Good morning, everyone. Thank you for joining us for our first quarter conference call. Today we have Pablo González, our Chief Financial Officer, and Juan Pablo López, our Investor Relations Officer, with me. They will be taking us through the presentation. Please remember that we will have a live Q&A session, after the presentation, and now I leave it to Pablo.
Thank you. Let's start with a summary of the main developments of the quarter in slide four. Business activity keeps showing good progress. We keep delivering very good results in the main focus areas of our strategic plan: retail lending, mutual funds, and insurance. New mortgages lending was nearly EUR 1.3 billion in the quarter, 25% higher than last quarter. New consumer loans amounted EUR 171 million in the quarter, which is 10% higher than last quarter. Also, mutual funds have performed very well, especially under the difficult market conditions that we have experienced in this period. Gross inflows were 4% higher than last quarter after a very strong start. We have been able to maintain mutual funds balances stable quarter- on- quarter, which is significantly better than the sector as a whole.
Finally, new insurance premiums were 18% higher than last year on the back of a strong lending activity. As you can see, all four business lines are doing very well, and we expect to maintain the good momentum in the coming months. Now on profitability. Net interest income has stabilized this quarter despite a lower day count. New lending activity, repricing to higher Euribor, and the fixed income reinvestment plan will be quite supportive for NII going forward, so we are optimistic here and expect a strong second quarter. On fees, we had a very strong quarter as a result of a very positive commercial dynamics. Fees are up 14% versus last year, and we feel very confident with the development of fee income going forward. As all of our main sources of fees are doing very well, and we are not very dependent on the wholesale business.
Operating expenses are down 8.5% year-on-year. Most of the savings come from personnel expenses. Personnel expenses start reflecting synergies from the merger. Some of them were already visible last quarter, but we keep making progress in this area. On asset quality, cost of risk keeps the downward trend and is getting closer to the normalized levels. We have not seen deterioration in the quarter, but we will be cautious until the ICO moratorium expires in the coming months. When we will have some more visibility also on the geopolitical and macro situation. Given our coverage levels and loan book breakdown, we are in a good position to tackle potential market uncertainties. Finally, about capital. CET1 fully loaded ratio stands at 12.6% and has slightly increased in the quarter despite a strong market volatility.
We have a very comfortable capital position for our risk profile, and we remain committed to generating capital organically. At the beginning of April, we distributed our first dividend after the merger, around 50% cash payout of 2021 pro forma net income, in line with our recurrent dividend guidance. Now, Juan Pablo is going to cover the business activity of the quarter in more detail.
Thank you, Pablo. If we move now to slide 6, you can see here our retail customer funds show a positive growth year-over-year. Regarding on-balance-sheet funds, as we anticipated in the previous quarter, we had some outflows from institutional clients. This is after adjusting our pricing policy to market conditions in a context where we maintain a very strong liquidity position. On the right, you can see most of our deposit base comes from the retail side. Off-balance-sheet funds grew 7.5% year-over-year. When comparing on a quarterly basis, funds are slightly down due to market volatility, while mutual funds are performing significantly better than the sector. In slide 7, we take a closer look at our mutual fund business.
AUMs remain stable in the quarter despite market turmoil. If we take a step back, you can see we have achieved a 20% annual growth in the last three years. This is very remarkable and supports our targets. As Pablo commented, gross inflows stay very healthy, 4% higher quarter-on-quarter. Net inflows were slightly below previous quarters, but still significant given the volatility, and this is actually a 14% market share in the quarter. On the right, at the bottom, you can see we are growing in a profitable way with mutual fund fees 29% higher than same quarter last year. In addition to AUMs growth, we expect the positive performance in fees to continue as we integrate the mutual fund business, and the mix becomes more profitable.
Moving now to lending on slide eight. Retail lending book is more than 3% up, year-on-year. Both the residential mortgage and consumer lending book are growing at similar levels. As you know, these two books are the main focus for us for the next few years. The corporate loan book decreased in the quarter after a strong Q4, when we had to meet the TLTRO III target. In this business portfolio, we are more focused on offering existing clients a more comprehensive product portfolio and entering more profitable segments, and not so much on loan growth. Overall, total performing loan book is 1.6% up year-on-year. Next slide on new lending, starting with corporate lending. It was a more quiet quarter after strong end of the year, linked to the TLTRO.
Residential mortgages, new lending keeps improving and is 25% higher than last quarter. We will see in the next slide, we are achieving a pickup of activity in important regions for us with a lot of upside potential like Andalusia, while regions like Madrid or Barcelona keep doing very well. March actually was a record month in terms of new lending, and this second quarter has started on a very good pace again. Consumer lending keeps moving in the right direction, improving the share of our existing clients. This quarter, 95% of new lending was granted to existing customers. This is a very profitable business line for us, with new yields of almost 7% and NPL ratio below 3%. In slide 10, looking to our two biggest portfolios.
On the left, mortgages, you can see the main KPIs of the book, mostly first residence and with low LTVs. In terms of geographic exposure, we saw here the breakdown of new lending in the quarter, and I would like to highlight again the strong evolution in Andalusia, which had the best quarter ever, 40% higher than last year. This is a very relevant region in the residential housing in Spain, and one of our home markets. On the bottom left, the average loan size keeps improving as we are targeting a more affluent customer, and mortgages help us to expand our relationship with clients through cross-selling. On the corporate portfolio on the right, a quick note on the ICO loans.
You can see that 40% of the book asked for a moratorium that matures basically in the second quarter. We are anticipating NPL recognition. NPL ratio stands at 7%, out of which 72% are subjective NPLs. As a reminder, 75% of this stock is backed by state guarantee, and if we include that guarantee, the current NPL coverage is 100%. All in all, we believe we have a manageable impact here, but as Pablo commented, we prefer to be prudent, and we will wait until the second half to be more specific. On slide 11, we keep advancing on the digital business. 52% of our customers operate digitally, and 40% of new clients in the quarter came through digital channels.
We keep adding partners to our digital ecosystem as IKEA, and we keep evolving our relationship with existing partners as Real Madrid and PlayStation with new products. In slide 12, we show here a summary of our current priorities and some milestones in terms of sustainability. We started the year focused on Next Generation EU funds. At the same time, we keep adding sustainable products to our portfolio, and a good example is our target to have more than 75% of mutual funds balances under Article 8 in 2022. Lastly, we also plan to approve our Green Bond Framework in the short term. Moving now to the next topic, financial results in slide 14. We will comment here main lines in more detail later, sorry. So let me highlight just a few things.
NII is flattish with positive outlook in the coming quarters. On associates, we had one-off charges of around EUR 5 million from two different companies that will not repeat in the future. Fees performed very well, 14% up compared to the same quarter last year. OpEx is down. Personnel expenses already reflect savings. General expenses are higher than the fourth quarter, which is always seasonally better. This year we are having some impact from inflation, but this is offset by cost savings. We expect general expenses to be flattish year- on- year. Finally, in other provisions, we had a couple of one-offs that took us slightly over our guidance. Moving now to slide 15 and going into a bit more detail in terms of NII.
On the left, you can see customer spread remains stable, quarter-on-quarter after some pressure in 2021, while net interest margin starts to recover. Customer spread will improve in the next few quarters once the Euribor repricing starts to kick in. On top of this, on the right, you can see that the front book stands above the back book and will also support NII. In slide 16, NII remained stable in the quarter, despite the negative impact from the day count. Other than this, lending income is lower than last quarter, explained by the mix with more mortgages on the book, in the loan book, and the final repricing to lower Euribor. We expect lending to increase contribution to NII in the next quarters.
On the fixed income portfolio, we started to reinvest mostly towards the end of the quarter, and still we have room to reinvest more. Rates also had a positive impact on the ALCO portfolio. Finally, as we explained last quarter, we adjusted our pricing policy to market conditions on institutional deposits. Obviously, with raising interest rates, this didn't have the impact that we were anticipating, but is still a positive impact of EUR 2 million in the quarterly evolution. Going forward, we are rather optimistic with NII, given the higher yield on the ALCO book and the loan book repricing to higher Euribor together with larger volumes. Moving now to fees in slide 17. Let's focus on the right. You can see banking fees.
This is mainly cards, payments, and current accounts are slightly down after the 4Q. That is always with higher activity during the Christmas break. When we compare year-on-year, you can see they are 13% up. Mutual funds performing very well quarter-on-quarter and year-on-year, and we expect this line to keep going up from both volumes and more profitable mix. Insurance fees are seasonally strong in 1Q from life insurance premiums, but you can see that they are also up 7% year-on-year. All in all, fees are 14% up versus last year and almost flattish versus last quarter, which is seasonally very strong. Moving now to OpEx. In slide 18, you can see total expenses down 9% versus last year.
We are starting to see the synergies after the agreed restructuring plan in December. In this sense, more than 400 people already left the bank. We expect around half of the 1,512 employees to have left by the end of the second quarter and around 80% before year-end. You can also see that we are also restructuring the branch network. We closed almost 300 branches since we announced the merger. This is almost 20% reduction of the initial branch network. In the next slide, you can see cost of risk keeps falling to 36 basis points in the quarter.
As we have said in the past, we want to be on the conservative side until all ICO loan payment holidays mature in the next months, and we have also some more visibility on the geopolitical situation. We continue in the right direction to reach an average level of close to 25 basis points for 2020 to 2024, according to the strategic plan. Here we will also like to highlight that our forward-looking provision scenario is more conservative than the latest forecast published by Bank of Spain. This leaves us in a good situation to tackle any downside risk in economic activity. With this now, I pass the work back to Pablo.
Thank you, Juan Pablo López . Let's move now to asset quality. On the top left-hand side, you can see the quarterly evolution of the non-performing loans stock, which is flat quarter-over-quarter. We have had lower NPL entries of around EUR 140 million, out of which around 70% are subjective. Coverage levels are also flat in the quarter. Actually, if we include the guarantee from the ICO loans that are already classified as non-performing loans, the coverage ratio stands at 75%. At the bottom, you can see half of our NPLs are mortgages with a real and liquid collateral behind. Also, on the top right, you can see a bit more detail regarding the coverage ratio by portfolios. We believe it explains by itself, especially in portfolios with a strong collateral and low loss given default, like the mortgage book.
On the bottom right, you can see something else important. The Stage 2 coverage is almost double the sector average and reflects a front-loading effort from our side. Next slide. Foreclosed assets are down EUR 116 million quarter-on-quarter. You can see we have had EUR 151 million of outflows in the quarter, which is a very healthy rate of almost 30% of initial stock at an annualized basis. Coverage ratios increased slightly this quarter and stands at 63%, which should support the pace of disposals going forward. Looking now at NPAs. Altogether, NPA ratio improved slightly to 7%, and coverage ratio slightly increased to 66%. When we look at the NPAs net of coverage, which is a metric that we like to monitor, the ratio goes down to just 2.5%.
We remain confident to achieve the NPA ratio below 5% by 2023, and 4% by 2024, as we have communicated in the past. Moving now to solvency. CET1 fully loaded has increased 4 basis points in the quarter, which is very positive given the market volatility. Let me explain the main movements in the bridge. Organic capital generation was 17 basis points, which net of dividend accrual of 50% of net income on the AT1 coupon accrual adds 8 basis points. Lower risk-weighted assets coming from the loan mix evolution in the quarter add 22 basis points. Finally, valuation adjustments implied 27 basis points negative, mainly from the EDP stake, which has been recovering in the last few weeks, and also the life insurance joint ventures. CET1 fully loaded remains above 12.5%.
That is in line with the management target. We believe this is a comfortable level for a bank like us, and as we have communicated in the past, we expect to keep generating capital organically. Very quickly, in the next slide. Capital levels remain well above capital requirements. We have a very significant CET1 fully loaded buffer of EUR 1.6 billion and an MDA buffer of over 430 basis points. Moving to the next slide, the fixed income portfolio. As we have explained last quarter, we had room to reinvest after the portfolio restructuring post-merger. This quarter, we have started reinvesting, mainly at the end of the quarter, at attractive deals, and you can see the size of the portfolio has increased by around EUR 1 billion.
We have room to reinvest in the coming quarters, and given current government deals, this will have a positive impact on net interest income. We have started, but we are watching closely market conditions to complete this reinvestment. Average duration has slightly increased to 2.5 years in the quarter, while portfolio yield has gone up from around 80 basis points to 110 basis points. Also, keep in mind that over 99% of the portfolio is accounted as amortized cost. Although the reinvestment we have just mentioned, the size of the portfolio is expected to be lower than before the merger, as we allocate part of the liquidity to a growing lending book and off-balance sheet products. Finally, on liquidity.
The message in the last slide of the presentation is the strong liquidity position we currently have with an 81% loan-to-deposit ratio. We plan to deploy this liquidity to increase the profitability of the bank. We tapped again the market at the beginning of the quarter with the issuance of EUR 300 million of Tier 2. That allows us to call in March an expensive Tier 2 of the same amount, the EUR 300 million. You can see that our maturities are well spread over the next years, and coupons are relatively high for 2023 and 2024. This is it from my side, and now we can start with the Q&A.
Thank you. If you would like to ask a question at this point, please press star followed by number one on your telephone keypads. If you change your mind or your question has been answered already, please press star followed by number two. When preparing to ask a question, please ensure your phone is unmuted locally. The first question comes from Francisco Riquel from Alantra. Please, Francisco, your line is now open.
Yes, good morning. Thank you for the presentation. My questions are related to the NII. First, I would like to ask about the institutional deposits. I see that the stock of these institutional deposits has fallen by EUR 6 billion. You mentioned in the past that you would benefiting NII even if the deposits were lost because of the negative carry. But I just see EUR 2 million uplift to NII from the EUR 2 billion new institutional deposits that you are charging. I wonder if you can update on the overall on the institutional deposits. You also mentioned that you are changing the commercial strategy now that interest rates are starting to rise. Second question on the ALCO strategy.
I see that the carry trade contribution increases EUR 6 million quarter-on-quarter with a stable bond portfolio on average, but with higher yields. I wonder if you can give more color on the ALCO reinvestments. What are you doing in terms of duration, and overall, how do you see the size of the bond portfolio and duration in the coming quarters in the current market environment, given also the risk to capital ratios? Lastly, I wonder if you can update on the NII guidance for 2022, and on the sensitivity to interest rates, and how much of the uplift in NII of the higher rates will be felt already in 2022 and then in 2023. Thank you.
Okay. Thank you. Thank you, Paco. A lot of questions. Probably I will take the first one, Pablo, regarding institutional deposits. Yeah, you are right. We were anticipating that we change our pricing policy for these customers. Well, we are getting close to the market policy, and we were expecting outflows. This is something that was already in our numbers probably. What is a bit different is that with raising interest rates, the impact was lower than what we were anticipating. We had a positive impact of EUR 2 million in NII in this quarter. We were expecting probably around EUR 5-6 million.
On the other hand, obviously the raising interest rates will have a more positive impact on the other parts of the balance sheet of the bank, and this is something that we will see already in the second quarter. Just to give you some color on the institutional deposits, right now at the end of March, total deposits are EUR 17.5 billion from these customers, and we are charging on EUR 5.5 billion, more or less one-third, and we are charging on average 35 basis points. So this is more or less the EUR 2.5 million we generated in the 1 Q. Going forward, as commented, probably this contribution will fade away.
In relative terms, it's relatively small for us, and this will be more than offset by the repricing on the asset side that probably Pablo can comment more in detail.
Okay. I'll answer the ALCO strategy, the ALCO portfolio strategy. As we said, we have already started to reinvest, mainly concentrated at the end of March. You can see that the portfolio has increased by around EUR 1 billion in the quarter. We also have taken a little bit more of duration, still with a very prudent approach on duration due to the market conditions and our expected interest rate evolution. We have taken a little bit more of duration to the 2.5.
We still have room to reinvest, as you can imagine, and we have been prudent compared to our previous plan because we were expecting these market conditions to happen. If you look at the increase in yield in the portfolio, this is more due to the hedging of some positions. When you review this hedging, this usually if the market goes up in rates, if the portfolio goes up in rates. The other point I want to mention, Paco, is most of the portfolio is not a carry trade. It's within the strategy of the whole portfolio. It's the amortised cost portfolio.
With this, with our loan-to-deposit of 80%, we have the strategy of investing while we keep growing in the lending book and increasing our off-balance sheet product franchise. We maintain some portfolio on the amortized cost, but it's amortized cost. It's all the investment has been done in government bonds in the quarter, and very small sales have been done in the quarters, around EUR 500 million or even less than that.
Yeah. Probably the next question, Paco, we'll cover probably with another analyst so we can get as many through. Operator, please get the next question, and please try to give it to just two questions. Thank you.
The next question comes from the line of Maksym Mishyn from JB Capital Markets. Please, Maksym, your line is now open.
Hi. Good morning. Thank you for the presentation and the opportunity to ask questions. I have two. The first one is on other provisions. I would appreciate if you could provide a little bit more color on why there was a one-off in other provision line in the quarter. The second question is on cost. I was wondering if you could tell us how large is the share of employees that fall within collective agreement within Unicaja, and what kind of salary inflation should we think of given the high price growth in Spain? I was also wondering what initiatives do you implement to target increasing costs, and how much of additional savings you expect for 2022. Thank you.
Thank you, Max. I will take the first one regarding the provisions line, that was EUR 27 million in the quarter. This is above the EUR 15 million-EUR 20 million guidance that we were providing. There were two basically two extraordinary charges there. There are around EUR 4 million. This is related to pension plan contributions for the employees that are leaving the bank already. As we commented, there are 1,500 employees that will leave the bank, 400 already left. The ones that some of them there is this pension plan contribution charge that will not repeat in the next quarters. Then there is another EUR 2 million that is related to an associate.
This is a fiscal impact again. This is a one-off. So that explains the more or less EUR 7 million above the guidance. Regarding employees, let's go back to you, the percentage or the number of employees that are with the trade unions. And what we can tell you in terms of cost and in personnel expenses, starting by personnel expenses. Or first of all, probably, we can comment on G&A costs. Here we maintain our guidance that we announced in the strategic plan. If you remember, this was EUR 210 million gross savings in 2024 versus 2020.
This will be 170 net of the inflation and investments that we were already incorporating there. When we look to personnel cost, we do not see any deviation here. The restructuring plan is going as planned, if any, probably faster than expected. As you know, there is a collective agreement that caps salary increases at around 1%. Again, personnel expenses stick to the plan. Nothing there, if any, going faster than expected, the exits of employees. Regarding general expenses and inflation, here, basically we have two impacts. One is the energy prices that has a cost of around EUR 8 million per year.
Contracts and suppliers, this is another impact of around EUR 10 million per year. This is the impact that we are having from inflation and energy. But again, here we plan to neutralize this inflation in 2022 with cost savings from the integration, and we expect to maintain general expenses flattish year-over-year. Then in 2023, we expect to see additional cost savings in general expenses, and that's the reason why we stick to our plan. So that will be for cost. Thank you. Thank you, Max. Operator, can you get the next question, please?
Thank you. Our next question comes from the line of Carlos Peixoto from CaixaBank. Please, Carlos, your line is now open.
Hi, good morning. Thank you for taking my call. First question would actually be a bit of a follow-up on NII. Basically, well, considering all the moving parts with the institutional pricing outflow following increases, a pickup in volumes that I believe you expect throughout the year. Basically, putting everything together, what type of NII performance do you expect to see at year-end or in the full year 2022? As a second question on cost of risk. Cost of risk is now at 35 basis points, going in the direction of the 25 basis points that you were mentioning.
I was wondering, with all the uncertainties that we see in the horizon, whether this 35 basis points could be a reference for the rest of the year or whether you see it going down further throughout the year. Thank you very much.
I'll take the first question. Thank you, Carlos. Okay, NII. I think the interest rate has moved faster than we originally expected. This means that we will have a positive impact on NII going forward. According to—we have raised our previous guidance, and now we expect the 2022 NII to be flattish compared to 2021. This is coming from a lower NII although. This implies that we maintain the quarter-on-quarter NII, but for the following quarters we expect this to go up in double-digit numbers. This increase comes from the interest rate. The reasons from this and why we expect this
To come from, we have a larger contribution from the lending book, although this will be fully appreciated next year, but it will start. It haven't started in the first quarter, but from second quarter, if you look at the 12-month Euribor now it's in positive territory, and it used to be -50 last year. We have these higher yields coming from our mortgage portfolio and also, as we have mentioned, the lending yields will pick up as well in the coming quarters. On customer deposit, we don't expect any negative impact, and as Juan Pablo López mentioned, we don't have that excess liquidity going forward at a -50 that we had in the past.
Regarding the other major driver, which is the ALCO portfolio, as I said, we have most of the ALCO portfolio hedge on interest rate risk and this reflects on the higher yields. As long as the conditions maintain to where they are today, we expect a significant improvement and contribution from the ALCO portfolio. Lastly, I think the other point is the wholesale funding. As I said, we won't have the positive impact from the TLTRO as we lose the extra 50 basis points in June and probably in the second half of the year if the implied curve and what the market discounts now that the ECB is going to rise rates in the second half of this year, 2-3 x.
We will see, but obviously we will have a negative impact from the ECB and the money market funds in the second half of the year. On the other side, we will have the positive impact of the negative impact of the excess liquidity that we had in the past. All in all, we expect a flattish NII for this year compared to last year, and we expect to have a significant improvement in NII just from the second quarter of this year. It's not going to be something for the second half of the year. The good numbers will start to show up in our NII from next quarter. Regarding the other question, it was the cost of risk?
Okay. Thank you. Thank you, Pablo. Regarding cost of risk, what we can tell you right now is that we do not see anything. NPL entries remain under control. We have seen lower GDP forecast, but something important here in our case is that in this forecast, the unemployment rate continues to improve in the next years. This is the key indicator for mortgages, our largest portfolio.
Actually, something interesting for us is that when we look and we compare the macro scenario, for instance, the latest one that was published by the Bank of Spain in April, and we compare that macro scenario with the one that we were applying in our forward-looking on our models, we are still in a much more negative scenario for our models and provision. For instance, we assume unemployment rate to remain above 15% or real estate prices to fall or GDP growth below 1% in 2023, 2024, and this is much more conservative than the latest Bank of Spain forecast.
Also related to this, and this is something that we follow very closely, and if we include also, higher rates, and inflation, and this is related to the affordability of our customers. Our starting point is a very low affordability ratio, so the percentage of the income of our customers that they allocate to pay the loans, the mortgages, the installments, is 25% of the total income. If we stress this affordability ratio by 300 basis points higher, and we do not assume any salaries increase, we continue to see affordability ratio below 35%. Even if we include inflation, this is quite manageable and well below the 50%-60% affordability ratio that we saw in 1994 or 2008.
Maybe the last point here is that most of our new production during last years was done at fixed rate. The movement of the rates doesn't have the same impact on asset quality. All in all, we maintain our guidance, the 25 basis points during the strategic plan. Probably for the short term, we prefer to be a bit more prudent and wait and see. Again, so far, so good. We do not see any deterioration. We have also anticipated recognition of NPLs. Coverage ratios remains high. The book, as you know, in our case, is quite conservative with most of them are mortgages.
Thank you, Carlos. Operator, please, next question.
Thank you. The next question comes from the line of Ignacio Cerezo from UBS. Please, Ignacio, your line is now open.
Hi, good morning, and thank you for the presentation. A couple of quick ones from me, both related to lending yields. When you're mentioning NII, this quarter suffering a little bit from 12-month Euribor and negative assets mix, but then on slide 15, you're showing that the front book/back book in the quarter in terms of lending yield is positive. If you can kind of help us reconcile actually both things. Then related to this, if you can give us the front book/back book on the mortgage book as of March. Thank you.
Okay. Thank you. Thank you, Nacho. Probably I will take, I will take this one. As you pointed, there are probably here two approaches, no? First one is the evolution of the back book and then the front book. Regarding the back book, and as Pablo was commenting, we had the latest impact of the repricing to the lower Euribor at the beginning of this quarter. We started at the end of the quarter, at the end of March, to see a repricing upwards of the back book. So, with the implicit rate, that's what we are expecting for the next quarters, the back book to improve the yield thanks to the Euribor repricing.
Regarding the front book, we see here as well to continue to be accretive in terms of NII. If we look to the mortgage book, front book continues to be accretive in a very competitive market. Return continues to be attractive. Here, as we have seen in other European countries, and we are starting to see here in Spain as well, we also see yields going up. In consumer lending, front book again is accretive. It's a small book, but it makes a difference. Yields are around 7%. As we commented, 95% of the new lending was with existing customers, so with a low risk profile. We are not in the open market.
Corporates probably is the one that, where we are seeing front book doing much better than in the past. Probably Q4 was the bottom affected by the TLTRO. Here we already see a front book well above what we have seen in the past and above the back book. All in all, back book repricing with the Euribor and front book already accretive in all portfolios, and we see the prospects pricing going up.
Ignacio, let me point. The Euribor repricing for our mortgage book has a 1- and 2-month lag. Because if you look at the 12 months of last year, probably we shouldn't have any negative impact in January. In January and February, we still had a slightly impact because we have some of our mortgage book has a 2-month lag in considering the mortgage as a reference for the repricing. That's why we still had some impact. As Juan Pablo said, we expect to have an improvement. I think in corporates, the market reprice much faster the new interest rate environment. Retail customers, it takes a little longer.
We maintain an ALCO on a monthly basis to review the market conditions and probably the competition do the same. We have seen that it has taken a little bit longer than expected to reprice the pricing for the retail customer. We are seeing good signs in for our competitors and from our side in terms of pricing and we will see even better front book numbers going forward.
Thank you. Thank you, Nacho. Operator, please, next question. The next question comes from the line of Ignacio Ulargui from BNP Paribas. Please, Ignacio, your line is now open.
Oh, sorry. Good morning. Yes, thanks for taking my questions. Just have two questions. One is linked to the excess liquidity and the fact that it has declined EUR 6 billion quarter-on-quarter if I just look end of quarter figures in the balance sheet. But you stick to the view that you have around EUR 6 billion of excess liquidity to reinvest in the ALCO book. I just wanted to understand a bit better why that has changed. If excess liquidity has reduced, why the ability to reinvest the ALCO book has not declined. The second question is linked on the fee income. I mean, you have given a much more bullish guidance on NII. Definitely the war in Ukraine was not part of the landscape when you defined the business plan.
Don't you think that fees have a bit of a downside risk in terms of mix of changes of on-balance sheet to off-balance sheet funds and within off-balance sheet funds?
The risk-taking appetite from investors, from retail investors might be lower in the current context of volatility. Thank you.
Yes. Regarding the liquidity position and the reinvestment of the fixed income portfolio, what we had last year, if you look at year-on-year, the number on our retail deposit is 1.5% positive. We still have a positive trend. Although this quarter, because of the new strategic decision and seasonal measures, the evolution of deposit has been lower in the sector and especially in our case. We will probably offset some of these with the negotiations that we have engaged with the large corporates and institutional investors or depositors.
I think you have to consider the overall liquidity, and we also have plans to issue around EUR 2 billion for MREL requirements and to balance our maturity in the portfolio of our liabilities. We maintain our reinvestment strategy for the fixed income portfolio. The liquidity, it's not coming from this deposit base. This deposit base was interest rate sensitive, and it will change depending on the market conditions. For the short term, we decided to reduce, as you mentioned, the deposit base from this type of customer. But going forward, probably will stabilize and even go up a little bit down the line and still maintain a very strong and excess liquidity to deploy. The second part, can you answer, Juan Pablo?
Okay. Thank you, Pablo. Yeah, probably we sounded a bit more optimistic in terms of NII. I guess this is the main change to the previous quarter, and the evolution of rates make us to change, to improve our guidance and to be more optimistic in that line. Having said that, fee income, we continue to be very positive. We maintain our guidance here. We expect a double-digit growth target for 2022 versus 2021. Q1 was 14% up compared to the same quarter last year. We almost repeat the Q4 that was a historical record high level. The main drivers is basically mutual funds, insurance, and payments.
Mutual funds, we continue to see a good evolution in terms of gross inflows. We are merging the asset management business, and you will see in the second quarter that this is not gonna be on the volumes but also pricing. We review prospectus pricing policy fees, and that will be visible already in the second quarter. So far, the improvement of the fee income in mutual funds was due to volumes, but in the second Q, as said, it's gonna be also profitability. In insurance, the trend is very good, with premiums going up almost 20% year-on-year.
As you all know, we are in the process to renegotiate our life insurance partners, and we expect to close that process soon. We are expecting to improve recurring revenues in this line. Payments, we see larger contribution as well, going forward. Yeah, fee income, we maintain guidance, and we see double-digit growth year- on- year.
Thank you. Thank you, Nacho. Operator, please, next question.
The next question comes from the line of Carlos Cobo from Société Générale. Please, Carlos, your line is now open.
Hi. Thank you very much for the presentation. A couple of questions on asset quality. One is a little more specific, and otherwise more general. On how, when you think about future NPL formation, you said you're not seeing anything, but I guess you're planning. If you could indicate a little bit of how much of expected inflows you're gonna, you know, you have in your budget for the rest of the year and how much of that is coming from ICO loans and how much is for the energy-intensive sectors. Secondly, this is a more general thought. You keep on booking provision charges above the peers with similar loan mix, that happened since COVID, that reflects on your conservative approach to asset quality.
Could you please quantify how conservative you've been and what is the real provision surplus that you have if you applied more normal standard provisioning practices or coverage levels? I mean, just to understand how big of a buffer is and how much room for maneuver that could give you. Thank you.
I'll take the NPL formation. Thank you, Carlos. I think the NPL formation we already mentioned last quarter, and we reiterate our cautious position with NPL. The reality is the number and what we are seeing with the customers and the SMEs and corporates that we talk is that they still have a good position, and we can see that from the credit lines not drawn by some of the customers and even some of the ICO loans in the credit lines hasn't been drawn fully, and
We still prefer to be cautious, and as we said, we have from April to June, most of the payment holiday ending, so the formation will probably come in the second half of the year. The new problems regarding the energy price spike that we have seen lately and the producer price index that has gone above the 40% will put pressure on corporates and SMEs to pass through the price hikes, and this will have an impact on the economy as a whole.
Most of the analysis that we have run of our portfolio makes us comfortable because either they have pricing power or they are not in a position where the increases affect them that much. Most of them are thinking and are passing through the price increase. Obviously, we don't know how this is going to evolve. This is a very complex situation, the geopolitical situation and the energy price evolution. We forecast that we were going to have more inflation, and that's why we had lowered the duration on our portfolio, and this will imply higher rates. Having said that, we don't expect them to go as much as to have a significant impact on NPL.
As Juan Pablo mentioned on the mortgage book, we have run the analysis on the affordability for our customers. On the SMEs, we are a little bit more cautious because we want to make sure they manage this very complex situation. We don't want to be very specific, and that's the reason. The most likely is that the second half, I think for this second quarter, probably we will maintain a good momentum. If you look at the NPL entries, it has come down 40% compared with the first quarter, so it's even better than the initial expectation. You have to think that we have two different situations in Spain.
We still have the pent-up demand for the services, and the people are choosing services rather than goods, and this will have an impact in our economy. This positive tailwind will offset part of the negative headwinds of higher energy prices in the economy as a whole. Cautious, and in that sense, I think our strategy of having higher cost of risk in the first half of the year until we see the final outcome of the COVID and now the geopolitical situation, reaffirm our cautious stance on cost of risk. We still think the level of provision that we have will allows us to achieve, and we haven't changed our strategic plan and our guidance for the three-year period.
Even within our plan, we already mentioned that it was going to come down gradually. The first year was going to be higher and then lower in the coming years. This obviously will depend on the conditions. I think to quantify, obviously it's a hard thing to do because it depends on your assumptions. As Juan Pablo already mentioned, we have prudent approach to quantifying the potential impact of any negative scenario on the economy, and we will maintain this prudent approach that we have had in the past and has proven right in previous crisis in Spain. This is part of our DNA, and we will maintain this our prudent approach on potential scenarios and provisioning.
I think quantifying depends on your assumptions, and I don't think it's a right way to measure. I think it's more if you have similar macroeconomic scenarios, we will have probably less need of cost of risk provisioning down the line. At the moment, as I said, we prefer to be prudent and maintain our cautious stance until we see how this crisis unfold.
Maybe just one comment from my side. Probably we take a different approach to other banks in terms of overlay provision, as Pablo was commenting, and we touched before. What we apply in our forward-looking models is a macro scenario that we believe is quite conservative. You can see the details in our annual report, but at the end of the year, what we assumed there was an unemployment rate above 15% in the next three years. GDP growth
0.6% in 2024, below 1% in 2023. Real estate prices are coming down by 2% in 2023-2024. We analyze our portfolio loan by loan and portfolio by portfolio, and based on this scenario, we allocated the provisions. I guess this gives us comfort that in the new macro uncertainty, we have room to tackle. As Pablo said, so far, we prefer to stand on the conservative side. As we commented in the past, if things evolve as expected, we expect a low cost of risk for longer, but we prefer to be prudent right now.
Thank you. Thank you, Carlos. We are running out of time. I think we have time for one more operator, if you can get it through.
The next question comes from the line of Borja Ramirez from Citi. Please, Borja, your line is now open.
Hello. Good morning. Thank you very much for taking my questions. I have two quick questions if I may. Firstly, a clarification of the NII guidance. The new guidance of flat NII year- over- year, I would like to ask if this is before the TLTRO benefit, and also which volume growth assumption is embedded in your guidance. My second question, if I may, is if you envisage any disposals of NPLs or foreclosed assets. Thank you.
Thank you, Borja. I'll take the NII. I think the point I made on the NII guidance is considering the forward interest rate curve and without any new measures from the ECB in terms of TLTRO. Our market assumption is that the ECB is not going to have a new bonus of -50. We think the TLTRO won't have any. Even if there's a new TLTRO, we don't expect that to have any difference compared to the repo market and the funds market. We will manage due to our positioning on NII sensitivity, as we mentioned in the past, that we had.
For the first 50 basis points, we have above 50 above 10% NII interest rate sensitivity of the balance sheet, of the whole balance sheet, and the impact in this first 50 basis point is significant. The reason is we have contract repricing of the loan book, and on the back on the liability side, we don't have to pay because we were already at 0% with most of our customer base. We think this will only reflect some of that benefit because of the repricing and also because of the strategy that we took on the ALCO portfolio in the past. I maintain.
If you look at the numbers, and as I said, if we compare the EUR 235 on annualized basis, there will be an increase in high single-digit, almost two-digit in NII. Compared the full year with full year, it will be flattish, as I said, and obviously will depend if we reinvest the portfolio fully or only partly, and could be close to the same level of last year or even slightly higher if we do it at very good levels. It will depend on market conditions. Take that with a pinch of salt because it's the market volatility and rates, it's very hard to have such a close guidance on that.
The second question regarding the asset disposals, we had a very good quarter. In the first quarter, we made EUR 151 million, and as I said, if you look at those numbers on annualized basis, around EUR 600 million, it's around 30% of the NPAs, the real estate assets that we have. We are always looking at opportunities and because of the level of provision that we have, we are always analyzing when is the right timing to make the disposals and retain shareholders' value and do it at the right time always.
I think the strategy that we have followed in the past is we have to have enough provision to be confident that it won't be hit down the line on the P&L, but the timing will depend on market conditions and the investor interest. I think the right timing is when the investor demand is there, and you get a reasonable price, and you don't give up much of the value of our shareholders. We will look at opportunities. At the moment, the market is a bit shaky, but we will have to see if things comes to more you know, a stable situation and the demand pick up again. If that's the situation, we will probably and obviously will consider some portfolio sales for the disposals. Thank you.
Thank you. Thank you, Pablo. We've gone a little over time, so we're gonna leave it here. We have a couple questions that we will take from the investor relations team. Thank you everyone for joining. Have a good day.
Thank you. Thank you very much.
Thank you.