Good morning, and thank you for attending Unicaja's third quarter results presentation. First, let me confirm that today, before the market opened, we have published this presentation and the rest of the financial information in the CNMV and our corporate website. Pablo Gonzalez, our Chief Financial Officer, will go through the slides, and then we will move to the Q&A. Pablo, whenever you want.
Thank you, Jaime, and good morning to everyone. I will start in slide four with the main highlights of the quarter. Regarding business activity during the third quarter, the commercial activity gradual improvement has continued. Total customer funds are growing by 3.6% year-on-year, and off-balance sheet funds, almost 7%. Performing loans fell in the quarter; however, if we exclude the seasonal impact from the pension advances, private sector performing loans were flat for the second quarter in a row. Profitability has continued improving during this quarter again. Banking margin grows by 18% in the first nine months of the year. Cost-to-income reached 44%, and net income was 58% above 2023. Asset quality trends also remain very positive. NPL balances fell 22% year-on-year, and foreclosed assets, 36%. NPAs coverage ratio grew from 66% in third quarter 2023 to the current 70%.
Total provisions also decreased by a meaningful 32% year-on-year, with the cost of risk at 24 basis points for the year, which is well below our initial guidance of 30 to 35 basis points. All in all, another very positive quarter in asset quality, too. Finally, in terms of solvency and liquidity, our CET1 reached 15.4% in the third quarter. The tangible book value per share also grew 7% in the first nine months of 2024. On liquidity, as you all now know well, we have a comfortable position with best-in-class metrics like LCR ratio above 300% and the loan-to-deposit at 70%. So, as you can see, third quarter trends continue to improve towards a higher structural profitability with a conservative profile. In slide six, we have the customer funds evolution. As you can see, total customer funds grew by almost 2% in the quarter and 4.3% year-on-year.
Regarding on-balance sheet funds, they grew 1.4% in the quarter and 3.6% year-on-year. Off-balance sheet funds grew even more this quarter. Total off-balance sheet funds grew 3.6% quarter-on-quarter and almost 7% year-on-year, supported by a 6.3% quarterly increase in mutual funds. Moving to lending on slide seven, you can see that the performing loan book fell 2.3% in the quarter. However, excluding the almost EUR 800 million of seasonal pension advances of the second quarter, as we show in the right column, private sector performing loans were almost flat, decreasing only 0.2% quarter-on-quarter. It is worth noting that corporate loans grew almost 1% in the quarter, reverting the negative trend of previous quarters. In slide eight, we show some additional information on what we call wealth management and insurance business, two value-generating businesses for our clients.
In the top left, you have asset under management balances evolution that, as you can see, have grown 10% in the last two years, supported by a 15% improvement in mutual funds. In the first nine months of 2024, mutual funds trend is very positive, as we show in the bottom left. Net inflows were above EUR 1 billion, improving significantly compared with the last two years. On the right, you have revenues coming from these businesses, including fees from asset under management, securities, and insurance. That reached altogether EUR 257 million in the first nine months of the year, representing 17% of total gross margin. So, this is a very significant business for us that we are improving quarter by quarter. On the next slide, we show private sector new lending trends. Third quarter private sector new lending volumes were above the third quarter of previous year in all segments.
Total private sector new loans in the third quarter of 2024 reached EUR 1.8 billion, that is well above the EUR 1.2 billion of the third quarter of last year. Very positive trends because we have improved the new loan production despite high competition in all segments. Moving now to slide 10, we have an update on sustainability. You have a lot of info in the slide. Let me highlight some of it. From an environmental point of view, we successfully issued our fourth green bond in September. We continue promoting sustainable growth through our business. Note that 29% of new corporate lending are sustainable loans, but also through specific initiatives as it is the CREA project, in which we are promoting sustainable economic growth in Andalusia in collaboration with the regional government, Harvard University, and Oliver Wyman. At the same time, we continue advancing in our decarbonization pathway.
Our own carbon footprint has been verified for the first time by DNV, and we have reduced it by 18.3% in 2023 when compared with 2022. From a corporate governance perspective, let me highlight that our MSCI rating has improved to A following the last review that has just taken place. Finally, you also have in the slide some additional details regarding other social developments, like our financial training and educational project called EduFinet, or our digitalization manager program that has been implemented in more than 150 branches to support our customers in digital tasks. Moving now to slide 12, we start with the P&L review. Net interest income was flat in the quarter and growing 19% when compared with the first nine months of the previous year.
As we will see later in more detail, this trend was supported by lower wholesale funding cost that compensated the lower interest income coming from the lending book. Fees were also flat in the quarter and falling 4.9% compared with the last year, in line with our mid-single-digit decrease guidance explained by commercial campaigns with lower transactional fees for more loyal clients. Other revenues were in line with the same quarter of the previous year, except for other expenses that were higher, owing to a EUR 10 million adjustment of the Spanish banking levy for this year. Total costs in the first nine months of the year were 5.4% above 2023, explained by higher personal expenses. Pre-provision profit improved almost 22% compared with the first nine months of the previous year.
Total provisions fell 32% in the first nine months of the year, driven by much lower foreclosed assets provision and a lower cost of risk. As I mentioned before, it is worth noting that third quarter 2024 other provisions include a negative charge of EUR 9 million related to the adjustment of the Spanish banking levy of 2023. So, this quarter, such adjustment has two impacts. We have EUR 10 million impact in other revenue and expenses related to the adjustments for the 2024 and another EUR 9 million in other provisions related to the adjustments of the 2023. The adjustment is explained by the interpretation of fees coming from the insurance business. All these moving parts led to a pre-tax profit of EUR 653 million and a net income that reached EUR 451 million in the first nine months of the year, which is almost 60% above last year.
Moving to slide 13, we will start reviewing in more detail the P&L, starting with the net interest income. As you see on the slide, the cost of deposits remained stable in the quarter. However, loan yield fell eight basis points, pushing down the customer spread. During the last 12 months, Euribor 12 has decreased by 91 basis points, while our customer spread is 14 basis points higher as the lending yield has increased more than the customer deposits cost. If we move to slide 14, we have the NII quarterly trends in more detail. As you can see, the decrease of the retail business contribution was compensated by a small improvement in the contribution from the ALCO portfolio and mainly the lower wholesale funding costs, which together have left NII almost flat in the quarter.
On the retail business, I would highlight that the increase in the cost of deposit in euro terms was driven by the volume effect, while in the case of lending, the decrease is explained by both a small decrease in volumes, mainly in public sector loans, and also because of eight basis points drop in the average loan yield. In slide 15, as you can see, total fees were almost flat in the quarter. For the first nine months of the year, total fees fell by 5% in line with our guidance. As we have explained in the past, the expected drop in 2024 is explained by some commercial campaigns to adapt fees to the new strategy focused on more loyal customers, to whom the main effort is to offer them value-added products and services.
We believe this is the right thing to do for the future, and we expect it to become a positive going forward. On the positive side, we have insurance fees growing at 6.2% in the year. However, as we have explained, this strategy will reduce total net fees close to mid-single digit for 2024. If we now move to slide 16, we have the breakdown of other income. That includes that part of the gross margin that is not related to fees nor NII. In the third quarter 2024, most of the items were in line with the same quarter of 2023, except other operating expenses that are higher because we have taken here the EUR 10 million charge related to the adjustments of the 2024 banking tax. On top of these, as I said before, the adjustments for 2023 have been included in other provisions, as we will see later.
All in all, total income was EUR 5 million in the third quarter 2024, EUR 9 million below third quarter 2023 because of the mentioned EUR 10 million adjustments for the banking tax. Moving to slide 17, we show total cost details. Total cost grew 2% quarter on quarter, driven by a similar increase in personal expenses. For the first nine months of the year, total cost grew by 5% in line with our guidance and explained by higher personal costs that continue to grow mainly on the back of the agreements reached with the unions and higher variable remuneration on improved profitability. However, despite the higher costs, the positive income contribution has led to a positive improvement of our cost-to-income ratio that, as you can see in the left side of the slide, reached 45% in the first nine months of the year, down from 48% in 2023.
In the next slide, we show the evolution of the cost of risk and other provisions. Loan loss provisions have improved further this quarter to EUR 27 million, representing 23 basis points cost of risk. Loan loss charges are better than initially expected. That is why, as we will explain later, we are improving our 2024 guidance. When we look at total provisions on the right, the trend is also positive, decreasing 32% year on year, mainly explained by the much lower provision for real estate assets and loan loss charges. This positive trend more than compensates the higher other provisions that in the third quarter include these EUR 9 million of the adjustments of the banking tax of 2023. Excluding such impact, other provisions were flat compared with 2023. On slide 19, we have included our regular profitability update.
As you can see on the left-hand side, we have reached EUR 451 million in net income in the year, which is one more quarter a historical high supported by an 18% growth in the banking margin. On the right side, you can see that the evolution of the adjusted return on tangible equity has grown from around 5% in 2022 to a close to 6% in 2023 to the current 8% adjusted for the excess capital over 12.5% CET1. Bear in mind that we calculate the ROTE, the return on tangible equity, considering the last 12 months' net income, something that explains the gradual improvement. Also, let me remind you that our profitability target is to further improve this ratio above 10% by year end. Let's move now to asset quality on slide 21. As you can see, we have continued our positive evolution one more quarter.
NPLs fell another 5% quarter on quarter and 22% year on year. The NPL ratio has decreased further to 2.8%, with a coverage ratio stable in the quarter at 66%. This is a very positive trend that is also reflected in the relatively lower cost of risk that we are reporting. In slide 22, we have the foreclosed assets and overall NPAs details. Net foreclosed assets decreased to EUR 264 million in September. In gross terms, balances continued to fall one more quarter to EUR 1 billion, helped by EUR 273 million of exits during the year that represents 22% of the gross initial stock. On the right-hand side of the slide, you have the NPAs trends that also continue to fall during the quarter to levels below EUR 2.4 billion, while coverage remained stable at 70%.
Gross NPA ratio fell further to 4.8%, and net NPA ratio stands at just 1.5%, a significant improvement that, as you know, has been part of our main priorities this year. Let's move now to solvency on page 24. CET1 fully loaded increased by 31 basis points in the quarter to 15.4%. The evolution of the quarter was explained by the organic generation through retained earnings and valuation adjustments that were all above the negative impact coming from the dividend accrual and risk-weighted assets increase. On the risk-weighted assets side, let me clarify that the growth is explained by different factors, but mainly because of the loan mix where the corporate loans have more weight than the mortgage portfolio due to the increase also to the security portfolio. On slide 25, you have our total MREL position.
As you can see, our MREL liabilities represented 28% of our risk-weighted assets, demonstrating our comfortable buffer over our requirement. In the right-hand side, you have the regular information, including our MDA buffer that has grown to 761 basis points, very comfortable buffers over regulatory requirements. In slide 26, we update our liquidity position. We continue to have a very strong liquidity with a significant amount of liquid assets, a loan-to-deposit ratio of 70%, the NSFR at 157%, and the LCR at 314%, all of them best in class in liquidity metrics. In the next slide, we have the fixed income portfolio details. As you can see, the portfolio has grown in the quarter to EUR 27.3 billion, with 88% classified in the amortized cost portfolio. The yield and duration fell a little bit in the quarter, but nothing material. In slide 29, we have included some closing remarks.
On the left, you have a chart showing where the profitability improvement is coming from. As you can see, total revenues have improved by 14% in the first nine months of the year, something that, together with the 32% decrease in total provisions, has mitigated the 5% increase in total cost, which altogether improved pre-tax profit to EUR 653 million, something that, after deducting EUR 202 million of corporate tax, leaves net income in EUR 451 million, which is 58% above last year. Such an improvement is also reflected in our shareholder remuneration. As you can see in the right, our tangible book value per share has grown 7% year to date to EUR 2.4. Shareholder remuneration this year represents close to 13% of average market value for the year.
Both things are obviously supported by the significant improvement in recurring results and the amortization of 3.14% of total shares following the execution of the share buyback program. Finally, let me finish the presentation on page 30 with an update of our 2024 guidance. We haven't included any reference for 2025 because, as you probably know, we are currently working on a three-year new business plan for the period that goes from 2025 to 2027. We expect to give you some color about the main targets next quarter, together with our annual results. It will be then when we will also give you some guidance for 2025. But until then, let me review with you what we expect for the 2024 full-year results. The net interest income trends have been more positive than we initially expected.
At the beginning of the year, we were guiding you for a low single-digit increase. After the second quarter results presentation, we improved the guidance to close to 10% growth. And now, considering the recent trends, we believe that we will finish above 10%. In fees, we reiterate our current guidance of mid-single-digit decrease, owing to our current strategy, as I said, focused on improving loyalty and client satisfaction. So 2024 will be a transitional year in fees. Total cost trends have been already discussed too. We expect a mid-single-digit growth on the back of higher personal expenses, mainly because of the agreements that we reached with the unions. On cost of risk, we are improving our previous guidance this quarter. We were expecting loan loss charges to remain between 30 and 35 basis points at the beginning of the year.
In the second quarter, we updated the guidance to the low part of the range, and now we believe that it will finish in the year even below that, more between 25-30 basis points. Considering all the previous trends and the evolution of the first nine months of the year, we believe that the return on tangible equity, when adjusted for the CET1 of 12.5%, will be above 10% in 2024. So that is all from my side. Happy to move to Q&A now.
Thank you, Pablo. We will start now with the Q&A. Please remember to ask only two questions each one, please. Also, remember to mute your line after the questions. Operator, please open the line for the first question.
The question, please press star five on your telephone keypad. If you change your mind, please press star five again.
Please ensure that your device is unmuted locally before proceeding with your question. The first question comes from Ignacio, sorry, excuse me, from Maksym Mishyn from JB Capital . Now your line is open.
Yeah. Hi, good morning. Thank you very much for the presentation and taking our questions. So the two questions from you would be the first on the loan book growth. Your corporate loan book has picked up quarter on quarter. Are you doing anything differently there to improve your market share? How much of ICO loans do you still have that can be a headwind? And also, what was the reason for a decline in new mortgage production? And then the second question is on capital.
In your ROI guidance, you used 12.5% as a threshold for CET1, but I was wondering what kind of normalized level should we think for Unicaja in the medium to long term? What kind of impact of Basel IV do you expect? And do you consider additional buybacks now that the last one is done? Thanks.
Maksym, regarding the loan book growth on corporates, we have said in the past that we have established a strategy to promote our capabilities and improve our relationship with corporates and SMEs. We're still working. We're starting to see some developments in this field, and we expect this to keep proving that we are in the right path. Still, a lot of measures to be taken and improve in terms of talent, process, and applications to run this business even better. This is in line with our strategy.
The good news, as you said, is we have turned the decline in the loan book regarding corporates. This is good news, and we expect this to follow in the coming quarters to maintain a good momentum in corporates and SMEs. Regarding the ICO loans, as you know, we have around EUR 1 billion still in ICO loans, and this comes from EUR 2.5 billion. So the redemptions and amortization of this has been significant, and we have reviewed more than several times the different entities and loans that we have, and we are comfortable with the level of provision and even the classification in Stage 2 and Stage 3 that we have for the ICO loans. We don't expect any bad news coming from this portfolio.
Regarding the capital, which was your second question, I think we believe that we have excess capital, and we are best in class in capital position among the listed banks in Spain, more in line with other European peers, but ahead of the Spanish peers. These basically give us an opportunity to undergo different initiatives to generate value for our shareholders, as you know, and we have said in the past. We have just finished, as you know, a share buyback program of EUR 100 million, 3.14% of our share count. And this, together with the dividend payout, will translate in a very significant shareholder remuneration. Obviously, I cannot say what is the expected level of capital at this moment.
We are actually undergoing a strategic review, and we will give you some more color in the next quarter fiscal year presentation on the main highlights of the plan and the strategic positioning. But obviously, what is good news is that we keep building capital. We keep growing our capital because of higher profitability and also because of the way we manage the position. And this gives us a lot of opportunity to improve shareholder remuneration, to tap new investment opportunities, to improve profitability. And so we are confident the right level to have in capital. We are discussing internally and with the board on what should be the level that we should target, and we will give you more color at the end of the year.
Thank you, Pablo. There were two very specific, very short questions on Basel IV.
Just to reiterate to you that we don't expect any material impact from Basel IV. And also, you were asking on the amortization of mortgages in the quarter. They were still slightly above 10%. It was a bit more than 10%, 10.6% to be exact. And that, I think, answers all the questions. So thank you, Maksym, and thank you, Pablo.
Please, Operator, let's move to the following question.
The next question comes from Ignacio Ulargui from BNP Paribas Exane. Now your line is open.
Hi, good morning. Thanks for the presentation and for taking my questions. I have two. If I may, the first one is on deposits. I have seen a very strong growth on deposits in public sector in the quarter.
I was wondering, given your strong liquidity position, how should we think about this sector growth, this subsector growth on public administrations, given that normally it's more expensive? The second one, it's on the performance of financial liabilities and wholesale funding in the quarter. You have said clearly during the call that there has been declining wholesale funding cost. I have seen a 24% decline in the combined volume of wholesale funding and financial liabilities in the quarter. How should we think about this in the coming quarters? Is it sustainable to think that you will continue reducing wholesale funding and financial liabilities at this speed? Thank you.
Ignacio, regarding the positive evolution, I think this is something that we have stressed in the past, and it's within our priorities.
When we tend to talk about commercial activity, we're focused on the asset side, but also on the liability and obviously on balance sheet evolution. I think the good news is we're improving in net inflows of balance sheet more than EUR 1 billion in the quarter. But also, on average, in the quarter, we have more than EUR 1 billion on total deposits. The total deposit cost in the NII, if you look, it's around EUR 3 million, increasing cost, but the average cost is 72 basis points, the same as last quarter. This 3 million comes because of the volume. We have more on average on the quarter, EUR 1 billion more on deposit.
And this, if you take that excess liquidity, just to give you some color on ECB deposit facility, which was around three and 15 basis points for the quarter, this makes more than double the cost of the deposits. So it improves our profitability through larger deposit base. Obviously, we manage throughout the period which one is the best one to increase in the period. And this quarter, public sector has been a significant one. Obviously, we manage the duration of those deposits, the level of those deposits. But net net, which is what we follow closely, is the impact from the deposit business has been net positive in the quarter on NII. And on top of that, it improved our relationship with the customer, improved the capabilities and facilities that we give to those customers, and the overall product offering that we have with those customers.
Going back to the second question, I think you were mentioning the decrease in wholesale funding. This decrease in wholesale funding cost, as you can imagine, comes because we have reduced our wholesale funding. And this has been another way to express this improvement in deposits that we were mentioning. And I think, just to give you some color, we already said we have covered our MREL requirement, and we have a good enough buffer. So the cost on MREL and wholesale funding should come down. Most of it, as you know, are variable rate because we swapped them. So with the decrease in rates, this will offset the decrease on revenues coming from the loan book. So this is one of the levers that we have to maintain our profitability going forward in a lower rates environment.
So I think going forward, I think the volumes in the next year won't come down a lot because we have to renew the issuance that will mature next year. But in terms of the rates, the price, it will come down with the new level of rates. This will come sooner compared to other because it reprices in a shorter period than the mortgage portfolio, but it will come down definitely.
Thank you, Pablo. Let's move to the following question, please, Operator.
The next question comes from Carlos Peixoto from CaixaBank. Now your line is open.
Yes. Hi, good morning. A couple of questions from my side as well. So looking at the first one would actually be in NII and basically in yields.
So if we look at the average loan yields, the average quarterly loan yields over the past 12 months, for instance, it has always been somewhat below the level of the Euribor. My question would be, is this triggered by the fact that you have a relatively substantial weight of fixed rate mortgages in your loan book? And as a consequence of that, should we expect the yields to be also less sensitive, the loan yield, I mean, to be less sensitive to interest rates movement going forward as they go down? So should we expect it to be a bit more stable and fluctuate less because of that? And also still on the NII, in your guidance for the year for NII, what's the embedded average cost of deposits that you expect on it?
The second question would actually be a bit on capital, just a minor one. The RWAs evolution in the quarter, we see RWAs up by roughly 3% quarter on quarter, whereas your loan book was actually falling. I was wondering if you could give us some color on the reasons behind the RWA evolution. Thank you very much.
Good morning, and thank you, Carlos. I'll go for the first thing, the NII and the loan yields lower than the Euribor. As you know, to give you some color, we have around slightly more than half of our loan book regarding and including the hedge that we have in the portfolio. It's around 52% fixed and around 48% is floating. And regarding the mortgage, it's the other way around.
It's slightly less than half is fixed and around 52% is floating, considering the hedges, not only the actual mortgages. And this obviously will give us some buffer in terms of the rate evolution. If rates come down, it will have some offsetting to have some part of the book at fixed rate, as you mentioned. But obviously, we still have this half of the portfolio that will reprice. So we still have some sensitivity. If we look at all the moving parts, we have the fixed income portfolio with larger share, and we have been changing that in the last few quarters. More than 80% now is fixed. The loan portfolio is around 50-50, as you said. And also we have the liquidity position, which is floating, obviously, because it's very short term. And on the liability, we have floating the wholesale funding mainly.
So we have, and the deposit, especially the beta of the deposit on public sector and corporates, is very high. But also we have to manage the cost of deposit for the whole book. And regarding your question on cost of deposit in our NII guidance, we were expecting the beta of deposit to go up, but we have seen in the last few quarters that it has been stable. And we think in our guidance, it still remains slightly up. But obviously, we are working to maintain. And it's not only that we are working on that. It's our customers. Due to the lower level of rates, we think they're going to move to balance sheet products, and they're doing so at the moment. So this will be another buffer in the impact on NII going forward.
So we still have maintained our initial view on cost of deposit and the betas of the deposits for the NII guidance. So maybe if we manage, as we have been done quite well, as well as the rest of the peers, the beta of the deposits, and it maintained or even comes down, the NII will be slightly even better than our initial expectation, which is one of the reasons, as I said, the two reasons that explain why we started with an NII of low single digit at the beginning of the year, and now we are above 10%, comes from two lines, higher rates, because at the beginning of the year, just to remember, we were expecting a lot of rate cuts starting even in March last this year, and finally, the rates have been higher throughout the year, which has allowed us.
Now, obviously, we are already in the cutting rates cycle. How long does it go? It will depend on the evolution and inflation and the economy as a whole. But we think this is for good. That's why we have been trying to hedge as much as we thought possible throughout these quarters. So in terms of cost of deposits, obviously, this will be one of the drivers to offset the impact of lower yield, because even if we have half of that in fixed, still we have some sensitivity on the yields for the other half. In terms of the risk-weighted assets, just even if we have a lower loan book, which is almost flat for the private sector, if you take the seasonal advances that we have in the second quarter.
But if you go through the details, we have a reduction in mortgages of around 0.7, but we have an increase in corporates of 1%. So due to the mix, the risk-weighted assets on the loan book go up. And also regarding some modeling on IRBs and all of the things. On top of that, because we have this optionality on our capital position, we have increased while doing some hedges to stabilize the contribution from the fixed income portfolio in the coming years. We have increased some of the investment in the fixed income portfolio that offset. And on top of that, you also have the increase in the valuation of our equity portfolio, which has a very high risk-weighted asset contribution. So all these measures go to the risk-weighted asset increase.
But as I said, even with this increase in risk-weighted asset, we managed to improve more than 30 basis points our total capital position.
Thank you, Pablo. Let's go for the next one. Operator, please.
The next question comes from Filippo Munari from Bank of America. Now your line is open.
Yes, morning, and thank you for taking my questions. So the first one, can you give us an updated NII sensitivity for the first 12 months? And also if you have an estimate of how much would that sensitivity increase for any subsequent decline of whatever, like 50 or 100 basis points after the first 100 basis points cut? Any connection to this? Also, if you can remind us, what are your assumptions for average rates in 2025 and 2026?
And then the second one, I wanted to ask you, how are the legal claims evolving so far in the fourth quarter? Do you still expect the full year to be in line with 2023? And also, if you still think that it's fair to assume that the original 15%-20% decline somehow gets shifted to 2025? Thank you.
Thank you, Filippo. Let me go to the NII sensitivity. As you know, the impact on rate movements in NII is a theoretical analysis because it has a lot of moving parts in the estimations. It's not only the contract evolution, it's the new business evolution, it's the behavior of customers on the deposit side, it's the prepayment on the asset side, it's the implicit optionality that some of the loans have. So there's a very tough challenge to do this analysis.
But with our base case for the third quarter, even we have done some hedges in the quarter, we still consider that a constant balance sheet movement of 100 basis points of a parallel downshift scenario. And considering a stable customer deposit beta, we would expect that compared to the last 12 months, a negative impact of close to mid-single digit for the second year. Because we always use the second year because in the first year, the impact is smaller. We always consider the second year of the reduction in rates when the full mortgage portfolio is fully repriced. So obviously, this sensitivity, it's something that we have been working, trying to reduce the impact.
Obviously, the major driver in this analysis, as I said, is our regulatory model has a different position, but we try to make it more understandable so that we use the same beta. Obviously, slightly similar as the one that we have in the last quarter, but obviously, this will have some actions to be taken for us to improve the numbers going forward, as I said. It has proven to be better. Our assumptions on rates for the coming years, we're still working on our planning. Depending on what you ask for the budgeting, we have one assumption. At the moment, it's the September implied curve. We use the market rates, but we also run different scenario analysis. We run like 14 different scenario rates analysis, but the major three will be rates coming down up to 1.5%. The expected one is more in the 2% area.
It's the base case, but also if inflation doesn't come fast or pick up a little bit as we are expecting in the coming months a little bit, then we may not have the reductions that we were expecting, and then rates could go and to stabilize in the 2.5. This, obviously, is a very complex analysis, and we run different scenarios, but the base case now, it will be around 2% for next year as the landing level, but this was the level implied by the market. We tend to use market rates, but also do our internal analysis on how much do we think we have to hedge and to look at that, and the last question was regarding the legal claims.
Yes, yes.
It was the legal claims.
I think in the legal claims, it's important that you consider that within our provisions, we have done an analysis on the banking tax, and we have an adjustment on the banking tax. We have booked in the legal provisions EUR 9 million regarding the interpretation carried out by the tax authorities on the levy. Because of our prudent approach, we have decided to book as a provision this EUR 9 million in this legal provision line. This doesn't mean that we agree with the final interpretation on the tax calculation. As you know, we are litigating both the tax levy and this adjustment following its final interpretation that has been taking us to book this provision. However, let me stress this. We believe that to apply this tax on a permanent basis is a bad idea, and it discriminates us against the sector.
It's a competitive disadvantage compared to other European banks and other players in our market that don't have the levy. Reduce significantly investor and market confidence because of an unstable legal environment. And we will have to wait and see what happens finally with this levy going forward. But in the meantime, as I said, we have decided to book the adjustment for both years in the quarter results. EUR 10 million has gone in other expenses for the 2024 levy, and EUR nine million has gone in the other provisions. And regarding the other legal provisions, we are still analyzing the evolution on the mortgage cost claims and the mortgage floors. And we will review our models at the end of this year. But I think medium term, the trend of this should be coming down. It didn't come down this year as we were expecting.
And this has been due to some effect of this mortgage cost setup claims that we have. We are managing that properly, talking with the customers and reaching agreements as soon as we can. But now we're modeling how much should be in our books. We will come with a clearer view on this. This is stabilizing, and it has come down from the second quarter. But we have to let it go more a few months to have a clearer view on how much should be going down the line. But obviously, this line in the medium term should be lower.
Thank you, Pablo. Let's go for the next one. Please remember to only ask two questions because we've got plenty of analysts on the queue, and we would love to hear as many as possible. So Operator, please, let's go for the next one.
The next question comes from Borja Ramirez from Citi. Now your line is open.
Hello. Good morning. Thank you for taking my questions. I have two. The firstly is your excess capital above your target is around 30% of your market cap. This is one of the highest in Europe. However, you continue to lose market share in loans. And so I would like to ask, why not utilize part of the excess capital to gain market share? And then the second question is on 2025. Currently, consensus expects NIIs to fall, costs to increase, and provisions to grow year-over-year. I would like to ask if you could give some color on whether consensus may be missing anything. And also, if you could envisage any actions to utilize your excess capital to improve the 2025 profitability. Thank you.
Thank you, Borja.
Regarding our excess capital, I agree with you. We have a significant excess capital compared to our market cap, and obviously, this only gives tailwind for our market evolution because we can use this excess capital for improving shareholder remuneration, invest in opportunities in the market, as you mentioned, on loan market share. As I said, in corporates, we are improving. I think when we look at the commercial activity, the driver is not the volumes. The driver is shareholder value, and the shareholder value comes from volumes, pricing, and risk. It's not only about volume. We have to grow where we think the ROIC is positive for our shareholders and will create value down the line. Obviously, the competition is tough out there. We are working hard on that.
We will have even more measures in the strategic analysis that we're doing, but we are already working on that, and we have changed the downtrend that we have in lending. Just to give you some color, we were coming down in mortgage 4% on year basis, and now it's only 0.7%, and we were almost at two double digits in corporates, and now we are growing our lending, so we have changed the trend. We have stabilized, and we expect that to grow down the line, but obviously, with the one [capital], it will depend on demand, and it will depend on the competition and the value creation. We won't grow just for the sake of growth. I think it seems very important that we are very confident, and when we grant a loan, we are confident that it's for value creation.
So we have to consider the risk and the level of pricing. And in terms of the NII, that the market consensus expects that to fall for next year and also cost and provision to grow. Let me reiterate. We are currently doing this strategic review internally, and we don't want to come with any guidance for 2025. Obviously, as I said, we have a negative interest rate sensitivity, so it will have a negative impact. This is an obvious thing to say. But on the other hand, we have measures to offset that impact. As I said, we have floating wholesale funding. We have cost of deposit that can come down. We can improve our fees. We can improve our volumes in deposits off-balance sheet.
We can improve, and we have some part of our book, which is already fixed on the loan book and also the fixed income portfolio. So we are working on the measures. The rates are still quite volatile. We have changed from a lot of cost rate cuts at the beginning of the year to almost none. And now we are considering a lot of them again. So we have to see how the rate settles. But obviously, we will come with some guidance after all the measures that we're taking in for the final year result presentation. And in cost and provision, I think cost, obviously, we are improving our efficiency. And this is our major goal, to improve our efficiency. And in terms of provision, as I said, we are already 32% down compared to last year.
We are quite confident that the quality of our loan book and the asset quality of the whole portfolio is very good. So we're confident that we are going to maintain a low level of loan loss provision, but we will give you more color.
Thank you, Pablo. Let's move quickly to the following operator.
The next question comes from Ignacio Cerezo from UBS. Now your line is open.
Yeah. Hi, good morning. So I'll focus on one question, basically. Most of the others have been answered. If I can come back to the corporate book and the growth, actually, you're starting to see if you can give us a bit more detail, basically, on duration, CapEx versus working capital, what kind of sectors, basically, you're seeing some demand, and what kind of yield are you extracting on that new production. Thank you.
Thank you, Ignacio.
We are working on the corporate book, and as you can imagine, the third quarter, whereas in the mortgage book, we have negative seasonality because of the summer. In the corporate book, most of the corporate funding is done in the third quarter, so it's a good month, and most of the funding that they require is considering medium to long-term funding rather than working capital needs. On the working capital needs, we are underrepresented compared to our share of wallet with the customer base, so this is one of the areas that we are working to improve down the line. But in the short term, it has been more medium-term funding from the customers, and regarding fixed or floating, it's very similar to the portfolio. It's slightly more floating now, but it's around half-half, and the level of rates is above our back book.
I could say it's around 100 basis points. The front book is around 4.5, and the back book is 3.6, so it's one of the drivers of improving profitability and NII, the growth, and if you consider the growth compared to one year ago in corporates, I think this is an important point in our activity. We are growing at more than 60% in loan production in the corporate sector compared to the same quarter in 2023, so these are quite good milestones and still work to do, but overall, we are confident this will help us down the line.
Thank you, Pablo. Let's move to the following one, please.
The next question comes from Francisco Riquel from Alantra. Now your line is open.
Yes, hello. Thank you, so my first question is on fees.
Mutual funds under management are up 15% year on year, but mutual funds-related fees are down 3%. If you can explain this gap and also the commercial policy. And also related to the fees, if you can please quantify also in other fees beyond asset management, you are removing maintenance fees as part of your new commercial policy. You can quantify that. This - 5% guidance for the year, what would be without this commercial action? Because I wanted to ask also if you will be done with this action in 2024 or you will extend it to 2025 as well. And my second question is about the ALCO. You mentioned that part of the growth in RWAs is related to the securities portfolio. So I wonder if you can comment on the composition of the ALCO.
Where are you reinvesting that is consuming capital and what type of yield duration? Any color you can give on the securities portfolio. Thank you.
Thank you, Paco. Regarding fees and evolution of assets under management, I think the evolution in volumes is quite positive, as you can see, and as we have shown in the presentation. And if we compare to last year, ninth month of 2023, it's around 3% up, whereas the volumes is 6.7% on a yearly basis. More than on a quarterly basis, there's more noise on the evolution. But obviously, the volumes are growing faster than the fees, and this is related to the profile of the funds that our customers demand. They're moving to target a rate type of fund. It's more monetary funds. It's short-term fixed income, which have usually less fees than the more mixed and equity-related funds.
So this is the major reason. The trend is stabilizing, but still coming down the level, the average fee that we charge on the mutual funds. We expect this combined with the volumes for the coming quarters to keep growing and to close the gap between the growth on asset under management and fees. But still, the trend is what it is, and this is the reason that explains. And regarding our strategy with the customer base, this has a negative impact, as you can see, on a year-on-year of more on payments and accounts of more than 10%, 12%. If you take that out, the fees on a year-on-year basis are positive in the non-banking fees, and especially insurance is 6% up. We're still working on building on fees on value-added products rather than transactional.
But obviously, we expect this to smooth out in the coming quarters and to finish the process of adapting and engaging more loyal customers for the fee structure. And on the ALCO portfolio, Paco, I said we manage the portfolio. We have increased our fair value OCI portfolio compared to the amortized cost portfolio, where in the amortized portfolio, we have increased the portfolio and we maintain the level. We expect that to even come down slightly, but we have increased due to the high liquidity position that we have had and also the hedging done in the amortized portfolio to have three to four years fixed, three to five years, depending coming from the contribution from the amortized portfolio. So we have increased the it's more private debt than public debt, but it's also public debt.
And the reason that the risk-weighted assets has gone up is because the increase in that portfolio is mainly private, and that has some requirement in terms of risk-weighted assets. In terms of overall, it's obviously, as you can imagine, it's higher than the average, but has allowed us to offset the negative impact of having when you go to a fix compared to floating in the amortized cost, you have a lower rate fixed than the floating, but it flattens the impact in the coming years. So this negative impact has been offset because the actual average yield of the portfolio is very similar, slightly lower than last quarter, but very similar to last quarter. So these are the moving parts.
Okay. We are running out of time, but let's do a couple of more if they're quick. Please, operator, let's move to the next one.
The next question comes from Alvaro Serrano from Morgan Stanley. Now your line is open.
Hi, Pablo. Hi, Jaime. Just very quick follow-ups, hopefully. On the ALCO, I know you've done a lot of forward purchases. Is that what's coming through, and should we expect the ALCO book to grow more? Apologies if you touched on this already, but I joined late. And second, Pablo, you mentioned that your mortgage book is now just below 50%, is now fixed. Presumably, you've locked in some of the given that high, some of the variable mortgages. I interpret from your comment that have been moved to fixed, locked in the yield curve. If it is the case, my understanding is this is done for 12, 18 months max. If I understood this correctly, and if that's the case, would the rate sensitivity go up beyond that time horizon? Thank you.
Thank you, Alvaro, for your question. Regarding the ALCO portfolio, it's not that we have far forward purchases. We have forward swaps, which means that we maintain fixed for three, four, five years. Obviously, we tried not to have one year of repricing risk too high, so mainly we will have now it's around more than 80% of the portfolio. It's in fixed for the next between two to five years, and that's the major driver of the strategy on the ALCO portfolio, and regarding the mortgage fixed part, it's not that we have hedged for the 12 months. It's now we have a larger portion of fixed-rate mortgages and three to five-year fixed. It's not 12 months. We have between almost 20% now of the portfolio. It's coming from this fixed for a few years and then floating, and it's around three to five years on average.
Because of the production and the seasonality of the mortgage, it will be slightly higher than three years, three and a half, four years on average on the fixed part of that portfolio. We don't have a cliff effect of next year kicking in that part of the portfolio fixed to floating. So we are trying to smooth the impact. We have the view that rates are coming down, but not as a cyclical thing, but not as much as in the previous after GFC. So we don't think we are going to go to negative rates. And we think we will see a pickup of rates in the medium term again. So the average could be positive. So we don't want to take too long duration neither on the fixed income portfolio nor on the mortgage portfolio.
So it's more hedging the fixed in the long term and having short-term fixed for the floating.
Thank you, Pablo. We only have time for one more question. Please, operator, let's move to the final one.
The last question comes from Hugo Cruz from KBW. Now your line is open.
Hi, two questions. First on NII, if I take your guidance, I assume it's 11% year on year. Then that would imply a 10% decline, EUR 40 million in Q4 on NII. So if you could talk a little bit about the moving parts of NII for Q4, that would be very helpful. And second, the new business plan, do you expect any charges, one-off charges in Q4 to support implementation of the plan? Thank you.
Thank you.
I think, as I said, the Q4 NII expectation in the wholesale, although we expect some slightly lower contribution from the ALCO portfolio, but it will depend on if we see opportunities tactically in the quarter. But we'll be offset by lower wholesale funding cost, as I said, not because of volume, but because of rates. This portfolio, the wholesale funding has an impact in shorter than the lending. On the lending and the retail, I think it's important to understand that the repricing of the mortgage portfolio started to get full speed in the fourth quarter. So this will have a bigger impact on the lending revenues coming from the portfolio. Obviously, the NII above 10% is very prudent and is regarding the deposit initial expectation that the cost of deposit should be still going up.
Whereas if you ask me today and with the strategy and the measures we're taking, I don't think it will go up. So maybe the 10% is let me say, we have said above 10%. It doesn't mean that it's going to be 10%. So we are expecting. We didn't want to be too specific because it will depend on those drivers, the contribution from the ALCO portfolio on opportunistic investments due to our higher liquidity position and also on the deposit evolution from customer. What we have, a clear view is that the loan contribution will be lower in the quarter as in the coming quarters due to the rates repricing of the mortgages that will have full impact in the fourth quarter and the next three quarters of the 2025.
Thank you, Pablo. Let's leave it there.
Sorry.
So that was it, true?
Yes, there was another question.
Sorry about the business plan and what we expect. Let me not be too specific on the business plan because it's still an ongoing discussion internally on the plan. So we will give you more color at the end of the year in the final year presentation.
Thank you, Pablo. Let's leave it there then. The IR team is available for continuing to answer offline all your questions. Thank you very much for your time and your interest, and see you next quarter.