Earnings Call: Q4 2019

Jan 30, 2020

Good morning, and please be welcome to the yearly results of 2019 of Unica Habanko. I'm Jaime Hernandez from Investor Relations. And first of all, as we usually do every quarter, Please allow me by beginning confirming that this morning before opening the market, we have proceeded to publish on the website of the Spanish Securities and Exchange Commission, the quarterly financial information and these results. This quarter, besides the quarterly results, we'll share with you the main lines of our 2020, 2022 strategic plan. The presentation will be given by Angel Rodrigo de Gracia, our CEO and Pablo Gonzalez, General Finance Director. As you will see on Page 2 of the presentation, we have split This presentation in 4 sections. Gelo will begin with the key elements of the quarter. Pablo will continue with the detail of the results and the business evolution to continue later with evolution of the asset quality, the liquidity position and solvency. Finally, Andrew will take the floor again to show you the main axis of the strategic plan and the objectives that we have set ahead of us. So having said that and without further ado, I'll give the floor to our CEO, Angel. You have the floor. Thank you, Jaime. Thank you very much. Good morning, everyone. Thank you for participating, and I'm available to clarify any doubts you may have. I'll begin the presentation talking about the global results of 2019. In that regard, I should highlight that regarding the business, The most remarkable thing is the growth of undoubtful receivables that breaks The trend given over the last few years, even though in the private sector, balances have gone down due to more early amortizations And the total of normal loans has grown up by 0.7% in 2019 compared with a Higher drop of 1% last year, that has been possible thanks to the new operations in the year. The volume of new operations has grown by 28%. And if we exclude the public sector operations, the growth has been 18%, so focusing mainly on the individual sector and the corporate sector. Regarding out of balance sheet funds, this year they grew by 2.2%. And on balance sheet funds have also grown by 0.9%, highlighting the demand deposits that go up by 7%. Regarding the results, the global result of the year has been €172,000,000 which is an increase of 30% from the former year. And I'd like to highlight, even though Pablo will detail and assess the behavior that took place in last few quarters. But I'd like to highlight the following. The interest margin has gone down. Is being offset pretty much by the increase of fees and dividends and to a lower extent by the increase In the results of the equity method companies, regarding the rest of income, ROF has gone down by 3%, but that drop has been offset by the line of other products and charges, marked mainly by the results of the real estate business that in this line represent per year about €55,000,000 Due to all this, gross margin also rose up slightly And together with a drop of 2% in the total operating costs, see the operating margin growing about 6%. The operating costs have gone down this year by 2%. And we also have the early retirement plan that at the closing of the year, it has been implemented by 40%. We plan that the net remaining 60% will be implemented in 2021, 2022. Also, you should highlight the credit risk cost, which is pretty much at 0 below 0.05 percent and last year was also around 0. Even though we have sold portfolios of doubtful loans for about €400,000,000 on the other hand, We should highlight that availing of the surplus of the sale of our Sol and the results of financial operations, we have made non recurrent Significant provisions for about €230,000,000 These provisions, mainly for restructuring costs, will allow us to reduce The cost basis until 2022 and improve the future profitability. Corporate tax has Also, favor the evolution of the penal accounting is virtually 0 since origintaxation of the results by the equity method and the non taxation of the sale of the business equities. From a perspective of credit quality, liquidity and solvency, I'd like to highlight The significant reduction of the problematic assets during the year has been higher than 30%. Representing now our net of provisions of 1.8% of the total assets of the group of reduction. But besides taking place at the same time as we improve as likely its coverage from 57% to 58%. It's also remarkable that the default ratio has increased during the year from 6.7% in December to 4.8 currently. In the last few years, that ratio has improved by 4 points. Regarding liquidity, We continue having a very comfortable position with a LCR higher than 300%. In solvency, we have managed to finish the year with a Tier one ratio of 15.6% 14% in fully loaded. These ratios do not include any positive additional impact That is the Hasso Roody Castle operation. And as we confirmed last year through relevant fact, We represent insolvency about 3 35 additional basis points. Insolvency besides is calculated with the standard methodology by applying weighting of assets that are relatively high. Last, I'd like to highlight, as we'll see next, These results and the current position of solvency have allowed us to improve the percentage of results that we will suggest Given out as dividends, International Shareholders Meeting from 40% last year to 45% this year is the biggest dividend payout in the history of the bank, and it represents a dividend increase together with the increase of the results of about 25% from the former year Compared with the average stock price of bank in 2019, euro represents a profitable of 5.6% per year. As we'll see next, our future objective will be to continue gradually improving the remuneration to our shareholders. Paolo, if you agree, Please continue with the review with a bit more details of the results of this quarter. And then I'll take back the floor to mention the hints of our strategic plan. [SPEAKER MARCO TRONCHETTI PROVERA:] Well, thank you very much, Angel. So I will continue on Page 7. Here we show our P and L account for the quarter [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And for the year, this quarter, I'm going to focus on this slide in order to elaborate on some non recurrent developments that occurred Starting out with our quarterly profit And loss account, even though there was a 1.6% full in income fees went up by 2% a bit more. Afterwards, we're going to elaborate further on this. As for other income, I would like to highlight trading income, which was Quite high as in the previous quarter. This has enabled us together with other extraordinary income, especially outsold capital gains To allocate provisions in order to increase future profitability. As for other products, Other revenues and expenses, this compares quite well with the previous quarter in the same period, mainly due to good results in the real estate business. As for costs, the quarter reported similar figures. However, in the case of impairment and other results, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Perhaps we have more comments to make. As for credit provisions, the quarter reported very good results. We allocated some provisions, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Thanks to the results obtained from transactions carried out. As for foreclosures, we allocated EUR 8,000,000 mainly due to some seasonality that is Normally typical of Q4. And as for other provisions and other items, we have a charge of €13,000,000 Here we have including €110,000,000 on account of outsold capital gains and other provisions, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Especially restructuring costs, all in all, they accounted for BRL 190,000,000 and the purpose of that figure is [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To improve future profitability, a significant part of such provisions will translate into future Savings that we will discuss further when talking about the strategic plan and Helmut will describe that. As you may remember, Virtually all of our sole capital gains are net figures and that somehow accounts for the fiscal impact reported during the quarter. In annual terms, you will see that the interest income came down slightly. However, fees continued to show a Positive trend with an increase of 5.5% over the fiscal period. As for other income, In addition to the positive evolution of dividend payout and the equity method, I would like to highlight the trading income. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] As a result of which, we have been able to allocate significant provisions, particularly restructuring costs, Which, as we have explained before, will enable us to extend cost savings coming from Previous plan, as we shall explain when describing the new plan, so the total cost comes down again during this fiscal period at 2% With an accrued reduction of 8% over the past 3 years, thanks to an effort meeting provisions and cost [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Regarding plans, we believe that this trend will remain over the next three fiscal periods. Finally, the fiscal period provisions have been affected by Specific positive and negative impacts. In the case of credit and foreclosure provisions, we have allocated low amounts over the year, Partly aided by the positive impact of the sale of some portfolios and the income arising therefrom. However, in the case of other provisions and results, we have included or we have made a Special provision effort, particularly mitigated by some capital gains from outsourced, which will enable us To enhance efficiency and our P and L account in the future. If we now move on to Page 8, like in previous quarters, we So the breakdown of our customers' funds. As you can see, total funds continue to grow, reaching Virtually €51,000,000,000 reporting a 1% year on year and quarter on quarter increase. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] As for balance sheet funds, we should highlight an increased number of demand deposits, which Go beyond €29,000,000 in December 2019 after reporting an increase of 7% during the fiscal period. Of balance Shared funds also went up slightly, about 2% in 2019. Now on page 9, you can see The evolution of loans, both graphs on the left are usual reflect the evolution of loans in gross terms. They came down slightly mainly due to a drop in nonperforming loans, which came down by 30 Percent during the fiscal period. On the right hand side, you can see information without not performing balances, as you say, Loans under normal conditions, they went up by 0.7% during 2019, reporting Growth for the first time after a long time. On the right hand side at the bottom, you can see this information broken down by segments. You can see that there was Drop in corporates and in merchant loans during the quarter, whereas the balances remained steady In the so called consumption segment, so this quarterly evolution can be accounted for due to a higher increase of early amortizations for both corporates and mortgage loans. All in all, we can see That in the mortgage segment, we continue to fall mainly because of the same reason due to the volume of early amortizations since The front book continues to be positive as you can see on the following page. So on top On the left on page or slide 10, you can see how the new credit transactions improved in 2019 by 28% reporting growth across segments. In the case of individuals, growth was 9% And very stable interest rate. As for corporate growth was even greater. As you can see, the front book So past EUR 2,000,000,000 reporting an 11% growth compared to the previous fiscal period. If we now Go to Slide 11, you can see interest income, which has cut down by 1.6% during the quarter, mainly due [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To a lower yield of loans affected during the quarter by the depreciation of loans at a lower interest rate And a lower yields coming from nonperforming loans after some sales since part of them Where non performing loans that were actually up to date with the payments, this impact has been Offset with an increase in the portfolio and lower liabilities, including the tiering of the ECB. As for customers' income, at the bottom on this slide, you can see the stock And the front book and you can see how the average interest rate of new transactions continues to be above [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] The profitability of the current stock. Slide 12 shows the current Debt portfolio position at the close end of the year. In Q4 2019, there was a slight growth in Folio balance is mainly due to some purchases carried out in the structural portfolio. As you can see, the characteristics The portfolio went from 1.23 in the previous quarter up to 1.28%, which is quite a highlight because we have attained this While we earned capital gains over the fiscal period, as you can see, we have additional liquidity and therefore, We see if we see opportunities to buy some more portions of pork, yes, we can do so. However, this will depend on how the debt markets evolve. On Slide 13, we show a breakdown of fees, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Which reported a very positive behavior over the quarter and during the year. Fees earned increased virtually 6 The same vis a vis 2018, mainly boosted by collection and payment fees that went up by virtually 12%. Net interest improved by 5.5% during the year. And during the quarter, we are talking about an increase of 6 point 7% compared to the previous quarter in the same period. This is a very positive growth. And as we will explain when talking about the strategic plan, we expect [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To keep this in the future. With regards to costs or expenses on Page 14, once again, we have been able to cut down On costs across the group, which is quite a positive trend taking into account the current Context of the industry, savings went up, up to 4% visavis2017 and 8% compared to 20 This is a trend that, as we mentioned before, we intend to keep over time into the future. Angel will explain The savings that we expect to attain during the execution of our plan, this is justified By the structure adjustments, we have cut it out over the past years because you can see that there has been a change in the number of staff members and branch offices. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And in closing, with this sectional results on Page 15, we provide you an update on the impairments and provisions that have been made. As I mentioned before, it should be mentioned that all in all, we allocated €230,000,000 during the fiscal period in order To increase future profitability, out of which €40,000,000 were allocated in Q3 2019 €190,000,000 in Q4 2019. Such provisions, mainly restructuring costs, will enable us to render additional [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Savings in the strategic plan time line, as Angel will explain later on. This is an effort made in provisions that has not affected Our dividend payout or net income because this has been mitigated in the P and L account through extraordinary trading income and outsold profits. At any rate, I would like to highlight that in 2019, credit Pacific rate cost adjusted by the portfolio results was just 2 basis points visavis5 basis points the previous Period. This is quite an uptrend that can be explained, as we mentioned before, by the bank's hedging levels. We are now going to talk about the quality of assets. On Slide 17, you can see the evolution of nonperforming assets or NPAs, the balance of which has been reduced quite Significantly, over the past two quarters, such a reduction has been supported by the sale of portfolios announced in July last year, out of which Approximately 50% were recorded in the 3rd quarter under remnant in this quarter, leaving this balance of NPAs Stand at €1,351,000 and the default ratio at 4.8. Such figures are quite far away from this reported 5 years ago when we reported EUR 4,800,000,000 In nonperforming low, since then, we have been able to reduce such a balance by €3,000,000,000 On the other hand, at the bottom of the slide, you can see The quarterly evolution of gross entries and recoveries by type, Here you can see the significant fall reported this quarter since the execution of sales was coupled by Some gross entries that were relatively low compared to previous quarters, thus reducing the NPL balanced by 14% during this quarter. On Page 18, you can see The breakdown of NPL hedging by segment. Overall, hedging was reinforced over the quarter up To 54%. This is very important taking into account that the bulk of the quarter's reduction was due to the sale of [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] The portfolio, this means that we have not sold those balances that were better provisioned. It should be highlighted that such a hedging level is Highly conservative. If we take into account that 87% of delinquent balances have mortgage security and that the appraisal value of such securities virtually twice as much as the current delinquent on unperforming balance. On Page 19, you can see a breakdown of foreclosed assets at the end of the fiscal period after the strong reduction in the In Q3, as a result of the reclassification of foreclosed assets reclassification and subsequent sales, We continue to decrease them down to €1,120,000,000 with a book value of just €400,000,000 Despite this significant reduction, the hedging level was stood at 63%. And as it normally happens with nonperforming balances, this means that we are not selling just assets with the highest hedges, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] But also we continue to allocate provisions in sales as you can see on the graph on the top of the slide on the right. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So bearing in mind that we have mentioned on Slide 20, you can see that this translates into a reduction of the regular assets that continues To speed up, in 2019, the total number of nonperforming assets totals EUR 2,500,000,000 reporting a reduction of €1,100,000,000 over the past year. In net terms, this implies a ratio of 1.8% over total assets. Total hedging of these NPAs goes up to 58%. This evolution is also reflected in the So called taxa ratio shown at the bottom, which as you can see continued to slide down for an additional quarter standing at 46.7. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] As for our liquidity position, as shown on Page 21, the situation continues to be quite comfortable and similar to previous quarters. The loan to deposit ratio stands at 71%, LCR above 300% and And SFR above 140%. As for wholesale maturities in November, we had some securities in the amount of EUR 4 €8,000,000 maturing with a cost of 3.4%. Such maturity translated into savings [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] That were used to mitigate the cost of the emission of Tier 2. Remember that in November, we We issued subordinated debt in the amount of €300,000,000 that was quite And that was done at a cost of 2.875%. And in closing, on Page 20 2, you can see the credit solvency situation, ratios that continue to improve over the quarter, supported by the formalization of outstanding portfolio sales, placing ratios quite above regulatory requirements, as you can see On top of the left, here we compare them with the regulators requirement. So as you can see, we have an excess average amount over the total capital of EUR 1.1 €21,000,000,000 capital ratio going significantly up over the quarter, approximately 100 50 basis points. And this is justified by the emission of Tier 2 in the amount of €300,000,000 at the beginning of November. On the right, on top, you can see the evolution of CET1 fully doted ratio That reported a growth of 20 basis points over the quarter, mainly due to risk weighted assets as a result of selling Nonperforming loans portfolios, by contrast, there was a slight fall as a result of lower capital gains At reasonable at fair value, that was mitigated by the overall quarterly results. All in all, therefore, the CET fully loaded Stands at 14%. This being one of the highest in the industry and the highest among listed banks in Spain. [SPEAKER MARCO TRONCHETTI PROVERA:] Showing, on the other hand, an increase of about 50 basis points over the quarter. So now Angel will resume the presentation in order to share with you the highlights of the new strategic plan. Thank you very much, Pablo. Before I deal with the new plan and the details, please let's go back to Slide 24 To look back and explain how Unica Habanko has improved for Sysbank in the last few years, we saw leaders in the regional markets in Andalucia and Castiglione, keeping in the main provinces Our market share deposits of around 30% were leaders in solvency around the listed entities with CET1 ratio of about 14%. We have continued with a strong discipline of cost reduction, managing to reduce cost by 8% after the successful integration with Banco Espana Duero. The commercial activity in the last few years has increased regarding crude production of about 20% And we have mentioned reduced level of NPAs from 4.9 at the end of 20 16% to 1.8% in the end of 2019. In June 2017, we had an IPO And that allowed us to generate a good trust with the investing markets as reflecting the last issuance it's made. That allowed us to increase Our commitment to the shareholder payouts that has been multiplied times for 0.5 since 2016. All that has been done in a context environment that has been quite complex for the sector with negative interest rates, Secular leverage that is still continuous in some segments, just the mortgage segment. And in our specific case, in regions with unemployment rates that are 10% higher than the national average where default ratios still in March 2019, some provinces are above 10%. Even though we have managed to achieve these milestones, it shows that we have lost as a bank, that now we're a better institution than we were in the past. If we go to Slide 25, you see that the new strategic plan is supporting our values. Reinforcing them is something we aspire to in our institution to become the leading financial institution in our early markets. Our reference point in quality, proximity and trust to customer service, committed sustainability, Value Creation and Sustainable Finance. On Slide 2016 regarding sustainable finance, we show different agreements that have been signed In this area, such as the U. N. Global Compact, we have also integrated sustainability together with CSR in our management instruments, and And we are preparing within the access of the strategic plan and action plan on sustainable finance. And here, We want to put in order on the most relevant aspects of the advanced transition towards the management that includes the aspects relative to sustainability. On Slide 27, we show the 5 axis of the strategic plan that will guide the strategy of the institution for the next 3 years. First Axis has to do with the business. 1st, we want to grow and diversify the business model, taking main focus on the client and profitability. Secondly, we want to improve efficiency of processes and systems, supporting ourselves on utilization. Thirdly, the 3rd axis has to do with risks. 2, manage risks in a cautious and agile way. 4th, The 4th axis has to do with technology, Empower, and Data Analytics as a key element in business efficiency. And the 5th Axis has to do with the human level, adopting new ways of working at Cultural Revolution. On Slide 28, we show the main lines of work of the Business Access. DISH focuses on high value customers, a specialized business and transformational distribution model to meet the customers' needs. We want to improve by increasing customer engagement, And we have set us an objective to source 10% more payrolls and increase the profit inflation per client in 20%. To the result, we're going to develop advanced customer segmentation to better help us know their needs and we'll also develop value process and differential distribution models for Corporate and Personal Banking segments. On the other hand, to empower specialized business, We'll consider commercial agreements that help us improve the product offer and empower the generation of customer margin. All this translates into specific objectives with the growth for credit investment higher than 2% in undoubtful credit, 4% in off balance funds and 6% in insurance premiums and 10% in means of payment turnover. We'll also transform our distribution model. We'll empower multichannel model, and we'll evolve with urban areas model With our new office, we also promote the creation of a remote care unit for customers with high value and high potential aiming To get a 65% of our customers operating in our retail channels in 2022, that rate is currently 48%. On Slide 29, on the efficiency and access, we focus on improving productivity in the utilization of the total processes to achieve cost reduction that would be currently around 3%. And by the end of 2022, it would represent a Comparable savings of €70,000,000 compared to 2019, the net effect will be about €50,000,000 after the CPI. And that will allow us to improve productivity per branch around 40% to 45% and average profitability of the branches as well as well as channeling through 300 financial agents. Right now, we have about 150, reducing administrative burden about 50% and doing 50% of transactions through mobile devices. On Slide 30, we see the priorities of the risk management access for the institution. And mainly, it tries to compartmentalize the growth with a low risk cost. We're going to do that with a solid irregular assets We had €5,700,000,000 and we have reduced that figure of irregular loans by €1,100,000,000 per year. We want to improve the response times. €1,000,000,000 per year. We want to improve the response times for credit, improve analytics regarding risks and go towards our RMB models that we hope to complete by the end of 2022. We have objectives. In this case, the The ratio will be below 2.5%. The net NPAs would be lower than €600,000,000 The risk Cost, we estimated at 30 basis points. We think that is cautious taking into account the current situation of default ratios. In order to follow ratios, 95% has mortgage warranties or collateral And subjective doubtful are about 30%, but they're not in arrears. The coverage, we want to keep it in 50% of default. Regarding our customers, we want to develop analytic capabilities of our risk teams. On Slide 31, we see analytics and data access that aims to improve availability and exploitation of data in the whole organization. There are 2 elements there. We want to devote €190,000,000 to continue with the technology and technological transformation. And we foresee to train new skills for Model Development and Advanced Capabilities for exploitation. On Slide 32, related to the axis of Talent and Culture. We have the following actions. 1st, a specialization of new sales figures affecting about 500 rows and new technical capabilities for the institution, access and market for talent sourcing. We're talking about 70 to 100 people as well as promoting an agile working culture affecting about 100 employees in cross sectional projects and launching an incentive and career development plan linked to achieving the plan that will affect 100% of the bank's units. On Slide 33, we have a macroeconomic hypothesis of the plan, which comes from the basis of a moderate growth, a decrease of 1.6%, 1.8% of the growth by 2022 with an unemployment evolution of 12.3% to 12%. There's a slight decrease. And our CPI from 1 0.5 to 1.6. And the other way, we go from 0.30 to 0.11. Slide 34 sums up The plan's results, what do we foresee in the plan? Well, we want to have a profit growth of with 10% per year for the next 3 years, having an efficiency target below 6% in 2022. And I recon profitability higher than 5% for the next few years. And if we had to do it regarding the CET of 12%, that would be higher than 6% regarding the balance sheet and solvency targets. As I said earlier, the aim is to continue strongly management credit quality. And keeping the default ratio below 2.5% by 2022, having a CET1 ratio above 13%, currently were above 14%, complying with our MREL targets of 20.6%, representing A eligible liabilities issuance of around €1,000,000,000 we are considering the favorable impact of the IRB, if appropriate. And on the other hand, we want to improve dividend to our shareholders in each of the following years, where we expect to Give us a dividend payout. More than half of the results have been recognized. I'd like to quickly go over with you on our priorities. First of all, we have proven that Unigail Banco has the ability of generating results and that's quite remarkable. That allowed us to make an important effort to provisions without the net result of our solvency being affected. Thanks to these provisioning effort Possible due to the financial position and the cautious management we've had in the past, we're able to continue yet another year reducing our cost base and confirming that in the future we'll be able to give you this trend. Therefore, we think that the structural profitability in the future will keep improving And you will do so by giving a very conscious balance sheet position with solvency, liquidity and coverage, conference positions. So just like in the past few years, we think we'll continue improving dividends and shareholders' payouts. And as a conclusion, I'd like to finish by saying that to achieve all these targets we just mentioned, the bank has a very advantageous position. We have made The necessary provisions to carry out the plan and we have latent subplants in our portfolios that are quite significant in that. We have a regular assets coverage that is quite high in the sector and our solvency is quite comfortable and high amongst the solid state markets in Spain. Thank you very much, everyone. Thank you very much, Angela and Pablo. If you agree, we We'll now address the questions that we have received through the webcast. As you can imagine, this quarter, We have plenty of questions, perhaps more than often with regards to the strategic plans. So we will try to curb such questions in order To answer as many questions as possible. So starting with the income statement of the P and L account And talking specifically about the income, Michael from Banneker asked about the drop [SPEAKER MARCO TRONCHETTI PROVERA:] In terms of interest income over the quarter, Pablo, would you like to address that? [SPEAKER PAULO SERGIO KAKINOFF:] Yes. Well, during the presentation, we mentioned that [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Interest income went down by 1.6% during the quarter, the main reason being lower Loan interest accrual. This is somehow justified by the repricing effect until a lesser extent [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] By reduction in mortgage loans with floor interest rate and also due to A lower accrual in NPAs that we have cut it out At the closing of the previous fiscal period. Pablo, with regards to, again, interest income, some Analysts such as Jose Coll from Santander and Lara from Kyiv ask us about our guidance [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] For fiscal 2020 within the strategic plan horizon, well, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] As you may imagine, it's very difficult to provide an interest income guidance because, as you know, this is [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Affected by external factors outside of our control that will have a direct impact on such guidance. For example, future evolution of interest rates, the evolution of debt markets, appetite And quality credit demand. These are just some factors that will Affects the evolution of interest income significantly in the forthcoming months. However, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] There are certain things that are within our control and taking into account conservative approach. We expect the interest income To remain stable in 2020. That is to say, should there be any variations whether positive or negative, we do not expect them to be too significant. If by 2020, it's difficult to hit the hypothesis For 2021 and 2022, there's not much we can say since there are external factors Profitability improvements are not supported by improved interest income because actually we have considered very prudent hypotheses, which were also [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Realistic and conservative because we understand the current interest rate scenario we are in. What's more the interest rate curve that we have used up To date, it's slightly higher even though it went back a little bit lately. So in summary, and as I have Plain, Unikaha Banco is in a very comfortable balance sheet position in terms of both [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Solvency, Credit Quality and Liquidity. And therefore, as Angel explained, the plan is mainly focused [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] On recurrent profitability, which we expect to improve gradually by earning more On account fees and by cutting down on costs, we do not expect this actually to increase mainly as a result of better Interest income figures. Alfredo Alonso from BBVA and also Yalan From Auro Corporation, I have questions about volumes and the drop of credit over The quarter. Well, this was a specific drop over the quarter, which was quite extraordinary compared to previous Fiscal years and this happened mainly with regards to corporate credit. Over the past 15 days, this drop It was virtually 1%. We have also observed that during the 1st 20 days of January, there was Quite a significant recovery more or less phantom onto the previous fall. So mortgage loans came down by a similar figure, And we cannot say actually that this is extraordinary. Thank you very much, Angel. There's one there are similar Questions concerning volumes foreseen in the future, Jose Colle from Santander and Achevaray from ESAN ask us About segments and when we expect credit to resume growth in the future. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Sure. Well, we expect credit to start growing, and we believe that such growth will be seen in consumer loans and corporates, where our market share It is lower than our overall market share. On the other hand, our experience in the consumer low market, regardless of our low share, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] It's quite positive. Defaults in this transaction has virtually reached virtually 1.5% or even less. Thank you very much, Angel, Pablo. Let us continue. Talking about Income, Marisa Masso from GVC ask us about the portfolio strategy and our unrealized gains strategy. [SPEAKER MARCO TRONCHETTI PROVERA:] Well, the debt portfolio strategy has not been changed compared to previous quarters. We continue to keep [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Portfolio carried at amortized cost, the purpose of which is to invest excess [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Structural liquidity, in order to generate additional income Through interest income, this portfolio is mainly invested in European sovereign debt, especially Spanish debt, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] With medium term and long term duration periods, the average financial duration is 6.4 years in order to [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Cover the balance sheet interest rate risk, which is a result of having some funds at fixed interest rate [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And private equity at variable interest rates. On the other hand, and taking into account the interest [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Trade situation, we could have some hedges over interest rate and credit with regards to portfolios. In the 3rd quarter or in the at the beginning of the 4th quarter. We tried to realize some unrealized gains in a scenario of low long term Interest rates and those sales were reversed through acquisitions at the closing of the year in view of an increased liquidity and the rebound in interest rates reported at year end. As for the portfolio carried at fair value, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] With some changes in the shareholders' equity, the strategy remained unaltered. This is an opportunistic Portfolio still, the purpose is to earn capital gains in the fixed income market And in quarter in Q4, this portfolio did not vary much in terms of the risk under So this is at the bottom of the range, we could say, given the spreads and interest rates In the credit market, as for unrealized gains, you asked me about that. Well, at year end, they were slightly Above. Actually, these gains are carried at amortized cost. So these gains were slightly above 5 €100,000,000 If we take a look at their evolution during Early 2020, prices continue to go up. Thank you very much, Pablo. In connection with this question, and we Got another question as for the contribution of these portfolios in the future. How do we expect them to behave? Well, we believe that in the fourth Coming quarters, these portfolios contributions We'll be slightly above 50,000,000 quarter on quarter Along the lines of what we reported in 2019, we expect that the interest income contribution will be similar To that of 2019 during this fiscal period, Jalal from Auro Corporation and Marisa from GBC ask us [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] About the Tiering impact. Well, Tiering has already had a positive impact during Q4 because it enabled us to apply a 0% interest rate To excess liquidity up to 7 times our minimum reserves, which translates into more than €1,000,000 If we compare this with a minus €0.50, that would be the cost of liquidity as per the ECB prior So herein, if we talk about €2,000,000,000 we are talking about €10,000,000 annually approximately. Thank you, Pablo. Andrea Unsueta from Credit Suisse. She asks whether we can Clarify our view as to sensitivity to interest rate. Let me answer that. Well, as we already described during this presentation and in previous presentations, one of our strategies Has been to reduce in the medium term the potential negative effect On interest income in a low interest rate scenarios, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So this change affected the evolution of interest rate evolution since February last year. And gradually, we have been implementing actions in order to adjust such figures. As for the short term, the negative impact of a drop in interest rates It was quite significant on our interest income because we are going to report lower income in our credit portfolio, We have a floor of 0 among retail customers. Therefore, this Increase can have a positive impact because it will be reflected on profit and not on costs. If we take into Account up minus 10% basis points on this curve. Once we allocate this [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To the balance sheet or once we post this to the balance sheet, we are talking about a level similar to the previous quarter of 2.5%. Thank you, Pablo. Angel, maybe this question is for you. Jose from Santander, ask us about [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Our position with regards to fees and commissions. Well, during 2019, fees and commissions went up by 5.5%, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And mainly supported by transactional services and insurance. Our target for the strategic plan is [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To increase fees and commissions about such a percentage, we are talking about 20% to 25% in cumulative terms to be fulfilled [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] In the next 3 years, there are several initiatives such as insurance means of payment and some of the balance sheet funds [SPEAKER MARCO TRONCHETTI PROVERA:] Where we believe that we still have some room for maneuvering. Thank you very much, Angel. We have several other questions about Income regarding trading income and other income, Pablo. Should we start with trading income? Because again, it was quite high during Q4. [SPEAKER MARCO TRONCHETTI PROVERA:] So where should we expect us to trade in income? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Now once again, this year's trading income was relatively high. We In fact, it was just as high as in the previous fiscal period and as in previous fiscal periods. We used unrealized gains in order to mitigate negative impacts on the statement that were not recurrent. [SPEAKER MARCO TRONCHETTI PROVERA:] So partly these impacts were offset, but realizing some capital gains from the portfolio, especially The fixed income portfolio. One of the advantages of such a low interest rate scenario is that our capital gains are high. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Besides the debt market volatility offers a number of opportunities that we're trying to harness as much as possible. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] As you very well know, the debt market reported Some highs, we tried to realize a portion of our gains [SPEAKER MARCO TRONCHETTI PROVERA:] Because we believe that by managing them actively, we can somehow offset Margins. Recurring trading income in the future should be expected to be slightly lower compared to previous fiscal periods because, among other reasons, we do not expect to carry out significant allocations or extraordinary allocations. In 2018 and in 2019, we allocated €380,000,000 in order to implement actions [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To become more efficient and in order to increase our recurring business profitability in the future. For that reason, we will continue [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] To reduce our cost structure all the way through 2022. So going back to the question, The income trading income for the previous fiscal periods is not a reference to be taken for the future. However, we also David, the same last year, so I cannot be too categorical in my statement as to the final trading income. This will depend on the Thank you very much, Pablo. As for other income, do you have any general Well, you are talking about other revenue and expenses. In Q4, We have, well, lease revenue slightly above maintenance costs. In the past, this was already offset. Now it's slightly higher. We also have contribution to the deposit guarantee Fund in the amount of €45,000,000 DTA rate standing at €45,000,000 That's a contribution to the guaranteed fund and DTA Right. And R10 million corresponds to income from the real estate business, Especially from Lehiya, our servicer, and then there is an additional €10,000,000 coming from other entries or captions. These are income from Duero VIDA. It is true that The profit was better than last year, mainly due to the real estate reported profit, Which shows a positive trend of the sale of real estate. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] In Q4, some additional adjustments were made [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] That were not carried out this year. And together with the contribution to the Deposit Guarantee Fund, It was slightly lower. That accounts for the difference. Regarding income Dividend from margin and fees and commissions, in the future, we should expect a trading income that perhaps will not be as high for the reasons we I've just explained other income from the equity method and other [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We'll be quite steady and maybe divided into 2. We should underscore once again that profitability will increase [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Through the plan, as a result of increased fees and commissions, as for other income, we believe that they will be more stable. We should expect that positive results from the real estate business will actually slide down gradually, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Even though they continue to increase as happens with trading income, so If we combine this with reduced cost, we will be able to attain our increased profitability target. We have several other questions about costs. Jose Coll from Santander Fernando from Barclays, Michael from Loringa and Mario from Fientes have several questions. Dara from Kyiv, Jaram all have questions About our expected savings arising from the strategic plan compared to the our previous plan. As we said before in the presentation, and now we're announcing the total of the savings of the cost So we expect to materialize in the plan's horizon will be around EUR 7,000,000, that's gross, plus in 2022 in the last year of the plan. And in net terms, Taking into account the impact of the summation of the increase of salaries because the net impact is always much more difficult to calculate. It depends so much on our actions. It's conditioned by the other variables, as you may know. But by making some reasonable hypotheses regarding the evolution of the salary inflation and other concepts, You may understand there will be around €50,000,000 45,000,000 €50,000,000 that is in net terms, which could be relevant. And regarding this €70,000,000, What we've done was to update the former plan. We're not going to keep 2 plans. We have updated the estimates of work spending from the former plan, And we've added the new additional effort that we think can be taken and the measures that we're going to take. So the €70,000,000 gross savings that we mentioned here do include the ones that were pending from the former plan. Thank you, Pablo. Regarding costs, I'm going to just ask some other more specific questions that may not have been answered, just in case. And they're asking us to clarify where savings will come from and how will they materialize in the P and L and whether we can give a bit more details on the RMB190 1,000,000 that we've shown that we're saying that we're going to use for transformation. Could you please just give us a few more details? So I think that here, the important bit Is the ability of the bank and its ability to generate resources to take these measures. The plan is a 3 year plan. And as we take the specific measures And we can communicate them, mainly the most relevant ones. We'll inform you about them. So right now, the most important bit is that we have carried out the additional effort in provisions, mainly, as you may imagine, regarding restructuring costs and efficiency improvements, and that will allow us to extend and increase savings of the institution. In the terms that I've already mentioned, And hello. So mention them. Having said that, we can advance that savings will not materialize linearly As they take place or as we carry out the different action plans that we have within the plan, These savings will materialize, but the commitment and the ability to carry them out has been clearly detailed by Angel. Just one more question, And then maybe you could keep talking about other things, but just more question about cost. Could you give a bit more detail regarding the 190 1,000,000 provision in the quarter that is non recurrent. Well, I've already mentioned it, but most of it Most of that provision will be for restructuring. We've also done provisions of other sorts. But in other hand, there are provisions that will allow us to reduce costs and improve efficiency of the institution forward looking. And we need to take into account that to this €119,000,000 we need to Our €40,000,000 provision in the provision for in the former quarter. Take into account that we have provisioned €140,000,000 a year before. So all that's been accumulating. And that such significant volume of provisions has been done without the evolution of the net profit because as you know, it goes up significantly this year and there was no effect there. So There is a clear proof of the ability to generate results of the bank. And the focus of the business plan and its as management is to improve the future recovering profitability of the bank. Thank you, Pablo. So Angel, Maybe this question is a bit more for you. Mario Paz Ojeda from Banco Sabadell Jose Coll from Banco Santander and also Mauricio Samato from GVC and asking whether we could clarify what's been the cause of recurrent risk and expectations for the future risk costs. Well, the cost of recurring risk this year has been around €12,000,000 representing about 0 point 4%. Nazia, that was nearly nil, and 2 years ago, that was about 0.15%. So The cost of risk is extremely low. However, in the STIG plan, we're considering a cost of about 0.30%. And somehow, as we were saying earlier, that's based on the makeup of the down full portfolio, mainly mortgages and the high component of subjective that are up to date in payments. Okay. Thank you, Angel. Maybe the next question could also be for you. It comes from Jose Coll from Santander Naturale from Dexane, asking about whether we consider selling more MPA portfolios and nonperforming assets and whether we have already formalized all the sales announced in July. Yes, all those have been finalized. The last ones were done in December. And regarding the portfolio sales, we cannot say anything right now or as you may imagine. Due to confidentiality. However, with the provision levels we have and our past experience as alternative for portfolio sales for us will represent additional costs to the provisions that we've already made. Regarding the stake plan, on the other hand, the net amount that we have of provisions for 1,000,000,000 And we reached a balance of about €600,000,000 in doubtful that is net. Taken to come that last 3 years, the level of NPA reduction has been 1,100,000. The figures are quite cautious here. Thank you, Angel. Andarak Quinn from Keyfmarck JB and Alain from I'm asking about the capital in the quarter and the expectations in the year regarding capital. Well, in the quarter, The capital ratio CET1 fully loaded, as you may have seen, has increased in 20 basis points. And here we have a positive of the lower APRs, mainly as we announced due to the NPI portfolio sales. In the Q3, we already got out of half of the doubtful ones that we sold, EUR 190,000,000, But we still have pending the other half as well as half of the Solvay 4,000,000 to remind you, that were reclassified at the time to LUSET Investments. They came out of the item of NPAs, but not The total amount regarding capital. In the Q4, we've already Taking out the total of the portfolio sales both for NPLs and foreclosed assets and together with the drop of volumes in the last quarter, That explains the lower APRs. On the other hand, we have the impact regarding the mark to market of the debt portfolio in the Q3 that is a result of 50 basis points. And after the recent evolution of the markets, It's gone to 40 basis points. All in all, the CET1 full loaded stays at 14%. As you may know, it's one of the highest or actually highest in the listed entities. In terms of total capital, besides the evolution of the CET1, we need to take into account the subunit in that tissue. So altogether, the total capital full of the is 15.5%. And the regulatory one, in our case, is significantly higher at 17.2%. Besides, as we announced last week, the Kasur operation We generate around 35 basis points of additional capital. Therefore, forward looking, we do expect to keep the CET1 fully loaded at comparable levels. And as we've shown on the plan, always are above 13%. And as usual, We'd like to remind you that given the high densities we have in our credit risk, Basel IV will not affect negatively. Since we are in the standard model, we do not have impact from the TRIM results. We continue having some positive levers such as the approval of the advanced models. And here, I'd also like to highlight that the commitment of the plan and the management is to pay the shareholders either through dividends and dividend increase and We're also assessing our other alternatives that we understand are favorable for shareholders such as share repurchase share buyback. Well, thank you, Pablo. Related to this, Dara Quinn from KBW and Carlos Peixoto from Caixabank and Mario Lopero from Finlandis are asking about a Possible update about the situation of possible approval of IRB models, advanced models. Well, regarding what we've said in other quarters, we can actually confirm that we continue IRB. We continue using our IRB internal models in design management and the operational management, and we keep you in developing new processes to increase our usage. Regarding the approval, as we've said in the past, Since this is something that does not depend on us, we'd rather be cautious. And we rather not give specific deadlines, but or times. But when we have more details and whenever we can confirm this, we will. What I can say though is that once again, we're complying again with the milestones we had in our original plan. And if everything goes according to plan, we do expect that by the end of the year, We'll have the 1st internal models. And also related to solvency, Pablo Paco Ricca is asking from Atlanta and Yalanda Corporation is asking us to give an update on the sales treasury stock and the amortization plans for shares in the future. Well, as you know, we currently have authorization to buy up to 3% of the treasury stock, But we do not have authorization to amortize those shares. At the end of the year, As you may appreciate in the financial information of the institution when it gets published in the details, Treasury stock represented about 0.9% of the total shares circulation. So in our opinion, our potential amortization of shares makes a lot of financial sense for entities with a strong capital ratio such as ours. And the commitment of the bank is to improve I'll come on the remuneration to shareholders, how capital position is allowing us to do so, and we like to do it as efficiently as possible. As you know, we're assessing alternatives. And when we have news, we'll communicate them. Pablo, another question for you from Dara Keith Malipa, Togeta from Sabodel, Carlos Peixoto from Caixabank. The ROE target is adjusted to CET1 fully loaded that is lower than the CET1 full year target. Could you please explain that and confirm that the intention is to improve 10% of the net yearly result. Well, here, You already know the bank's philosophy. We think that it's appropriate to manage the bank with a comfortable solvency position, But this is something that kind of penalizes the reported profitability. The ROE target was adjusted to a CET1 fully loaded of 12% because it's a reference point in the market in a level that is a bit lower for some where some similar banks operate. So we do it only for profitability to be more comparable. However, regarding solvency, we're maybe a bit more cautious since we prefer to manage the business with ACT while full loaded higher than 13%. To sum up, We do have some room where 14% and the business plan proceeds in writing the organic capital. And I link also the second part of the question here. The guidance is to improve The net profit in double digits well, double digits year on year, not at the end of the period. And obviously, that entails an additional generation of organic capital that will allow us to improve shareholders' remuneration. Thank you, Pablo. So I'm going to group these questions due to lack of time regarding consolidation, M and A News that appear on the press regarding some proximity with Liberbank. Has the banks So it changed after the decision of the Bank of America to constitute the reserve fund. Could we talk about that regarding M and A. Regarding the foundation decision, that is the decision of a shareholder, We cannot comment on it. We do perceive it as something positive. Founder and shareholder may want to increase their stake in the bank. Seems to be a recognition of the value in the ability to generate value for the shareholders. Having said that, As we have a potential operation, I can confirm that there is no contact with any other institution. And we're actually focused on implementing our plan. Having said that, as we've said in the past, we're always open to assess any operation that may bring value to our shareholders. Well, very well. Pablo, thank you very much. Due to the lack of time, we'll leave it here. But if there were any other additional questions or if you need additional information, please do get in touch with the Investor Relations team and we thank you for your time. Thank you very much and see you next quarter. Thank you very much. Thank you.