Good morning, everyone. Thank you for joining us for Unicaja Banco first quarter of 2023 Earnings Conference Call. We have Pablo Gonzalez, our CFO, and Juan Pablo Lopez, our head of IR, that will guide us through the presentation. Please remember that we will hold a live Q&A session after the presentation. Now I leave it to Pablo.
Thank you, Alberto. Good morning, everyone. Before we get into the details, I would like to say that this quarter we have seen a strong evolution in liquidity and solvency, some of the main strengths of Unicaja that will help us become more profitable and generate more value for our shareholders going forward. Now, getting into the key aspects of the quarter. The beginning of the year has been a bit slower than expected at the sector level on the lending side, but we have been able to perform well on the retail side with an almost flat book year-over-year. This quarter, we have seen the strength of our deposit franchise with customer deposits from the private sector falling by only 0.4% versus last quarter, while maintaining a very low deposit cost of just 16 basis points.
If we include off-balance sheet funds, total customer funds from the private sector have remained stable in the quarter. We keep moving forward on improving profitability, and all three lines of our core banking margin keep delivering positive results. Net interest income is flat quarter-on-quarter and 11% up excluding the TLTRO impact. Lending and ALCO repricing offset the increase in funding cost and the impact from the TLTRO. On a yearly basis, NII is up by nearly 25%, with still a lot of repricing left in the loan book. Fee income grows by 3.1% in the quarter and by 1.3% year-over-year, with both banking fees and asset management fees evolving positively. Operating expenses are down by nearly 3% year-over-year and 2% up in the quarter after some seasonality last quarter in general expenses.
Personnel expenses keeps capturing synergies as the restructuring plan keeps moving forward. Adding these three together, our core banking margin has improved by 44% versus the same quarter last year, and also net income, excluding the banking tax, has improved by 63% versus last year. At the same time, we keep reducing our stock of NPAs, which as you know, is a key target for the bank. The stock of foreclosed assets went down by EUR 43 million in the quarter, with EUR 84 million of sales. NPLs are slightly down in the quarter again, and we have seen very limited NPL entries with high-quality recoveries. Cost of risk is 26 basis points below our guidance. We have seen a positive start of the year in asset quality, and we are seeing no signs of deterioration so far.
Finally, capital ratios and liquidity have delivered a strong performance in the quarter. CET1 fully loaded ratio went up by 49 basis points in the quarter, and it stands at 13.5%. This is a very comfortable capital position, well above our 12.5% management target, and we expect to keep generating capital going forward while maintaining our 50% payout policy. We have a CET1 fully loaded excess capital of EUR 1.7 billion and 457 basis points of MDA buffer. Finally, the Liquidity Coverage Ratio has improved by 14 percentage points, and it now stands at 298%, which is much higher than the average for our peers and one of the best ratio amongst all European banks. Now Juan Pablo will cover the business activity of the quarter in more detail.
Thank you, Pablo, good morning, everyone. Let's start with our customer funds. As you know, this is something differentiated in our franchise with a lot of value in the current environment. You can see private sector that are the most stable and sticky deposits are almost flattest, while we saw some decrease in the public sector deposits. We believe this is showing a good performance, especially if we take into consideration that some deposits were used to repay loans and some just moved to other products or balance sheet, so they continue to be in the radar or ecosystem of Unicaja. Regarding off-balance sheet evolution, as mentioned, we have seen some inflows coming from retail customers into mutual funds and savings insurance. Next slide.
We would like to spend a couple of minutes looking at our customer deposit base. You can see we have 76% coming from individuals. 80% of the private sector deposits are secured by the guarantee fund. When we look at our regulatory definition, 79% are considered stable, which is some of the highest within European banks. I guess these metrics already speak by themselves. All this, it's a consequence of the structure of our deposits and customer base. Customers with a long relationship with Unicaja that use the services of the bank for savings and in their day-to-day business for transactional purposes. This structure and customer base also explains the granularity and lower cost compared to peers.
You can see on the right-hand side, that the last few quarters we have increased the deposit costs at a slower pace. Basically, we believe the value of our deposit franchise will continue showing in the coming quarters. Now, looking at mutual funds, which is one of our main fee income business. AUMs decreased year-on-year on the back of lower market valuation, but are 1% up in the quarter. We have also seen some customers diversifying their savings and allocating also part to insurance. Our strategy here, as you know, is an open platform where we continue offering value-added products that generate return to customers and at the same time improving the profitability of the business, as you can see on the right. Moving now to lending on slide nine.
As Pablo commented, we have seen slow start of the year at sector level. In our case, retail lending book is 1% down in the quarter and flattish compared to last year. In residential mortgages, we keep growing our market share. Consumer is the other priority where we see growth. Corporate loan book delivering continue as we anticipated in previous quarters. Early amortizations are still coming from extra liquidity granted to companies during previous years. Some of the amortizations were granted at lower fixed rates. In economic terms, the early amortization actually generates value and capital for the bank. In corporates, our main focus in the short term is to target the right clients and improve our product offering together with higher pricing as we are seeing over the last few quarters. Next slide on new lending.
Corporate new lending is stabilizing. On the retail side, consumer lending, where, as you know, we work mainly with existing customers, has been a bit quieter than we expected at the beginning of the year, but we are positive for the remaining of 2023. Residential mortgages slowed down a bit after a few strong years. This is something that we could expect when rates move up so fast, it takes some time for customers to adapt to new pricing, and therefore, new lending activity reduces. All in all, we expect a lower year in terms of new lending compared to recent years, but at much better pricing. In slide 11, looking at our two biggest portfolios.
On the left, you can see the main KPIs of the residential mortgage book, very stable from last quarter. Mainly first residential mortgages with defensive loan-to-value in the portfolios and at an origination level. In terms of geographic exposure, Andalucía and Madrid are our two main markets, and they are the top housing markets in Spain. On the bottom left, the average loan remain stable, and we continue to be able to attract new customers, expanding also the relationship through cross-selling and higher share of wallet. On slide 12, we keep advancing our digital business. The weight of digital customers keep increasing, above 60% in the first quarter of the year. Out of the 17,000 new customers capturing the first quarter, one-third came from digital channels.
Payments also keep going more digital together with the remote channels that help us in the sale of consumer loans and mutual funds. In ESG, in slide 13, we have made great progress in our action plan and reached some important milestones. First, starting with the environmental pillar, we have already started to report not only scope one and two emissions, but also scope three. This allow us to define the decarbonization targets in order to reach the net zero by 2050. It's also important to highlight that the stock of green eligible projects keep growing. On the social front, in slide 14, we continue supporting financial educational programs. We also reached an agreement with Correos, that is the largest postal company in Spain, to bring financial services closer to people at risk of exclusion.
For instance, allowing cash withdrawals wherever there is a post office. In the governance, as we anticipated last quarter, we created a sustainability committee within the board of directors that is already working since the beginning of the year. Moving now to the financial results and the P&L. In slide 16, we will comment the main lay-lines in more detail later, so here are just some highlights. NII is up 25% in the year and flat is in the quarter. More visible loan repricing is supporting customer spread and offsets the lower day count and higher funding, mainly TLTRO. Fees show a positive performance, delivering good results in most business. Associates is mainly recurrent revenues from the insurance JVs that are doing well.
Other revenues, here we include the EUR 64 million temporary banking tax and also our agents' cost that increase in number. OpEx, very good news here as well. Personal expenses reflect incoming synergies, while general expenses are higher this quarter because the 4Q is seasonally lower for us. Loan loss provision, cost of risk of 26 basis points, without making use of any overlay provision, no use. Other provisions include here legal charges, mainly related to mortgage expenses and floor clauses. Finally, other profit or losses of EUR 20 million in the quarter. We continue reinforcing coverage on real estate assets to allow accelerating disposals. All in all, the core business and recurrent revenues are doing well. The structural revenues are doing well and profitability is improving.
Net income, excluding the banking tax, would have increased by 63% versus first quarter last year. Going into a bit more detail and starting with net interest income. Customer spread increased by almost 50 basis points in the quarter, 47 basis points, thanks to the strong performance of the loan yield while customer deposits remain under control. Repricing of the loan portfolio is gaining speed. However, there is still a large part of the repricing, especially from the mortgage book, is still to come in the coming quarters. As you know, the benchmark rate for our mortgages is mainly Euribor 12 months, and the benchmark rate that we applied on average in this first Q was less than 1.4%.
That means there is a lot of repricing is still coming from that 1.4% to the current 3.9% Euribor. This is 250 basis points left of repricing. Deposit cost remained quite low at 16 basis point, but it was also very low in March at just 22 basis points. On the right-hand side, you can see the latest figures on lending yields at the end of the quarter that continue improving. Back book, for instance, is 22 basis points above the average of the quarter. We want to show in slide 18 the main moving parts of the NII compared to previous quarters. First, on the retail side, lending increases EUR 65 million, mainly mortgages, and still a lot of repricing coming. Sorry.
On retail, EUR 70 million, increase in customer deposits, and this is very contained. The fixed income portfolio improves by EUR 40 million as some bonds are at variable rates. We have the impact from TLTRO. This is EUR 33 million. The average cost is 2.3%. Wholesale funding increased due to the fact that around two-thirds of the issuance are swap, and we already completed almost the MREL funding. Next slide. Let's see if here we can explain the guidance that we are expecting for NII. The chart on the left, the starting point is EUR 293 million in the first Q.
This is the base 100 on the graph, and then basically you can easily calculate the evolution for the next quarters. We expect in the second Q NII to improve around 5%. What we are trying to say here in this chart is that NII should gradually increase on a quarterly basis, but at much faster pace in the second half of the year. The two main assumptions that we are taking here is, first one, the Euribor. Average Euribor 12 months is 3.5%. As you know, now it's higher than that. The second main assumption is the beta. You can see the beta at the bottom of the chart. The starting point is actually below 5%.
Beginning of April is around 7%-8%, and the average for the year is 16%. I guess these two assumptions give us additional comfort to our guidance. On the right, we explain the other drivers. Some of them we already commented. Basically the significant repricing left on the loan book, that's the main one, the first one. Still, some repricing in the ALCO portfolio, but at a slower pace than we have seen in the last quarters. The impact from the TLTRO that will fade away in the second half of the year. Some repricing in the wholesale funding and potentially one more issuance, but again, MREL is almost completed, this is almost done.
The gradual increase in deposit cost that again, I would like to highlight. Average RoTE of 16% for 2023. Very low starting point, the 2Q is starting very low as well. All in all, what we see is the NII growing above 20% year-on-year, thanks to the core banking business, while TLTRO fades away and wholesale funding and ALCO plateau stabilize, basically. Moving now to the next slide on fees. Total fees, they are 3% up in the quarter and 1% up in the year, which is very remarkable, given the market volatility that we have seen in the year. We still enjoy some of the synergies coming from the merger also on the revenue side.
Mutual funds are flattish quarter- on- quarter, they are 20% up compared to the same quarter last year. Insurance is also performing well. The Q is a seasonally good quarter for the life insurance business. All in all, very sound fee income delivery, especially given the market volatility. We expect going forward, the fees to continue delivering growth during the year. Moving now to slide 21. Total OpEx increased by 2% quarter- on- quarter. Explained again by the seasonally lower general expenses in the 4Q. Personal expenses maintain the downward trend, a 3% decrease quarter- on- quarter. We have executed 87% of the restructuring plan exit so far. On a yearly basis, total OpEx is 3%, almost 3% down.
For the full year, we still expect to see a decrease in the cost base. On personal cost, we expect around 5% decline, as synergies will continue to flow into the P&L in the next quarters. On general expenses, we see some increase versus 2022 due to inflation that will more than offset some synergies coming from the merger. All in all, we expect total OpEx decreasing at low single digit in the year. Next slide. Cost of risk stands at 26 basis points in the first Q, having made again, no use of any overlay provision. This figure is below our guidance for the year, and asset quality has behaved very well so far, better than we were expecting, as we will see later in more detail.
In slide 23 on the left, I guess this is the most important thing for us. The banking business, the structural business is doing well. Banking margin is growing at 44% versus last year. All three lines are delivering positive results, NII, fees, OpEx year-on-year, which is the best foundation for increasing profitability going forward. With this, now I pass back the word to Pablo.
Thank you, Juan Pablo. Let's move now to asset quality. On page 25, on the top left-hand side, you can see that NPL stock decreases again this quarter. The trend is quite positive. NPL entries in the quarter were 30% below the average of the last 12 months, where 55% of them were subjective NPLs. These are NPLs that are either performing or past due below 90 days. NPL coverage level is very strong at 66%. If we include the guarantee from the ICO loans, on NPLs, coverage ratio stands at almost 77%. The corporate NPLs coverage level would be over 100%. What is most important is that coverage level by portfolio put us in a good situation to manage these non-performing loans.
We have a very defensive loan book with more than 75% individuals and public sector exposures with very low NPL ratios now and historically. Next slide. Foreclosed assets are down EUR 43 million in the quarter. After the strong fourth quarter last year in terms of disposals, we have been able to sell another EUR 84 million this quarter. Last quarter, we sold a wholesale portfolio, while this quarter we have done it more on a retail side. As you can see, we stick to our strategy of combining granular disposals with some portfolio sales. This is the way in which we expect to continue selling our assets, and it is also the way that we believe will allow us to maximize the value going forward. Coverage ratio of foreclosed assets stands at 64%, flattish in the quarter.
Finally, looking at NPAs altogether, the NPA ratio net of provision amounts to 2.4%, which is already a low exposure. As I have just said, we remain committed to keep decreasing the NPAs and reach our targets. Now moving to solvency. CET1 fully loaded improves almost 50 basis points in the quarter to 13.47%. We have three main positive impacts in the quarter. 2 basis points from retained earnings, net of dividends accrual and AT1 coupons. 40 basis points from lower risk weighted assets, mainly explained by the decrease in the lending book, mainly corporates, but also lower densities in some portfolios. Keep in mind that all new production in mortgages is under IRB models and also lower NPAs. 5 basis points of valuation adjustments and other minor impacts.
All in all, CET1 fully loaded stands well above our 12.5% management target. This, together with our expectation that the bank will accelerate its ability to generate capital organically, puts us in a very comfortable solvency position. Very quickly, in the next slide, 29, capital levels remain well above the capital requirements. We have a very significant CET1 fully loaded buffer of EUR 1.7 billion and an MDA buffer of 457 basis points. MREL, fully loaded, stands now at 23.6% as of March after the latest issuance carried out, so very close to our 2024 requirements of 24.8%. Moving to the next slide on the fixed income portfolio. The composition of the portfolio remains unchanged, and the size is quite flattish quarter-on-quarter at EUR 27 billion.
The average duration has also remained stable at 2.6 years in the quarter, while the yield continues to improve, from 1.9 at the end of last quarter to 2.1 at the end of this period. There is still some room for yield improving in the coming quarters, obviously, this will depend on grades evolution. It is also important to highlight that almost the entire portfolio is accounted at amortized cost with no impact on capital. Moving on wholesale funding. As we have commented before, we have issued EUR 500 million of senior preferred in February, which leave us closer to reaching our MREL requirement. You can see maturities are well spread with no refinancing needs for 2023.
Also, and very important, you can see funding rates are rather high, as over 70% of the wholesale funding is swapped to variable rates, which reflects the current interest rate environment in our wholesale funding already. Finally, on liquidity, we maintain a leadership position. Our loan to deposit stands at 79%, NSFR at 144%, and LCR 298%, almost 300, which is up by 14% in the quarter. LCR after TLTRO repayment could still be among the highest in Europe and around 250%. Actually, you can see on the right-hand side, an LCR ratio comparison with some European peers, we are clear leaders in this liquidity, the most important liquidity metrics.
Finally, we have EUR 25 billion of high-quality liquid assets and our issuance capacity, of almost EUR 15 billion. This is, from our side, Alberto. We're ready for Q&A.
Thank you, Pablo. We will now hold a Q&A session. Please try to keep your questions down to a maximum of two so we can get as many people through as possible. Now, operator, we are ready to get the first question.
Thank you. Ladies and gentlemen, we will now begin the Q&A session. If you'd like to ask 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. Our first question comes from the line of Max Mishan from JB Capital. Please go ahead.
Hi. Good morning. Thanks for the presentation and taking our questions. I have two. The first one is on loan book growth outlook for 2023. If you could give more color on your view for segments, that would be very helpful. The second one is on capital. You've been generating excess capital for several quarters now, and I was wondering if you have a little bit more visibility or guide as to what we could think of potential deployment of it. Also, if there is any update on IRB models approval for Liberbank's mortgage portfolio. Thanks.
Okay. Thank you, Max. I will take the first one regarding lending volumes, giving a bit more color regarding the different portfolios. In mortgages, what we are expecting is a slight decrease. The main reason is early amortizations. They are at a historical level, and we expect early amortizations to remain high in the next quarters. At the same time, new production slowed down due to rates and macro environment, and probably the new housing law will not help. All in all, probably slight decrease in mortgages this year, these two things combined. In consumer, we see high single-digit growth.
Again, here we are, we are working with existing customers, and thanks to sharing some of the best practices, in all the network, we see this growth coming in the year. Lastly, on corporates and SMEs, this book keep falling as we have seen, and this is something we have anticipated and is expected due to the early amortizations related to ICO loans, and also loans associated to meeting the TLTRO threshold in the past. What we can say is the pace of decrease is slowing down, although still, you should expect some delivery coming in the next in the next quarters. We commented in the presentation, from an economic point, this is positive and we also generate capital.
All in all, for the whole loan book, what we expect this year is a decrease at around mid-single digit.
Thank you, Max. I'll take the excess capital question. As you know, we have already above 100 basis points above our capital target, and we expect to continue generating capital going forward. Actually, the trend is even better than what we were expecting so far. As we discussed in the past, we could expect two things in the short to medium term on the use of this excess capital. And as you can imagine, the two major uses are either increase shareholder remuneration and I can say that the board is already studying proposals in the form of share buybacks that makes sense at this very low valuation.
This is something that, as you all know, the former Unicaja and also Liberbank have done in the past. Shareholders are used to this type of remuneration. The second option would be to invest in our own business to make it more profitable down the line, and investing in some business where we see room to grow with our existing customer base, as it is the case for consumer or other private banking or other type of banking that we can do and improve our profitability. Another option also is to improve profitability by reducing costs. In this case, also the board is also studying the potential reduction in cost with a new personal reduction.
Obviously this only would carry forward with an agreement with the legal representation of the workers and the trade unions as we have done in the past.
I don't know if you want to comment on IRB, Pablo?
Okay. On IRB, I think the evolution, I think it's the process is evolving as we were expecting. Let me give you some color on the steps we have taken. We presented the application package at the end of the first half of last year. After that, the supervisor started the review, the inspection, and we have already had the exit meeting and closing the on-site inspection.
After that, as we said, we expect the capital ratios to have to full recognize the impact of the IRB models for the retail portfolios of the former Liberbank to be reflected in the third quarter, as we said, with a positive impact also in capital. As we did in the past, I think we have to be very careful on the impact of this IRB model implementation due to couple of reasons. I think the portfolio, as we have seen in our capital evolution, is shrinking. The original impact is, it will be lower because the portfolio it's smaller. Even though, I think the...
Just to give you the, some numbers, the back book coming from Liberbank at standard model, it's around EUR 14 billion. This could migrate from an around 36 risk-weighted asset density at the moment to the low twenties after the process. For the other major portfolios, the consumer lending and cards, we expect a smaller impact.
Thank you. Thank you, Pablo. Thank you, Max. operator, can we get the next question through?
This question comes from the line of Ignacio Ulargui from BNP Paribas Exane. Please go ahead.
Thanks, thanks gentlemen for taking my questions. Good morning, everyone. I have two questions and a small follow-up on the IRB. I mean, the first one is on the mortgage portfolio. If I just look to the decline in the new production, in the first quarter, it's like 47%, 48% year-on-year. That looks to me like a bit harder or bigger decline than in the sector average. I mean, which I think last data point, up to February year-to-date was down 13%. What are the reasons behind that? I don't think the competitive landscape has changed materially in the last six months. If you could just elaborate a bit more on why you see your production in mortgages going down so much in 2023.
The second question is linked to the TLTRO. I struggle a bit to understand why you are not repaying the TLTRO with the liquidity that you have. These bonds that are carrying or kind of maturing, at the time of the TLTRO, I mean, couldn't be sold. There couldn't be liquidity generated some way to reduce the headwind of EUR 35 million a quarter? Just a very final question on the IRB. I mean, if I remember correctly, last time you said that it will be, like, before the summer, the approval of the IRB, and I have understood that it's now in the third quarter. Can you just confirm that, please? Thank you.
Okay. Thank you, Nacho. I probably will take the first one regarding the mortgage portfolio. Probably we should take into account here that in the last years, we were coming from a strong production during the last three, four years. When we look to the market shares and the stock evolution, in our case, we were showing that the stock is almost flattish year-on-year. This is 0.7% down year-on-year. When we look to the stock, we continue to see that we continue to gain market share. For us, that's the most important metric to continue to analyze in terms of production is the market share.
Prices are going up as we were commenting. Probably the market and the customers, when the rates go up so quickly, they need to also to adapt. We do not see no signs, no change in our commercial strategy. Probably, it's true that the base was very strong in the last years, maybe that explains what you were commenting, the decrease. Was because a very strong starting point. When we look to the stock, we believe we are doing better than the sector.
I think regarding the TLTRO, in the first quarter, the cost of the funding coming from the ECB and the TLTRO was EUR 31 million, which is the EUR 5.5 billion at around 2.3%. In the fourth quarter, we accrued around EUR 2 million revenue. You have to consider that during October and November, it had a positive impact due to the changes in the computation of the TLTRO cost and how the ECB changed the rules in the middle of the game.
We had our planning and so we have been building up as the process, with the amortization and some sales that we were expecting and the new issuance in the process as we have seen in November and February, EUR 1 billion issuance. We have this year another EUR 1.6 billion amortization coming from our fixed income portfolio and also the commercial GAP evolution that we were expecting. With the liquidity that we have at the moment, plus the fixed income portfolio amortization, allows us to repay fully the TLTRO, but we maintain our timetable to do it in June.
Regarding the IRB, what we said in the previous call is that we are expecting to have the announcement in our second quarter result presentation. The impact on the capital numbers, as you can imagine, if it's the presentation usually is at the end of July, we expect to have that. The impact will be in the third quarter. We haven't changed our guideline in IRB. It's only confirming, as you said, that the impact on capital, we expect that to be in the third quarter. The announcement will be probably be done in the second quarter result presentation.
Thank you. Thank you, Nacho. operator, please, next question.
Next question comes from the line of Borja Ramirez from Citi. Please go ahead.
Hello. Good morning. Thank you for taking my questions. I have two quick questions. Firstly, on the excess capital, I understand the potential uses of excess capital. I would like to ask if you could also envisage excess capital, for example, for doing an accelerated sell-down of the foreclosed assets, also given funding costs are increasing and these generally do not generate interest income. My second question will be on customer spread outlook. The guidance you provided for 2023 NII is very helpful. Thank you for that.
I would like to ask, when I look at your customer spread evolution throughout the year and a comparison with peers, I understand that it's going to be better than domestic peers because of the skew towards the mortgages which tend to have a slower repricing throughout the year. If you could please provide details on this. If I may, a follow-up on the mortgages, if you could provide expectations of new lending for per quarter in mortgages. Thank you.
I'll take then the first one, Juan Pablo. When I said the potential uses of excess capital, one of them is to invest in our own business to make it more profitable. Obviously, one of the uses could be to accelerate the reduction of foreclosed assets. Although this has to go through the P&L, unfortunately. We have a strong commitment to reduce our foreclosed assets in the coming quarters, and this obviously has an impact on the P&L. This quarter has been very good in capital, we maintain a strong provision on foreclosed assets to allow us to accelerate this process. On customer spread.
I think on customer spread, we always believe that our model of having a lot of customer with transactional business with us, with small average position on deposits, and a low-risk business on the loan side, gives a good comfortable customer spread on a more normal interest rate environment. Obviously, this takes longer than other peers to realize because the mortgage portfolio is not like the working capital lending or the short-term lending of other corporate lending of other peers have. It will show up in the numbers as we have started to see in this quarter.
Now the spread is above 200, the customer spread, and we expect that in a more normal environment, obviously maybe, you know, between 2% and 3.5% or 4%, I think the spread should be above 200 basis points, between 250 or, you know. This obviously will depend a lot on the beta and in our assumptions, on the new production. This customer spread, probably will be between 220 and 250 in the coming quarters. But that's with our actual assumptions and the new production pricing that we are expecting. On mortgages, can you answer?
Yes. I can take that one. I guess we provide a lot of detail regarding our guidance for the next quarters. Regarding new mortgages, the second Q and the fourth Q, they are the quarters that are the strongest in the year. First Q and third Q, in our case usually are more seasonally weaker because as you know, we focus mainly on first residents. For the whole year, probably we will do more than the annual annualized run rate that you are seeing right now in the first Q. What we are envisaging is around between EUR 3.5 billion. That's the new production for mortgages for the year.
Yes, forgive us, Borja, if we do not provide a quarterly guidance on this one.
Thank you. Thank you, Borja. operator, we're ready for the next one, please.
The next question comes from the line of Ignacio Cerezo from UBS. Please go ahead.
Hi. Good morning, and thank you for taking my question. I've got three, if I may. First one is on the deposit betas. You have provided a blended deposit beta expectations for coming quarters. If you can break that down between household and corporate in your case. Second one would be on the non-credit impairments. Both legal and real estate obviously probably two lines actually have been persistently worse than expectations for a few quarters already. Do we need to assume that those two lines actually are going to be recurring in the current size in coming quarters? Or do you think there's going to be a deceleration basically in terms of the track going forward?
The third thing, obviously new news, but, if you can give us your view about the implications of the housing law, that was approved yesterday. Thank you.
Okay. Thank you, Ignacio. I will take probably the first one, deposit beta, and I can give my personal view on the new housing law as well. Regarding deposit beta, I guess that in our case, as we were commenting in one of the slides, in a very detailed manner, our main focus is individuals. Around 80% of our deposit base are individuals. I guess this explains why our structural beta and cost of deposits should be lower than peers and supports our customer spread. Probably, in the 1st Q, when we look to the whole beta was around 4.6%, slightly below 5.
Probably if we analyze the mix, right, individuals, obviously is even lower than that, probably below 4%. In the case of the corporates and public sectors, that obviously they are the most sensitive to big corporates and large corporates and public sector, they are more sensitive to the rates. Probably betas around two-thirds, 60%-70%. Regarding the housing law, well, I guess that the main impact could be in terms of for us in terms of of new lending for investments. Again, this is not our main focus. We are basically a bank focused on first residents. Our customers, they don't buy second residents. They don't do buy-to-let.
They do not invest in real estate, probably as other customers. I guess that could be the main impact. As you know, the new law is limiting the prices on rent, putting some pressure on landlords, and making the investment probably less profitable until the rents adapt. I guess the other consequence could be that the supply will decrease in terms of rental properties. In our case, again, this is not our business. I guess no, not really impact on this, but obviously uncertainty for the market.
Thank you, Ignacio. On impairment, I think on real estate impairments, we continue to reinforce the coverage for future disposals. As you have seen this quarter, EUR 27 million that were partially offset by some positive results on the disposals of around EUR 7 million. The net has been EUR 20 million, which is a high number. I want to emphasize that we have a strong commitment to keep reinforcing the provision in order to allow us to accelerate the disposals. We have strong capital position. We have a strong capital generation in this quarter. We took advantage of that.
We believe it's important to continue reducing our NPAs, so our organic capital generation, in exchange of temporary lower organic capital generation, it's a good proposition. Even though we still in this maintain the view that we will increase our capital generation. This line, we don't have a clear view how much it's going to be on this line, but we will maintain strong. We have to see how the market behaves, if the higher rates has an impact on the potential demand from investors on the real estate assets and if this new law has also an impact or not.
Say there's too many uncertainties, but the only thing I can say, Ignacio, is that we have a strong commitment to reduce our NPAs, and we will do down the line. In terms of the legal cost, we still have some high level. We expect this to come down, but obviously, from a high level. Going forward, we are more in line between EUR 25-30 million per quarter for the remaining of this year, and then coming down in the following years once most of the mortgage floor and cost. Mortgage cost also, it's already reduced. That's our view at the moment.
Obviously, this is uncertain because there's a lot of moving parts in this. Unfortunately, we have a new industry in the legal firms, which is suing the banks.
Thank you. Thank you, Nacho. Operator, we are ready for the next question, please.
The next question comes from the line of Carlos Peixoto from CaixaBank BPI. Please go ahead.
Yes. Hi. Hi. Good morning. Thank you for taking my call. Questions. The first one would actually be a follow-up on the previous question, and sorry if I missed it a bit. But basically, when you think about other provisions, the run rate for upcoming quarters should be below these levels, around these levels. How do you see it, and how do you attach that with the goal that, as you're mentioning, that you mentioned of continuing to reduce foreclosed assets? Also on the provisioning front, you were previously guiding towards 30- 35 basis points cost of risk for the year.
Do you stick to that guidance? Then finally on fee income, I believe the previous guidance was also around 5% growth. I was wondering if you confirm it as well. Thank you very much.
Thank you. On provision, I've been as clear as I can be. I think, on real estate impairment, we don't have a clear view, but the only thing is we have a strong commitment to maintain the trend on reduction the NPAs, and this will depend on market conditions, what we need to still apply. Obviously, this will be more something in the coming quarters and then coming down going forward. On legal provisions as well, very similar. I have stated what we think should be at least in the near term coming quarters. Obviously, we have a trend because some of the risks that are actually coming down.
As you can see, the number of mortgage floors is very low now, but we still have some backload log that we will have to resolve in the coming quarters and then coming down. I think still not good news in a few quarters, but then a positive impact on the net income down the line.
Okay. Maybe I will take the other two questions. As the other two questions are more structural regarding the business. They are not temporary as the ones that Pablo was commenting before. The first one, the cost of risk in the first Q, you know, was 26 basis points. This is below our guidance, as you pointed. That was between 30-35 basis points. Again, I would like to highlight that we are not using any overlay provision this quarter, so things are doing better than expected. Behind this performance is basically the asset quality. If we look to the first Q NPL entries, they are 30% below the average of the last 12 months. They are coming down, NPL entries.
More than half of the NPL entries are subjective NPLs. Actually, when we look to the NPL entries, so far, they are almost half of what we were expecting in our budget and in the guidance of the 30-35 bps I just commented. NPLs, again, NPL entries, half of what we were expecting. Probably, we prefer to be cautious here in the guidance, but probably we see in the following quarters comfort regarding the low range of our guidance so far. Probably the third one was regarding fee income. Here we reiterate our guidance. There are no news. Things are going as we were expecting three months ago, and we reiterate that mid-single-digit growth.
The main business, AUMs, not only mutual funds, but also saving insurance, are doing well. They are recovering AUMs. In terms of non-life insurance and life insurance, they are already doing well. Payment and transactions, they also doing well. We are comfortable with that guidance of mid-single digits for the year.
Thank you, Carlos. Operator, you can get the next one through, please.
The next question comes from the line of Benjie Creelan-Sandford from Jefferies. Please go ahead.
Yeah. Good morning, everyone. Thanks for taking the question. My first question was just if I look at the balance sheet, there's obviously quite a step up in interbank borrowing this quarter, with a corresponding increase in cash on hand on the asset side of the balance sheet. I was just wondering if you could talk us through a little bit more the strategy there, and the impact that that is having on net interest income.
The second question was just another follow-up on the foreclosed asset portfolio. Appreciate don't have full visibility on the potential cost going forward, but could you perhaps give us any color on the average write-down levels, at which you're completing sales in the past couple of quarters? Thank you.
Thank you, Benjie. On the pickup on interbank liability, if you look at the asset side, as you said, we have also a pickup. We in the money market desk, we tend to be due to the large size of our fixed income portfolio, we take advantage when there's an opportunity to make a spread on the repo market and versus the deposits, the ECB deposit facility, the marginal facility. We make around 10, 12, 15 basis points. Not very significant, but it's a good profit on top of our fixed income portfolio revenue. In terms of the for.
Yeah. Okay. I will take the second one is regarding the disposal of the foreclosed assets. What we can tell you here is that we continue to combine the two strategies, both granular and portfolios disposals. In terms of granular portfolios, granular disposals, sorry, we generate profits on these sales. In the portfolios, as the one that we completed in the full Q last year, we sold around EUR 170 million assets, and the impact was around EUR 8 million. Probably what we are doing here in this first Q is trying to do front load part of that impact.
We plan in 2023 to continue with this strategy, so we will continue selling through granular and let's say retail channel. Also, the intention is to carry out some portfolio during the year, and that also explain the impairments during this first Q 2023.
Thank you, Benjie. I think we have one more question in queue. Operator, please.
The next question comes from the line of Francisco Riquel from Alantra Equities. Please go ahead.
Yes, thank you. Most of my questions have been already answered. Just have one regarding MREL. You are still short of the targets. What are your plans to get there? Do you think you need to issue in the market or you will get there through the leverage in the balance sheet? In connection with this, how shall we see the excess CET1 that you currently have? Will you be able to use it without issuing debt to reach the MREL or where, or the or do you think that you can already use it or not? Thank you.
Thank you, Paco. I think what's important is the catch-up that we have done in the last couple of years on MREL requirement. We were with a requirement of 18%, and now we have almost 24%. Very close to our actual requirement at the end of this year, the beginning of next year. In terms of, we're very close. Obviously, we will have some as we are expecting the lending demand coming down in the year and on top of that, as we have built a lot of capital in this quarter. We expect this capital organic capital generation to grow again throughout the year.
Just to give you some color, we are expecting to be around 14% even without any IRB model impact. As I said, we expect that to be on the third quarter. I think combining everything and the actual level that we have, we are probably short one more MREL issuance, then we will be in a more level playing field compared to other banks that has only to renew existing MREL. I think that was one of the major difference in the last few quarters, is that we have been building our MREL from scratch. We are not, we don't really believe very much that we have the same level of risk than other banks, the...
I don't want to talk about the supervisors and regulators, but we have to comply with a very high level of vulnerable liabilities, even in our case, and the change has been significant. We have been building. I think the conclusion is we have already we are almost there. Only one more transaction probably or maybe the deleverage and the usage of the excess capital. We could fulfill the level even without any transaction, but as you said, we are thinking on using the excess capital, you know, through other means. Maybe we have to do another transaction and also to have some buffer on the MREL. I hope I've been clear, Paco, and thank you for your question. Thank you, everyone. I think we don't have any more questions.
Thank you, Pablo and Juan Pablo. Thank you everyone for joining. The IR team remains available the rest of the day. Thank you very much. Thank you.
Thank you.