We have not included any potential upside in our forecast for this plan, but we aim to increase our recurrent profitability in this business. We expect to grow in both life and non-life insurance premiums to around 10% over the next three years. Current annual growth is almost 10%, so we just expect to maintain this trend going forward. On life insurance, we are targeting to increase penetration from 12% to 17% in 2024, and there is room to improve and to achieve market best practices, as you can see on the slide.
This growth in premium would mean an increase of EUR 30 million per year in fees. The final business unit we will review is payments on slide 12. The main target, in this business, is to increase our turnover market share from current 3.8% to slightly above 4.1%. As you know, payments with credit and debit cards have been increasing over the last 3 years at over 10, 20% per year, and it is expected that this tendency will continue. We have 4.2 million clients, and there is room to improve the penetration of these services and also increase the usage of cards among our customers. The growth we expect in cards is below previous years, so for the combined entity. Again, we are being quite conservative on the assumptions here.
The growth in turnover volume and number of credit cards would imply EUR 20 million additional fees per year in 2024 versus 2021. Going out to section three, main financial targets. We are here, we are going to see here in detail the financial implications of the different business lines that we have just seen. On slide 14, we show a summary of the main business volumes assumed in the plan. You can see we expect most of our growth in lending to come from the residential mortgage book, something we have done in the past and we feel very comfortable with. On the business lending, we expect minor growth for the plan, as we are expecting to work mainly with our existing customer base.
This is again a quite conservative assumption, especially with the impact that the Next Generation EU funds could have. On the right-hand side of the page, you can see what the plan assumes about retail deposits. You can see that retail deposits are going to continue growing on the back of a new customer acquisition and increasing loyalty of the customers and savings from existing customers. As a summary, we are going to put our excess liquidity to work, using it to grow the lending book and to increase our mutual funds penetration. Our target loan-to-deposit ratio for 2024 is 85%, which is still quite conservative, and it give us a lot of flexibility to work with our existing customer base. Slide 15, NII.
On net interest income, we expect a slight decrease over the period, as we have assumed interest rates to stay flat over this time horizon. In summary, we expect the retail lending growth, together with a better management of institutional deposits and a lower wholesale funding costs, to almost offset the lower contribution of disappearing TLTRO and a lower impact from the ALCO portfolio, as we have some maturities over this time period in this portfolio. The decrease from the ALCO portfolio will be almost fully visible in the last quarter of 2021, as we expect contribution to remain flattish from that point. Regarding the retail lending, the main contribution comes from mortgages and consumption lending.
We are not incorporating any upside from this business lending to the plan. However, we will keep working with our existing customers in our regions, and we believe we are in a position to offer more specialized advice and products. Our aim is to improve the profitability of this business. As I said, we are not including this positive impact that we expect in the figures of this plan. As a summary, I would say that this plan would allow our NII to be much more based on retail banking and less dependent from treasury. Moving on to fees on slide 16.
In this page, we have a summary of the main fee generating business we have talked about. We expect to generate an additional EUR 130 million per year in fees coming from mutual funds, insurance business, and payments. I wanted to highlight that all these assumptions are based on applying internal best practices, sorry, and on our existing customer base. Moving now to expenses, slide 17. As you may well know, last week we reached an agreement with the trade unions that is positive for all the stakeholders. You can see on the top left of the page the breakdown of the EUR 210 million of cost synergies. The vast majority comes from personnel expenses after the agreement reached last week. We are expecting EUR 35 million savings from general expenses. This figure is rather conservative.
EUR 50 million from lower depreciation. Finally, EUR 160 million from lower personal expenses. We also expect some inflation during the period, but well under control, and at the same time, we will keep investing in the business. Regarding the restructuring agreement, it has a cost of EUR 368 million for the exit of 1,513 employees over the course of the next 3 years. This agreement will bring cost savings of EUR 97 million per year. Remember that in the second quarter, we already booked EUR 143 million for the exit of 727 employees from Liberbank for EUR 40 million of yearly savings. For the restructuring plan, we are assuming also the closure of 538 branches since 2020.
Out of those, 153 had already been closed in the first nine months of the year. We will obviously keep working towards achieving higher cost synergies during the course of this strategic plan. Going now to slide 18. This slide summarizes what we like to call the banking margin, which is net interest income plus fees, minus expenses. In this sense, we expect it to grow at a certain % annual rate on the back of the expected cost synergies, growth of fee income, and a quite conservative net interest income assumption. We expect the banking margin to generate an additional EUR 250 million per year in 2024.
A couple of important points here are that we will evolve to having more diversified revenues with a higher weight of fees and a lower contribution from the ALCO portfolio, as I said before. Also, you can see that, the assumptions for other revenues, equity accounted and dividends are quite flattish throughout the period. The pre-provision profit is expected to grow at a very similar rate of the banking margin that is around 13%. On cost of risk, we are expecting an average rate of 25 basis points for the period. If you remember, we gave guidance of 20 basis points for 2023 in the third quarter earnings conference call.
This is, as you can see on the slide, above pre-pandemic levels for the combined entity, and it is backed by our loan book low risk profile and a high starting point on coverage ratios for NPAs and Stage 2 loans. On other provisions, we are expecting EUR 15 million-EUR 20 million per quarter throughout the plan horizon, which should fade away after that. Other provisions include conservative assumptions on litigation risks that would not leave any relevant open risk at the end of the projected period. Going now to asset quality, slide 20. This slide is much related to the previous one about the cost of risk. You can see our NPL and NPA targets ratios on the left-hand side of the page.
We expect to progressively reduce non-performing assets until reaching a 2% NPL ratio and below 4% NPA ratio in 2024. There are three main reasons that support our plan. You can see on the right hand side of the page. The first one is that we have a prudent approach of early recognition, where around 40% of current NPLs are up to payment as of today. The second one that we have seen during the presentation is our conservative loan book with a large weight of residential mortgages and public sector. We expect to grow in residential mortgages and pre-approved consumer loans during the plan. Finally, the best-in-class starting point on coverage ratios with 67% on NPAs and 9% on Stage Two loans, which is almost double the sector average. Moving now to slide 21, capital.
You can see a very detailed chart on the main elements of how we expect to generate capital. Basically, you can see we will generate capital from net income after dividend and dividends and AT1 coupon payments, and the recovery of DTAs, and lower threshold deductions as our capital base increases while we deploy capital in growing the business. It is important to highlight that we are not incorporating any positive impact from the migration of the Liberbank portfolio, Liberbank portfolios to advanced models. Even though the new production of the Unicaja Banco, of course, is under advanced models. We are talking about the Liberbank portfolio, legacy Liberbank portfolio. Our landing point of the plan is CET1 fully loaded over 14%.
Regarding capital management, on slide 22, we want to generate value on a recurring basis for our shareholders and distribute it, maximizing total shareholders' return. This is our aim. We feel comfortable managing this bank with 12.5% CET1 fully loaded. As we have just seen, we expect a landing point of over 14% in 2024. We will have some excess capital that we will allocate to improve profitability and to moderate shareholders. All in all, we expect to generate EUR 1.5 billion in the next three years. This is around 70% of our current market capitalization. Finally, we expect our tangible book value per share to grow 6% per year, assuming a 50% dividend payout and no share buybacks in the calculation. Going now to MREL, slide 23.
We want to remind you that we still do not have our MREL requirement for the new bank. As we have over 100 billion euros in assets, this could imply a different resolution strategy and therefore a different MREL requirement. Having said this, we assume senior issuances of EUR 2.4 billion by 2024, and we would be sitting on a comfortable MREL position, taking into consideration the potential increased requirements. Before going to the next slide, I would like to remind you our two issuances this last month of EUR 500 million inaugural AT1 below 5% coupon rate and EUR 600 million of senior preferred at a 1% coupon rate. Finally, our ambition is for the next senior issuance to be ESG compliant. Slide 24.
Here is how this plan translates into profitability. I am not going through all the details, but you can see we expect to get a return on tangible equity of over 7.5%. This would be over 8%, assuming our CET1 fully loaded of 12.5%. This ambition is backed by all the levers we have discussed in the presentation, mainly improved fees, cost synergies, and normalization of cost of risk. Section 4, closing remarks. I wanted to make a quick recap before going to the Q&A. As you can see, our three main pillars of accelerating commercial activity via deeper specialization, improving our efficiency while developing advanced risk management capabilities, will translate into an acceleration of the business, mainly performing loans and mutual funds.
We will grow the business while we keep improving our efficiency, achieving a cost-to-income ratio below 50% by 2024. This will allow, together with the business growth, our banking margin to grow at a 13% annual rate. This growth, plus a reduction of NPAs and a normalized cost of risk of 20 basis points for the period, will translate into a return on tangible equity of over 8% in 2024, a capital generation in the period of EUR 1.5 billion, and an annual growth rate of the tangible book value per share of 6.6%, assuming all dividends are cash payments. On slide 27, we're going to talk about something, levers and assumptions that we take for this plan.
As we said, we have made some conservative assumptions that I wanted to highlight here again. We have assumed a flat interest rate curve for the period. For example, a 50 basis points upward parallel curve would increase NII by around 10% on the second year. Within this interest rate scenario, we assume no extension of TLTRO, which would have an impact of around EUR 100 million. At the same time, regulatory expenses are assumed to remain as they are now, while the contribution to the Single Resolution Fund should end in 2023. This impact is around EUR 31 million per year.
We have not assumed any upside on the restructuring of the insurance business, even though we could generate some additional profitability, and we think we are going to be able to do so. Finally, we do not incorporate any upside from entering new business or segments which we could do with our new scale. Finally, slide 28, regarding the calendar, we are now executing quick-win initiatives and the strategic pillars. As you know, an important milestone that we have is IT migration. Our target is to achieve this goal by the second quarter of 2022. This is the last slide of the presentation, and now we will open to Q&A. Thank you.
Thank you very much, Manuel, for the presentation. It's now time for the Q&A. As Juan Pablo said at the beginning, it will be 45 minutes. So please, we ask you to keep it just to two questions so we can get as many as possible through the Q&A. Now, please, operator, first question.
Thank you. If you'd like to ask a question to the team, please press star followed by one on your telephone keypad. If you change your mind, it's star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question today comes from Alfredo Alonso of Deutsche Bank. Your line is open.
Hello. Good morning, gentlemen. Thanks for taking my questions. I would like to ask you on your credit growth targets, especially mortgages. At first sight, it could look quite aggressive. It's clear that you've been able to keep a strong generation in the past in some regions, but the growth target seems to assume that you could be able also to accelerate generation in some other regions, which have a more average size of the loans and potentially look more difficult to grow. Could you give us some color on how you can manage to offset these difficulties? And furthermore, are you assuming that that growth could bring a deterioration on yields to reach that growth? My second question would be on the restructuring process.
With the EUR 210 million cost synergies targeted, you could finally believe that restructuring costs could exceed the amount that you already announced? Moreover, seeing that the excess capital that you have right now in your targets, could we expect that part of that excess capital could be used for further streamlining? Thanks a lot.
Thank you for your question. I'll take the second question and the third question, and later, I think Jonathan will elaborate more about the first question. Starting with restructuring costs, it's true that we're going to have restructuring costs of EUR 120 million, more or less, above what was initially expected. At the same time, we're going to have higher synergies of EUR 20 million per year, more or less, associated to personnel expenses. More or less, the payback of this higher investment is around three years. It's true that in the opposite, we are now making a more prudent forecast in terms of synergies related to general expenses. In this sense, we expect...
We are now guessing at more or less EUR 20 million per year below the initial forecast. All in all, we are going to have net synergies EUR 20 million above per year, EUR 20 million above our initial forecast. The investment that we made to achieve this increasing in terms of annual synergies is profitable because, as I said, the payback of this additional investment is around 3 years. Regarding excess of capital, we said during the presentation that we expect to have a CET1 fully loaded ratio around 14%, above 14% by the end of the plan.
This is after having planned an important increase in important growth, as you said, in our performing loan portfolio. Also after having a remuneration of shareholders of 50% of our net income. We haven't made any decision about what we are going to do with this excess capital. We have two alternatives. One is, of course, to invest trying to improve our business, continue improving our business, and at the same time, improve the remuneration of our shareholders.
Both of them are going to be considered, but for us, what is clear is that we are, as we are trying to show after the merger, our intention is to continue using our capital to work and to improve the profitability and at the end of the day, to improve the remuneration of our shareholders, which is our most important thing in terms of investment. Now I pass the floor to Isidro Rubiales, who is going to elaborate more about the first question.
Okay. Thank you very much. Well, try to elaborate more in terms of mortgages. Well, actually, we see a clear potential upside here, mainly for two reasons. Firstly, a larger bank means enhanced scale capability. Our mortgage book is doubling after the integration. We gain more capabilities for investing in key drivers for this business like, you know, advertising to get a higher brand recognition, increased commercial managers fully dedicated for this business, or more competitive, fully digital platform to underwriting both mortgages. We include remote managers to support end-to-end process and improve the customer journey at the same time. A more internal capacity to design a new product like bundle mortgages, including non-financial products, aimed at covering, you know, household needs, right? And many things due to the scale.
To sum up, now we've some capabilities that we didn't have previously, and we believe will support this target as well. Secondly, as you know, we have a relevant room in some markets where we have a good number of branches, but we have a market share way below our target now. In addition, some specific markets are showing a good perspective, for instance, in Málaga, where we have now 17% market share in the new production, and our target is around 25%. Seville, with 2 million population and the market is mainly first residents, and we've barely 7% market share, and our target is doubling. Moreover, there are more markets like Barcelona, which current market share is around 5%-6%, or Valencia is around 3% market share.
We have a clear room to grow through digital platform to reach a similar market share, for instance, like Madrid, right? Where the current market share is around 2%-10% in new production. Finally, I like to point out something that Manuel said previously in presentation. Residential mortgages is our core business. We've got one of the best franchises in Spain, so we are confident, pretty confident, with this target.
Thank you, Alfredo. Operator, please, next question in line.
Yes, the next question comes today from María Repáraz of Bestinver. Your line is open, María.
Hi, good morning. Thank you for the presentation. Very clear. I wanted to ask you first on could you share some interim targets, perhaps 2022 targets? That would be very useful. The second question is a bit of a follow-up on the one made by Alfredo, which is on excess capital. You know, in case some of the revenue levers do not go as expected, have you already identified some cost levers that you could deploy capital to? If so, can you share some details about that? Thank you.
Thank you for your question. Pablo is going to take the first question, and later I'll try to elaborate about the second question. Pablo, please.
Thank you, Manuel. I think in the presentation, we have been very clear regarding the landing points of our targets, and what we can achieve with this plan. This is mainly summarized in our ROTE target of above 8% in 2024. I think, for the interim targets, let us give some room to work the way we reach there. But
You know, I'll try to elaborate a little bit how we are going to reach that target and how you can see the interim targets in the process. I think first, looking at the lending book, I think it's going to increase its contribution to NII, and then to obviously the P&L. On top of that, we have this close to EUR 130 million coming from fees. Both of these, you can have a delta, a growth path, which is quite linear. I think you can view this as a linear in terms of the interim targets. In terms of the OpEx, this changes a little bit. We will not have a linear impact of the OpEx reduction.
It will start to seem, you can start to see some of the savings in the first half of the plan rather than on a linear basis. In terms of cost of risk and other provisions, we see obviously a downward trend in this, and we gave you within the plan, Manuel gave you the 25 average cost of risk for the whole period of the plan. We also gave you in our third quarter results presentation, we gave you the target for 2023. With all that information, you can work out very easily what we are expecting in terms of cost of risk in the different years of the plan.
All in all, if you add up all these different moving parts, you can see that the evolution of our targets, especially the return on tangible equity, will be quite linear in the process with some difference in the interim years. I think I also want to stress that this plan has been done with a flat interest rate curve. This is not because we think interest rate is going to be flat for the period. I think the main point of having a flat curve is to give you all the information and the focus of the management on how we can improve our profitability without considering the evolution of the interest rate. I think that the focus is not because we think rates are going to be flat.
Actually, if you look at the implied curve now, it's significantly above the -50 that we have now. We consider this another really important driver of our profitability in the future. I think that the point is clear. The idea is to focus on what we can do to improve profitability and not what depends on market condition. Just to sum up, I think if you consider only this just let's say 50 basis point rate hike, and you take the Single Resolution Fund contribution that we have considered, as Manuel said, for 2024, and initially it's expected to not to be there for 2024. If you consider those two assumption, you would end up with a much higher return on equity in 2024. I think that answers the question.
Thank you. Thank you, Pablo. Regarding the excess of capital, again, I would like to highlight that our aim is to improve the profitability, the return and the remuneration of our shareholders, the value that we add, we want to add to our shareholders. In this sense, we are going to use the capital following a prudent approach. You can see in our plan that we are thinking on a low risk portfolio, and the capital is going to be used thinking on the improvement of the capital, of the shareholder remuneration. In this sense, we don't have now, haven't made any decision about that, but this is the main idea, and I just try to highlight this. Thank you.
Thank you, María. Operator, next question, please.
Of course. The next question today comes from Carlos Cobo of Société Générale. Your line is open, Carlos.
Hello. Yeah, good morning, and thank you for all the granularity representations. It's very much appreciated, the effort. My two questions will be on volumes and capital. I'm just curious about the target and the focus on mortgages. Obviously it's been your strength in the past, but you know, we are now seeing that the pricing advantage that Liberbank and also Unicaja had in the past has been matched by peers. Peers, or competitors are now way more aggressive on pricing. Do you think that you could have lost that edge? At the same time, you know, the Next Generation funds are one of the biggest opportunities that we have in a long time.
I'm curious why you're not targeting a more aggressive expansion in corporate and you focus only in mortgages where price competition could be an issue. I'm just wondering, you know, curious about that strategy. The second one is on the fair value assets. You are targeting to generate 90 basis points of capital from the absorption of DTAs. I was wondering if you could run us through that math, because this is not something we've seen in the pre-pandemic cycle. This is not only Unicaja and Liberbank, it's pretty much the whole sector has struggled to reduce their holding of the fair value assets.
I would like to understand how those math work, because the caps that the government introduced in the maximum capacity to absorb those DTAs has been a drive in this trend in the past. Thank you very much. If I can add just quickly a clarification, this is my fault that I missed it, but have you said that the capital surplus will be used to finance growth and to do more shareholder remuneration, but you rule out more efficiency plans? Is that something you've said? Thank you.
Thank you very much, Carlos. Well, in terms of the pricing, we're expecting to remain with the same strong competition in Spain. In spite of the number of entities are reducing clearly in the last year, the competition, especially in this segment, you know, remain high, right? In terms of the projection over plan horizon, we're expecting the price gonna be flattish, basically. We're expecting the pricing gonna be flattish in terms of mortgages especially. Well, yeah, in terms of customer profile, we are looking at a risk profile well-balanced with a commercial profile. We are competing strongly especially in affluent clients, because at the end of the day, it's more profitable than other segments in terms of commercial activity.
Well, your question related to corporate business, right? If you see the figures, you know, you realize that when you are comparing with expectation on sector evolution, in terms of market share, we're expecting to be flattish during the plan, around 2%-3%, in this period, right? In business lending, we are going to focus, especially in working with our customer base, trying to increase profitability. We don't expect very ambitious growth, even with Next Generation EU funds. We think we have a little bit upside here, maybe. Corporate banking, or likewise, corporate banking is an important business where we are also putting focus to increase profitability by 2024. Not in the short term, but in the last year, yes.
We are in an early stage here, and we consider this more a lever because basically, you know, our plan is based on developing our current capabilities, mainly, right? To sum up, we plan to improve profitability through higher cross-selling in higher yields, especially once the PPA, ICOs are over. Having that said, we believe this will take more time, and we are conservative. You know, we are sure the performance of this business in terms of profitability will be better, you know, than what we are showing here. We prefer to, you know, again, to be conservative in these segments and focus on the delivery of, you know, the main business line we explained previously.
Okay, I can take the one regarding DTAs. Thank you, Carlos, for that. Probably if we take one step back and we look to our CET1 fully loaded in June 2021 was above 16%. What we have done is a huge effort, a transformational process. We have allocated more than EUR 1.5 billion capital. We have put that to work. That EUR 1.5 billion capital that we are putting to work, we are getting the hit in terms of fiscal and DTAs impact right now. We are taking the hit. The impact is gross from those PPAs and restructuring costs. We are not taking any fiscal benefit right now.
What we expect is to get the reward going forward in terms of fiscal and capital reward and profitability. Probably, let me give you an example on how this works. Right now, from a capital point of view, we are deducting around EUR 1 billion of DTAs, last tax loss carry forward, and around EUR 500 million because the thresholds, individual thresholds, from DTAs temporary differences and combined thresholds. This is around EUR 500 million, more or less, deductions. One example of this are the restructuring costs. I guess this is a good example. We are booking the provision right now.
We are taking the hit right now, gross, with no fiscal benefit, as I said. That implies a DTA temporary difference, because the payments to the employees will happen during the next years. We take the provision now, and the payments will happen in the future. When those payments that cause those outflows happen, that temporary difference disappear. That's the point where that DTA is not deducted from capital because there is no DTA temporary difference. That's one of the main drivers behind the organic capital generation coming from DTAs. As you said, and you are right, there are caps coming from the fiscal regulation, and we are not counting, basically, with DTAs coming from that.
That's when you generate a net income, you can apply both monetizable and non-monetizable DTAs. But that's not one of the drivers of this capital generation. The main one, as I said, is the that DTAs temporary differences disappears and the thresholds also come down.
Thank you, Juan Pablo, and just trying to clarify my previous answers about the use of the capital. When I mentioned that we have two alternatives, improve the remuneration of the shareholders and improve the profitability of our business, I was thinking not only about investments in new business, but basically about improving our efficiency. Our second pillar of the strategic plan is to improve efficiency. In this sense, we mentioned in the presentation that we are thinking about things like automation, investments in IT, and, of course, all the measures that we need to do to improve our efficiency.
This is one of the most important alternatives that we are considering, and we need to work from the starting point that we where we are now after the agreements with the trade unions. This is a continuous process and of course, over the plan, we are going to try to improve these figures in terms of of efficiency, and we are going to apply capital if it is necessary to do that. Thank you.
Thank you, Carlos. Those were two quite long questions. Operator, please, next question.
Thank you. The next question today comes from Francisco Riquel of Alantra. Your line is open.
Yes, thank you very much for the presentation. First question on costs. I see that you're assuming a cost inflation of just EUR 40 million over the period, which implies 1.5%-2% annual inflation and could mean very little spending in terms of technology and digitization beyond the natural inflation. The question is: How can you reassure us that you would not be underinvesting in IT and in the business during this period? Second question is on asset quality. You provide a target in terms of NPL ratio for 2023, which is almost 1 percentage point lower from current levels. I wonder whether you are considering any jump in 2022 at all, and of what magnitude. Thank you.
Thank you, Paco. I'll try to answer your question on expenses. I think the 40 million that you work out as inflation obviously the major driver there is inflation of the underlying cost base. But on top of that, we have also some depreciation on IT investments that we will do through the process. But as you know, the IT investment has a lag in terms of going through the P&L. On top of that, you have to consider that in the bridge that we presented in the expenses in page 17 of the presentation, we took some OPEX reduction, the general expenses. But on top of that, we have ongoing, you know, initiatives to improve our cost base.
This EUR 40 million is a net figure of those ongoing initiatives to reduce cost, plus the inflation and plus the IT investments. We are confident with our IT investment and the development of our platform, and we're confident that we can deliver on the overall cost while maintaining a sound and prudent investment in IT to fulfill the customer experience of our customers. I think the second, do you take that, Juan Pablo?
Yeah, I can take that one. Thank you, Pablo. Thank you, Paco. Regarding our expectations regarding NPLs, probably let me take again one step back. Probably the asset quality performed better than expected during 2021. In our case, NPL ratio came down from 3.7% to 3.4%. We increased our coverage ratio up to 72%, best in class right now. We also take a prudent approach in terms of anticipating NPLs. Right now 40% of our NPLs are subjective NPLs. So this is the starting point. Going forward, what we see in our projections is that we expect at some point, as we have been expecting for some time, some increase of NPLs. We expect that peak in mid next year, mid 2022.
From there, we expect a reduction in terms of NPLs stock and NPL ratio to get to the targets that we just show, and to a 2% NPL ratio by 2024.
Thank you, Paco. Operator, next question, please.
Of course. The next question today comes from Ignacio Ulargui of BNP Paribas. Your line is open.
Thanks very much. Thanks for taking my questions, thanks for the presentation. This is Ignacio Ulargui from Exane. Just two things to flag on. Two questions on, one on asset management, on your 14% CAGR on volume. I mean, what is your past experience in terms of clients' behavior when there is a bit of a setback in equity markets? And how sensitive your assets under management are to equity markets in general? Second question is on capital, whether you have any kind of guidance or expectation on Basel IV impacts, in that 14% or above 14% CET1 ratio in 2024. Thank you.
Thank you very much, Ignacio. Well, in terms of mutual funds, the first question, right? Well, actually, firstly, we will extend the agreement with JP Morgan to the entire bank. As you know, this has worked very well in the original network, but we are obviously open to new agreements with other top asset managers because this model actually works very well. Our role here is to serve our retail customers basically with the best product, and it could be, you know, either our own product or third party. Our strategy is like retail banking here, is to be an open platform to mutual funds distribution to serve our customers, right? In addition, we will consolidate our product offering, moving towards a balanced mix of products with different risk profiles.
As Manuel said in the presentation, our ambition here is to have a majority ESG products compliant with 2024. Moreover, we have. It's more tactically, right? We've launched a strong training program supported by J.P. Morgan across all the branches to enhancing the skills in our relationship managers and boosting long-term saving culture across the entire entity. You know what? Our expect growth is ambitious, but this is something we have been doing over the last few years, if you look at the figures. In terms of the figures, I like to point out something quite relevant, that 19%, the net inflows, all the growth, right, 19% of net inflows in mutual funds in our projections, the plan horizon, is coming from existing customer deposits. Now we have above EUR 60 billion in deposits.
It's something quite relevant in terms of when you compare it with other peers. This is something, a key driver, because I would like to remind you that Unicaja market penetration in mutual funds is around 2 to 13%. On average is around 17%. We have a clear room in terms of the volumes here.
Probably, I will take the second question.
Yes, yes.
Okay. Thank you, Ignacio. Regarding the Basel III, Basel IV impact, right here, the quick answer is that no, we do not expect impact. There are still some question marks as the valuation of the collaterals in the mortgages, for instance. Here, basically, why we say that we do not expect impact is if we look to our credit risk, 75% of our loans are under standard model. The other 25%, this is the mortgage and consumer book coming from Unicaja. They are the only ones under IRB models. Their risk weighting is high compared to peers, 17% for mortgages. The reason for that is that we are already applying the twin criteria.
That's also one of the reasons why we do not expect impact from this new regulation. Regarding operational risk, there were some question marks there, but the recent drafts regulation is going to apply just one times multiple. So that's in line with our criteria right now, so we do not expect an impact there. As we have said during the presentation, we expect tailwinds coming from this, from our migration to IRB models, but not impact. Maybe one last comment, this is regarding the plan. We are taking also a prudent approach in terms of MREL requirements. That's the reason why our MREL ratio goes up to 25%.
We could expect an increase in MREL requirement, and that explains that higher ratio in our projections. We are including senior issuance to comply with that, and we are including the cost of that in our numbers.
Alberto, I'm going to make a point on what Jonathan said, and Nacio was asking as well, regarding the mutual funds and the asset management business. Our focus, as Jonathan said, is the long-term investment and to have the best product for our customer base. The culture of this long-term saving and investment works very well with the very good managers. In that sense, you have to think that only 5% of our mutual funds at the moment, and we don't expect that to grow significantly in the medium term, is equity related. What we have is a lot of blended products and more type of product that works throughout different market scenarios and environment.
We have very good managers that will place and allocate the funds where is the right timing and using hedging techniques in the process. We are quite confident that even we acknowledge that maybe some drawdown in the market at some time, we think we have good solution for our customer base, and this will work out throughout the process. I think this could help you as well, Nacio.
Thank you, Nacio. Operator, please, can you get the next question in line?
Yes, the next question in line is from Ignacio Cerezo with UBS. Your line is open.
Hello, good morning, and thank you for the presentation. Two questions from me. First one is on the other provisions. I think that number looks significantly higher than what I saw you actually hinted back in Q3, EUR 15 million-20 million per quarter. After having that, I think it's north of EUR 200 million in preemptive provisions against fair value adjustments. So what explains that? And if that is, again, a conservative assumption, basically, or there is something else on that line that we have ignored so far. Around the NII, there are two small questions there. First one, if you stick to the view you expressed in Q3, that Q4 should be a trough in terms of NII. If you can clarify actually the ALCO comment.
I mean, you have the EUR 75 million headwind in terms of ALCO portfolio. At the same time, you're saying that from Q4 onwards, actually the contribution should be flat. If you can reconcile actually both comments. Thank you.
I can take it. Thank you, Nacio. I can take the first one regarding other provisions. As we showed during the presentation, we expect between EUR 15 million-EUR 20 million per quarter and a downward trend on those provisions. There is nothing new. As you know, we do not have any risk to multicurrency or revolving, so nothing really new. This is coming from a conservative assumption on the mortgage floors, our mortgage expenses claims. We want to close this issue during the plan horizon. That's the only reason.
I'll take the NII. Yes, Nacio, we hinted that the Q4 was probably going to be the bottom on NII, the floor for the period. From that onward, we expect to start to gradually improve the NII. Thanks mainly to the drivers that has been commented in this presentation. I think why we think the fourth quarter is going to be the bottom. I think that the major driver of this is the excess liquidity. After selling a big part of our fixed income portfolio at the end of the third quarter, we have an excess liquidity.
We have started to tackling this issue, having started already to communicate to our institutional customers that we are going to charge negative rates to their deposits. I think the only problem is this won't be visible in the fourth quarter because we have to respect some notice period for this to be applied to our customers. It will be more something that will start to be seen at the beginning of the next year. On top of that, we also have the Euribor repricing that probably is finished in the fourth quarter, still is slightly negative. From that onwards, we don't expect any impact from Euribor repricing.
On the contrary, we expect some positive, maybe more quarters down the line, but obviously not negative impact any longer from Euribor repricing. On the second part, regarding the NII, you mentioned our ALCO strategy. In that sense, you know, one of the targets of the plan is to have a more sustainable NII and less dependent on the ALCO contribution. Within our plan, we are going to switch part of our excess liquidity and structural liquidity from the ALCO portfolio to the loan book, and also to reduce our deposit base through off balance sheet product growth, rather than on balance sheet deposit growth.
How this ALCO portfolio will evolve, I think at the beginning of the period, probably next year, we will probably increase the excess with the excess liquidity, we will increase our ALCO portfolio. During the period, we have EUR 3.8 billion of maturities in our ALCO portfolio with an average yield of around 0.6%. This obviously will have an impact on reducing the contribution in the later part of the plan. For what we said in the numbers, you have a reduction in the securities contribution, and this comes from this, you know, the larger portfolio that we have in 2021, especially in the first nine months.
The rebuild of part of that portfolio next year, and then reducing in the second part of the plan. At the end, net-net, it's, you know, obviously this will depend on market condition, the liquidity evolution, the commercial gap, how it evolves, and we will, you know, have some variance at the end of the period. We can improve the numbers that we have in our plan. We have been prudent with the contribution of the ALCO portfolio. What we can say, it's, you know, we have a prudent approach for the 2024 contribution. For the short term, we think fourth quarter will be very close to the bottom on the contribution for the ALCO portfolio, and then we'll be quite stable in the coming quarters.
Thank you very much, Nacio. Operator, please, next question.
Thank you. The next question today comes from Fernando Gil of Barclays. Fernando, your line's open.
All right. Thank you very much for taking my question. Two questions from my side. First one is on distributions and excess capital. I was wondering if you can further explain why 50% of the payout if you're forecasting over 14% CET1 at the end of the plan, and when we will probably have the decision of when the bank can do extraordinary dividends with this excess capital. That question to me is a little bit of a doubt that I have. The other one is on EDP and the Oppidum stake. If I understood correctly, it is included in the forecast in the plan for these three years in the P&L. I want to refresh a little bit what's the strategy over these assets, how much capital does it consume? This is it. Thank you.
Thank you for your question, and I'll take the first question, and Pablo is going to take the second question. Regarding the standard dividends, as I said, we haven't made any decision about that. We're going to consider this alternative, this possibility if we are in the situation that this is the best option for our shareholders. It's an option. We could consider also pay dividends in cash or go to buy back shares, sorry. These are alternatives that we haven't made any decision about them. I don't have more information about the excess of capital that we have and how we're going to apply this excess of capital. Now Pablo.
Yeah.
will take the second question.
Yeah. Maybe if I may, Manuel, regarding that question, I made a previous comment on our CET1 fully loaded ratio in June 2021, that was above 16%, and after doing some restructuring costs in the second Q. I guess we have proved that we want to put the capital to work. That 12.5% is our CET1 fully loaded target.
That we are already comfortable with that target for our retail bank with most of the lending book under standard models. 12.5% is already a comfortable target, and probably everything above that is what we commented is the excess capital, more than EUR 600 million. As Manuel was commenting, what is pending is how we will use those EUR 600 million, but that's something that we plan to do for sure. We have to decide if it's gonna be shareholder in what percentage is gonna be shareholder remuneration and what is gonna be for improving profitability farther.
I'll take the, Manuel, the EDP question. Regarding the EDP position, our position remains the same as in the past. As you know, we have held a stake in EDP via this investment vehicle, which has other assets. This stake is very profitable for the bank. You can consider around EUR 20 million in equity-accounted income coming from this position. We have been shareholders for a very long time, and we know the asset very well, and we feel quite comfortable with this position. Having said this, as with everything, we always are looking to maximize the return on capital for our shareholders, and we don't rule out any decision down the line.
Thank you very much, Fernando. I think we're running out of time. Operator, we have time for one more, so if you can get the next question please in line.
Okay, the last question is from Stefan Nedialkov of Citigroup. Okay, we'll move to the next question from Maksym Mishyn of JB Capital. Your line is open.
Hi. Good morning. Thanks for the presentation. I'll be really quick. I have one question on shareholder remuneration. You mentioned that the 50% payout will be dividends and buybacks, and I just wanted to know how you will decide which one is better for the. On the interest rate sensitivity, thank you for providing guidance for an increase in rates, but could you also provide guidance for a 50 basis point decrease. Also, what share of your loan book is currently at variable rates, and where you see it in 2024? Thank you.
Thank you for your question. Again, regarding dividend policies, shareholder remuneration, excess of capital, we think that, as Juan Pablo said, and I'll try to explain, we are going to make decisions taking into consideration the information that we will have at the proper time. It's very difficult to say now what we are going to do in the future, but our aim is to apply the capital and taking the best option for our shareholders. Our commitment is to maintain our 50% dividend payout. We are going to consider as an option potential buybacks. And in this sense, I have to say that at the current valuations, share buybacks look attractive, of course.
In addition, this is something that we did in the past, both with Unicaja and Liberbank, so this is not new for us. To be clear, we haven't made any decision, and we are going to make decisions at the proper time with this aim in our mind, which is to improve the shareholder remuneration and at the same time improve the profitability of the bank, including measures to improve the efficiency as one of the pillars of our strategic plan. Now I pass the floor to Pablo to continue with the second question.
Thank you, Manuel . Max, I'm going to go through the interest rate sensitivity of the bank. As Manuel discussed in the presentation, and he mentioned, we are assuming a flat curve for the entire plan. As I said before, this is not because we think this is the most likely scenario for the rates in the coming quarters and years, but because we want to focus you on what we can do to deliver an improvement in profitability. Having said that, obviously, our balance sheet is skewed towards an interest rate increase, and we will benefit substantially if that really happens. As we outlined it in the presentation, the impact of a 50 basis point increase in interest rate will be around 10% of our NII.
This is considering a static balance sheet and an instantaneous throughout the curve increase of 50 basis points, which is a standard way of measuring NII sensitivity to interest rate. Obviously, this 10% in the upside, if we look at the other way, which we give very little possibilities because considering a -50 going to -1%, I don't think it's very likely. We also have the numbers, and we'd run, like, around 15 different scenarios of interest rate, and we manage actively that risk within our strategy and within our ALCO committee. Just to give you some color, that unlikely scenario will have an impact similar to the 10%, slightly lower, around 9%, but that obviously will be a negative impact in NII. I think that's the answer.
Thank you, Pablo. Our time is up for today. Thank you very much for joining us here. The investor relations team remains available to go through any other questions. Thank you very much for joining us.
Thank you.
Thank you.
Thank you.