Earnings Call: Q3 2019

Oct 28, 2019

Hi. Hello. Good morning to everyone, and welcome to Unica JAVANCO Q3 2019 results webcast. First of all, let me start confirming, as I usually do, that we have published the quarterly financial report and this presentation this morning before market opens in the CNMV website. Our Chief Financial Officer, Pablo Gonzalez, will explain the main trends of the quarter. And following the presentation, we will answer the questions received from the webcast and in the IR inbox. Pablo, whenever you want. Thank you. Thank you, Jaime. Good morning to everyone. I will start in Page 4 with the regular summary. Starting with the business. Performing loans grew 3.3% year to date, something supported by the continued positive new loan production trends, which grew 38% year on year with individuals growing at 10% and SMEs at 8%. Regarding customer funds, let me highlight that both of balance sheet funds and current account balances grew above 3% in the 1st 9 months of the year. Now moving to results. Taking advantage of the rally in the debt markets, We have generated strong trading gains this quarter and booked in full €40,000,000 of pending restructuring cost. Fee income also continues to grow slightly above 5% compared with 2018, while total cost fell 2.5% in the same period. Also, recurrent loan losses and foreclosed charges remain low, something that explained that net income grew 12% in the 1st 9 months of 2018. On asset quality, Liquidity and Solvency, NPAs fell by 35% year on year with coverage levels stable. It is worth noting that these figures include a significant part of the portfolio disposals announced at the end of July, but only a small part of the positive impact on insolvency. Regarding liquidity, our position remains very comfortable with the loan to deposit ratio at 75% and the liquidity coverage ratio at almost 300%. Finally, from a solvency point of view, I would highlight that our SEED 1 fully loaded grew close to 60 basis points in the quarter to 13.8%, improving our already significant buffer over SREP requirements. In Slide 5, we show an update of the situation of the recent portfolios disposals announced in July and the voluntary exit scheme announced at the beginning of this year. Starting with the portfolios, As you probably remember, we announced the disposal of €830,000,000 of gross non performing assets at the end of July. As of the Q3 2019, most of the real estate assets included in such disposals have been reclassified from foreclosed assets to real estate investments. So they are not considered neither foreclosed assets nor NPAs anymore, Although they are still included in the risk weighted assets, so Q3 2019 solvency do not include The benefit from these disposals, we expect to formalize the disposals before year end, something that will reduce further the risk weighted assets. Regarding the NPLs, we announced that The disposal of EUR 370,000,000 last quarter and around half of them have been already formalized in this quarter, with the remaining coming by year end. In summary, 3rd quarter 'nineteen NPAs balances are reflecting the disposals of all the foreclosed assets and half of the NPLs. But from a solvency point of view, we're only considering the benefit from half of the NPL included in the portfolio sold. In other words, There is still a 26 basis points positive impact in solvency from these disposals that we expect to include next quarter, improving our regulatory CET1 to 15.6% or above 14% in fully loaded terms. On the other hand, As we show in the right hand side of the slide, taking advantage of the bond market's performance, we have generated strong trading gains in the quarter that have been used to book in full, the pending restructuring costs. As a reminder, with these provisions, we have already booked the EUR180 1,000,000 of restructuring costs needed to crystallize the €55,000,000 of gross savings that we expect to generate in full by 2021. I will continue with the results and business section in Slide 7, where you can see the P and L details. This quarter, there are some nonrecurrent impacts that I will try to explain, But basically, we have generated some non recurrent gains that have been used to offset some non recurrent charges. So net net, the bottom line impact is almost neutral. Starting with the gains, we have booked EUR40 1,000,000 of trading gains from our debt portfolio this quarter and other €20,000,000 of gains from real estate disposals booked In other operating income and expenses, these two impacts represents around €60,000,000 of non recurrent Gains included in Q3 2019 gross margin that have been that have mitigated the same amount of nonrecurring charges. Regarding the charges, we have booked €12,000,000 of loan loss charges and another €7,000,000 of general provisions, both of them related to the mentioned NPAs disposals. Also, as I explained before, we have booked the €40,000,000 of pending restructuring costs. So all in all, the gains from part of the portfolio disposals have compensated the negative impact from other disposals and the trading gains from our debt portfolio have compensated depending quarter on quarter owing among others to the lower contribution from the debt portfolio partially explained by the debt portfolio disposals. On the other hand, fees continues to show a very positive trend, being quite stable compared with the previous quarter and growing 5% in the 1st 9 months 2019 compared with the previous year. The rest of the P and L was very stable with total cost and recurrent provision very similar to previous quarters, leaving net income at €43,000,000 in the Q3 'nineteen and at €159,000,000 for the 1st 9 months of this year, 12% above the previous year. Finally, we have included in the presentation the P and L of 9 month 2017 because we believe it is positive to highlight last 2 years trends. In these 2 years, core income has grown above 2% with NII 1% above and fees Almost 5%. Total costs are down 5% and net income is 17% above 2017. All of them quite positive trends showing recurrent results trends. In Slide 11, Sorry, if we move To customer funds in Slide 8, you can see that total customer funds fell 1% year on year, Although they were stable year to date, on balance sheet funds fell in the 1st 9 months of the year, But site accounts continue to grow. Most of the drop in terms of deposits was explained by our active management trying to improve future interest expenses. Other positive news is the confirmation of the change In the trend in our balance sheet funds since the beginning of 2019, as you can see, Year to date balances grew above 3%. In Slide 9, We show the credit and loans trends. Gross loans grew 1.8% in the 1st 9 months of 2019, with public sector growing 37%. NPLs decreasing by 18% and private sector growing at 1.4%. On the right side of the slide, you have the details on performing loans. As you can see, they grew above 3% in the 9 months of the year. Bear in mind that in In Q2 2019, we always have close to €400,000,000 of seasonal advances that disappear every 3rd quarter. Finally, let me highlight the bubbles on the top of the chart in the bottom right, where we show the year on year trends of private sector performing loans. As you can see, despite the decrease in mortgages, The year on year trend continues to improve every quarter, with the last three quarters showing year on year growth. In Slide 10, we show the regular information of the new loan production by segment. Overall, new production grew by 38% in the 1st 9 months of the year, supported by public sector. However, new loans to individuals grew 10% with higher yields than in 2018. In corporate, new loan production grew by 16% with SMEs new loans growing at 8%. In Slide 11, we start The P and L review with the NII details. As you can see in the top right, the quarterly The net interest margin performance that fell from 105 basis points to 102 basis points. Bear in mind that the big bulk of the decrease was explained by the lower contribution from the debt portfolio, which fell close to €2,000,000 following some bond sales. On the other hand, the customer spread in the bottom of the slide Of the front book remains well above the back book 1 more quarter. In Slide 12, You have an update on our debt portfolio, where you can see that overall balances have been pretty stable this quarter. However, we have increased a little bit the net balances of our fair value OCI portfolio, which is the one we manage more actively. It is worth noting, as I said before, that some of the changes of the portfolio have enabled us to generate more than 40,000,000 gains this quarter. As usually, just to highlight that the big bulk of the exposure remains sovereign debt classified in the amortized cost portfolio and that the yield was also very stable at 123 basis points in the Q3 'nineteen compared with the 125 basis points in the Q2 2019. Now if we move To Slide 13, you have the fee income trends that were very positive compared with last year and very stable compared with the previous quarter. Net fees grew a bit more than 5% in the 9 months 2019 compared with the 1st 9 months of 2018, mainly owing to an almost 14% increase in payment and collection fees. This is very positive trend And it's partially a consequence of the commercial activity and limitations to charge negative interest rates in deposits, which is reflected in our fee income strategy. Moving to costs, as you can see in Slide 14, operating expenses fell almost 2.5% in 2019 compared with 2018 and almost 5% with 2017, a trend that we usually remind we'll expect to keep until 2021, owing to our current cost cutting plan that, by the way, as we have explained, it has been fully provisioned this quarter. In Slide 15, we show that Total impairments continue at low levels year to date, a trend that we expect to remain in the following quarters, among others, owing to our comfortable coverage position, which recent disposals of NPLs confirms that is at the right level. Bear in mind that this quarter, we are including some nonrecurring provisions, mainly €12,000,000 in the loan loss charges and around €7,000,000 in other provisions that are related to the disposals of NPAs Portfolios are compensated by the €20,000,000 gains booked in this quarter in other operating income and expenses also coming from the portfolio disposals. So we can say that the P and L impact from such disposals has been almost neutral this quarter. If we move now to assets quality In Slide 17, we have details on the evolution of our NPLs. Bear in mind that Q3 2019 figures already include approximately half of the NPLs sold through portfolios announced at the end of July. When considering the other half, balances will decrease below 1 point €4,000,000,000 that are more than €500,000,000 below the balances at the end of last year. This Leaves the NPL ratio at 4.7% in the Q3 2019. As we show in the bottom, Gross entries remain low, something that together with the mentioned disposals explain the 9% quarterly drop in the NPL balances. As we usually do, in Slide '18. We have updated our NPL coverage details. Overall NPL coverage was around 52% in Q3 'nineteen, similar to previous quarter despite the mentioned disposals that we have formalized. Also, it is worth noting that this level of coverage is very conservative when considering that 86% of the NPL balances are secured And 75% of them, Finnish buildings are secured by Finnish buildings. In Slide 19, you have an update on the foreclosed assets trends. As I explained before, Foreclosed assets decreased from €1,600,000,000 in Q2 2019 to €1,100,000,000 in the 3rd quarter, Following the reclassification to real estate investments of the balances that we announced in July that have been sold through different portfolio disposals. Again, it is worth noting that despite this reclassification and the following disposal that will take place by year end, the coverage has grown from 60 1.5% to 63%, meaning that we are not selling only those assets with higher coverage. On the right, You can see the provisions released and outflows details continued to improve this quarter with quite positive trends as a result of our coverage levels. In Slide 20, you can see how NPLs and foreclosed assets have decreased significantly year to date. If we consider the NPLs disposal that will be formalized in the Q4 this year, total gross NPS ace We'll reach €2,500,000,000 compared with the €3,600,000,000 at the end of last year. In other words, Total gross NPAs have fell by €1,400,000,000 year on year to €2,500,000,000 when considering the pending portfolio disposals announced. In net terms, This represents less than 2% of total assets with a coverage of 57%. Finally, Let me only highlight that our tax loss ratio continues to decrease quarter after quarter, reaching now a level below 50%. In Slide 21, we have a summary Of our liquidity position, as you can see, there are very little changes. 1 more quarter, our Loan to deposit ratio was at 75% and the liquidity ratios continue to be among the highest of the sector. In terms of wholesale maturities, as I usually do, let me remind you, we have some important maturities next quarter. As you can see in the bottom right side of the slide, we have €468,000,000 at a cost of 3.4% maturing in November this year and another €325,000,000 at a cost of 2.7% maturing in the first half of next year. And finally, we show in Slide 22 the solvency of the bank that has improved significantly this quarter. As you can see In the top left, current regulatory capital ratios remain well above the SREP requirements with a €1,600,000,000 buffer over our CET1. In fully loaded terms, quarterly retained earnings and higher valuation adjustment explain half of the quarterly improvement with the other 30 basis points coming mainly from lower risk weighted assets. The lower risk weighted assets are explained mainly by the seasonal advances and the lower NPAs, although it is worth noting that these figures do not consider other 26 basis point positive impact from the pending NPAs portfolio disposals that we expect to include next quarter. All This left our CET1 fully loaded at 13.8% or slightly above 14% when considering the pending disposals, the highest ratio among the Spanish listed banks. However, Bear in mind that these reported ratio do not include the deduction of the authorized and unused treasury stock that represent less than around that represents around 15 basis points. On top of this, we will also expect some positive impacts in solvency ahead like the mentioned pending impact from our NPAs, portfolio disposals and the capital gains from Ausol. Thank you very much, Paolo. We will move now to the Q and A. We will start we got some questions. I will put them all together that they are asking us to please clarify the P and L, the one offs that the this quarter P and L we have, if we can, line by line, please, Paolo. Sure. As I tried to explain before, there are EUR 60,000,000 of gains and another EUR 60,000,000 of charges that can be considered non recurrent. I will explain such gains and charges line by line to do it easier. There are EUR 40,000,000 of capital gains in the trading income that we have generated with our debt portfolio to mitigate the €40,000,000 of provisions related to the pending restructuring costs that we have also booked this quarter in the P and L line called other provisions and other results. On top of this, there are €20,000,000 of gains in the line other revenues and expenses that are mitigating the €12,000,000 of nonrecurring loan loss charges in the P and L line called credit provisions and other EUR7 1,000,000 of charges in the P and L line called other provisions and other results. All these three impacts are explained by the portfolio disposals and as you can see the positive trends. The positive represents almost the same amount as the negatives. There are a lot of P and L lines with extraordinary items this quarter, but this is a result of the NPA's portfolio disposals and the different accounting treatment of each asset classes included in these portfolios. Thank you, Paolo. Related to these disposals, if we can please explain the accounting and the solvency impacts from the portfolio disposals and how much has been included in the 3rd quarter and how much is left for the Q4. Yes. Let me try to explain Then again, in July, we announced the disposal of different portfolios of NPAs Amounting €830,000,000 of gross NPAs, of which around €370,000,000 where non performing loans and EUR 460,000,000 were foreclosed assets. As of 3Q 2019, we have closed half of the NPL's disposals, which are considered from an accounting and solvency point of view. The remaining 50% of the NPLs will be closed in the Q4 2019. Regarding the foreclosed assets included in the portfolio sold, as At Q3 2019, we have what we have done is reclassified them from foreclosed assets to real State Investments. So they do not appear anymore as part of our foreclosed assets, but we continue to consider them in our risk weighted assets. We expect to close the disposals of these real estate assets in this quarter. And it will be then when we will Disappear or we won't take them or won't be considered anymore in our risk weighted assets. In other words, half of the NPLs and all of the foreclosed assets are not anymore considered in NPAs, But from a solvency point of view, we have only benefited from the disposals of half of the NPLs. That is why we an additional positive impact in solvency of around 26 basis points in the Q4 2019. I hope this helps. However, we're happy to clarify whatever additional information is required after the call. Thank you, Paolo. Something related also to solvency. If we asking us if we can clarify the pending solvency impacts ahead. Of course. As you all know, we have received the authorization to buy treasury stocks up to 3% of total shares, something that has to be deducted from our solvency numbers. The current reported solvency ratios are only those shares that have that we have been already bought with the authorized but not used representing an impact of around 15 basis points that is not considered in the reporting solvency ratio. On top of this, as I just explained, we will have a positive impact once We closed all the portfolio disposals representing around 26 basis points, something that, as I said, will be expected to be in the Q4 2019 numbers. Also take into account that we will generate close to EUR120,000,000 gross gains and around EUR110,000,000 net from the disposal of Ausol, the motorway. Only this impact would represent almost 50 basis points of our current risk weighted assets. There are other potential positive impacts ahead. Bear in mind that we, for example, we won't Have any negative impact from TRIM or Basel IV that we are that we have IRB sometime in the future and so on. So we feel very comfortable from a solvency point of view and our Current situation leaves us in a very good position. Finally, let me remind you that We own almost 10%, 9.9% stake in Caser, the insurance company, and we are happy with such a stake. So we won't solve nor reduce our position. Is it something that is strategic from us for us? However, it is important to realize that we have this stake at 0.5 times book value in our books. So if there is a formal bidding offer, we would reevaluate our stake having another potential positive impact in our solvency position of more than 20 basis points depending on the final binding Prices. Thank you, Paolo. Regarding Aushol capital gains. If we can please clarify when we expect to book the gains and if we will use Some of those gains for a specific purpose. As I said, we haven't Included these gains in Q3 2019 due to the because at the end of the quarter, there were Still some steps pending, among others are mainly the final approval from the government that is required before we close the deal. However, we expect this to be ready and formally approved in the short term, although it doesn't depend on us. Regarding the gains, as I said before, they represent a Significant amount of close to EUR110,000,000 net of taxes, which is equivalent to around 9% of our market CAP. We haven't decided what we will do with them, but it makes sense to think that probably one part or a part of them We'll be used in one or other way to improve the future profitability or shareholders' returns because it is a capital gain, but this has not been decided yet. Thank you, Paolo. Moving now to NII. We got several questions regarding net interest income. Let's start with One specific question that is asking us if we can provide the exact dates of the corporate bonds maturity in the Q4 and in 2020. I think you can see in Slide 21 of the presentation. We have almost €500,000,000 maturing this quarter, And they bear a cost of 3.4%, out of which around 25% maturing mid November and the remaining at the end of the month of November. And Regarding the other 3.25 maturing in 2020 at a cost of 2.7%, Around half of them will do it in March 2020 and the other half will be around mid June. So if you do the maths, all these maturities together represent an interest expenses of around €25,000,000 per year, something that will help to mitigate current interest rates environment and the future NREL issuance costs. Thank you, Paolo. Continuing with NII. The next one is what is the expected contribution from the debt portfolio. And are there any relevant maturities of other portfolio, if there are any relevant maturities of other portfolio ahead? For the next quarters, following the recent Disposals taking advantage of the extraordinary low levels of the European long term sovereign debt yields. And considering current market conditions, We expect the bond portfolio contribution to NII to be around €50,000,000 per quarter. This Would be the expected contribution under carbon market conditions, but if there is any material changes in the level of rates in the next There could be additional changes in the guidance either because we could execute additional sales at low rates levels or because we might execute some pending purchases at higher yield levels. Regarding maturities, there won't be significant redemption of the bond portfolio until 2021, when the TLTRO portfolio and its funding mature. Thank you, Pablo. Still regarding the ALM and the ALCO portfolio, if we can update our ALM strategy. Regarding the ALM strategy, the debt portfolio size remained stable during the quarter. With current market conditions with the historical low yields levels, Makes it challenging to have a clear view on the next quarter's strategy as the possibility To realize additional capital gains could be seen as an option, while as in the past quarters, We also believe the bond portfolio should contribute to NII to offset, among others, the negative effects of the current short term negative yield rates. As I said, we will analyze different strategies to manage this risk. The Current unrealized, I think it's important to mention that the current unrealized capital gains and the expected contribution to NII We'll have to be analyzed in the coming quarters. In terms of exposure, I would mention that our senior financials has slightly increased its balances during the quarter and Are now around 8% of the total portfolio, being almost all the bonds accounted in the amortized cost portfolio with no impact in capital or P and L. The European government bonds exposure also moved up a little bit in the quarter to 72%. And regarding the duration of the portfolio, We there has been a slight increase in the structural amortized cost portfolio to 6 years, as some swaps were restructured with the objective of increasing the duration of the balance sheet. The next question also is related to NII. If we can update, please, Pablo, our interest rate sensitivity. And as in previous quarters, the ALM strategies were executed to reduce the potential negative impact In NII from lower rates in the future, as short term interest rates curves move down, The negative impact of NII becomes greater as the 0% floor on most of the on balance sheet customer funds gets more expensive. So the main objective of the bank has been to hedge this risk. At the same time, the potential positive impact on in NII from higher rates in the short term keep slightly higher as the first rises will only impact on the assets. That said, considering a parallel decrease of the curve of 10 basis points, The potential impact on NII will be around minus 2.5%. And this will happen once the balance sheet is fully repriced, so basically after 1 year, which is in line with the sensitivity we have provided in the past quarter. On the other hand, the impact on NII Of a parallel increase of the curve of 10 basis points will be 3.1% positive terms. Once again, the balance sheet is fully repriced, this figure is above last year because of The actual number is lower. Thank you, Paolo. Next one is on our funding plans, if we can update what are the funding plans of the group. I think we maintain, As you know, a strong liquidity position with liquid assets of more than 21% of total assets. And also on top of this, we have an additional capacity to shoe cover bonds for more than EUR 10,000,000,000 and with no significant wholesale redemptions in the future in the short term future. So the whole funding requirements will be related to NREL. And in May 2019, The bank confirmed that its requirement was to reach by January 2022 An amount of own funds and eligible liabilities on a consolidated basis equal to 8.88% of its consolidated total liabilities and owned funds as of 31 December 2017. So the total needs, including conservative management buffer and with the actual Capital levels will represent around €1,400,000,000 that are expected to be mainly covered with senior non preferred, some senior and Tier 2 debt. Total needs are comfortable in size and time, while at the same time, we'll continue the conservative approach of fulfilling the requirements progressively. Thank you, Paolo. There is one very specific on the potential impact from the Chilean. I think the tiering, In our case, we have an excess liquidity, so it's a good impact, and we will try to maximize obviously this measure. In our case, to give you some color, Our requirements, the reserves requirement represent for around €350,000,000 So the balances of 6 times represent a little bit more than €2,000,000,000 that for share we will keep at the ECB in the near future. One last one regarding the NII, if we can update and and provide some color on the net interest income guidance in the short and medium term. As you saw in the quarterly P and L trends following some disposals of our debt portfolio, The NII has decreased a little bit farther this quarter. However, We have generated a significant capital gain upfront. Going forward, at least until the end of next year, We expect to keep the contribution of our debt portfolio, as I mentioned, around those €50,000,000 per quarter. So it will depends on market conditions and the government bonds price evolution. But basically, we were comfortable with this guidance of around €50,000,000 On top of this, the negative repricing effect will Increase during the coming quarters will continue, not increase. On the positive side, We still have a better mix and the volume impact, which are the positives. And also, we have the front book at a better level than the back book, and we have, which is quite important, the maturity of expensive liabilities, as I mentioned, in the coming quarters. And all this will help to compensate the mentioned headwinds on repricing under that portfolio contribution. So all in all, NII in 2009 will decrease in low single digit, mainly owing to the lower contribution from the debt portfolio, But then, helped by the maturity of the expenses liabilities, it will remain quite stable through 2020. The next one is on loan growth, if we can update our guidance in loans, Paolo. I think the trend in the last quarters is improving. In the Q1, the private sector performing loans were growing at 0.3 And this growth improved to almost 1% in the 2nd quarter, and it has grown farther in the 3rd quarter to 1.3%. By segments, only mortgages continue to decrease, but with lower decrease rates every quarter. So if we bear in mind that this is the year on year trend, So excluding some of the seasonal factors, as we confirmed in the past, We expect this trend to remain in place in the coming quarters, something that will enable the bank to maintain current low single digit Growth of Performing Loans. Thank you, Pablo. Moving through the P and L and going to fee income, if we can update our guidance for fees going forward, please. I think Fee income trends has been very positive 1 more quarter, although they include this quarter some seasonality effects. As we said in the past, if non banking product fees continue to improve, helped by market trends, we expect to see Similar trend with around mid single digit increases this year. Bear in mind that this increase It's supported by strong growth in payments and collection, meaning that the big bulk of the current growth is explained by the transactional business, As you all know, retail banks have limited potential to charge negative rates in deposits to the retail to the largely retail based customer. So we are trying to compensate some part of this with our higher fees strategies for our customer base. Thank you, Pablo. Moving to trading income, if we can provide more color on what do we expect for trading going forward. Well, as we said in the past, trading gains were Going to be small, I think, in the coming quarters. But following the Strong rally in the debt capital markets. We decided to generate some opportunistic gains of these EUR 40,000,000 that help us to compensate the restructuring cost, as I mentioned. So going forward, we don't discard additional gains, but it will depend on market trends. And if the debt market yield increase further, we will try to buy debt on the opposite. If yields decrease, again, we don't discard to take advantage of it and generate additional capital gains. So not very clear, but obviously, we cannot be very specific on this. But this is part of our active management of our excess liquidity position. So all in all, we don't use to provide any specific guidance in trading because it's not easy and depends a lot on market trends. Thank you, Pablo. Moving to costs, to expenses. If we can update What do we expect regarding expenses and savings ahead and if there are additional cost cutting measures coming? Yes. Regarding the cost cutting, As you all know, we expect to further reduce the costs every year until 2021. So by the end of 2018, we announced A cost cutting plan that required EUR 180,000,000 of restructuring costs, which we have already fully provisioned with This EUR 40,000,000 done this quarter. So going forward, we will continue to analyze different opportunities and options, and we will provide more color in the coming quarters if needed. Until then, we reiterate our target to further reduce costs until 2021 as part of our current cost cutting plan. Moving, Pablo, to impairments. Again, if we can update our views on cost of risk and impairments ahead. This Quarter, the cost of risk includes, as I mentioned and tried to explain, EUR 12,000,000 of charges related to the NPAs disposals. Excluding such charges, the cost of risk remain at 10 basis points for the 1st 9 months of the year. As we confirmed in the past, we feel very comfortable with our coverage levels, and we expect such coverage levels to help us to maintain current levels of impairments in the coming quarters. Okay. On solvency, we've got lots of questions regarding our solvency position and the increase in the quarter. To summarize them, if we can please, they're asking us that we generate a lot of capital and if we expect to continue to generate further capital ahead, What are the plans for such high solvency levels? I think it's true and it's a good thing that we're generating Significant capital, even more than we were expecting. On top of the organic generation through the requirement results, we are decreasing at a very high speed our risk weighted assets, mainly owing to the fast decrease of our NPAs balances, something that is taking place at a very positive terms, generating extra value rather than having negative impacts. So on top of that, if we look at the mark to market of our debt portfolio, Also helped a bit and explained around 20 basis points of the 60 basis points generated in this quarter. This is one of the few positive impacts from such a low interest rates environment. And bear in mind that at the end of September, We had around EUR 40,000,000 of positive valuation adjustments, mainly from our fair value OCI debt portfolio. But I think it's important that on top of this, we have Latin capital gains in our debt portfolio classified in the amortized cost portfolios that are around EUR 700,000,000 representing more than half of our current well, around half of our current market cap. So that said, And as I mentioned before, we will continue generating capital ahead. And as I said, we don't have any Regulatory headwinds and only some potential Tailwinds as the IRB models that we already mentioned and that we keep working. But I think this the position is quite comfortable. Regarding to ARB models, if we can update what is the current situation, Paolo? Yes. I was trying to talk about the R and B. I think as we confirmed in the past, we continue to work with the idea of having the mortgage portfolio approved by the end of next year. But obviously, it doesn't depend on us, and we are not considering The potential benefits from a capital management point of view. With our prudent approach, we will Always to the capital planning, I'll only consider what is in our hand. The risk weighted The risk weighted assets or optimization from these IRB models obviously are welcome new, but it's not considered, as I said, in our solvency plants. Just Because it's within our DNA of being prudent in this sense. So everything It's performing as it was planned in this IRB process, and we will continue working towards the approval. One final question on solvency regarding dividends and potential buybacks, So, Paolo, what are our views? Yes. We paid in I guess, the 2018 results, €0.03 8 on of cash dividend per share that represents 40% payout and close to 5% dividend yield at current market prices. As you can imagine, we are in a comfortable solvency position, so there is room to further improve the dividend. However, let me remind that we don't have a formal dividend policy, and our Board of Directors will propose each year a dividend considering among 1st, we'll propose each year dividend considering, among others, the solvency position and results of the One final question, Pablo, regarding the consolidation exactly. They're asking us what are our views regarding the sector consolidation in general and specifically regarding the possibility of fentering again in merger talks with Liberbank. As we said on previous occasion, Unicaha Banco will analyze Any potential deal that makes sense for our shareholders and that meets 2 fundamental conditions. On one side that the deal maintains or improve our risk profile and on the other hand, that it improves profitability in terms of earning per share and therefore, the shareholders value in a clear way in order to compensate the potential execution risks involved in any transaction. In the specific case of Liberbank, I can confirm that there is no contact. Thank you, Pablo. We are running out of If you have, please, further questions, do not hesitate to contact the IR department. Thank you very much. I'll see you all next quarter. Bye. Thank you.