Good day, and thank you for standing by. Welcome to the Millennium bcp 9 M onths 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question- and- answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Mr. Miguel Maya. Please go ahead.
Good afternoon, Miguel Maya speaking. Welcome to BCP Earnings Conference Call. As usual, I will mention the highlights of our performance and the, and then Miguel de Bragança and Bernardo Collaço will follow, providing additional detail. On the first nine months, we recorded a profit of EUR 651 million, which clearly demonstrates the quality and capability of BCP's business model to generate sustainable value. Over the past few years, we have implemented a well-defined plan to solve specific past problems, to address challenging economic and geopolitical context, and to incorporate the advantage provided by technology into business models and processes. The positive results we have consistently achieved quarter after quarter reflect the quality and hard work of the bank's teams and our firm pursuit of the strategy we have defined.
Our progress is evident in the performance and the core profit, which reached EUR 1.8 billion, 38% growth, supported by a 27% increase in core income, coupled with rigorous cost management that allowed us to contain the cost increase by 8.5%, despite the high inflation levels in all the markets where we operate. The net income continues to be affected by legal risks in Poland related to the FX markets, and until September this year, these risks had an unfavorable impact of EUR 590 million, including a significant increase in provisions due to more conservative assumptions and costs associated with the settlements with clients. Despite the significant costs related to Swiss franc, the activity in Poland continues to evolve positively, confirming the quality of the bank's franchise in that market.
This was the first consecutive quarter in which the activity in Poland had a positive contribution for net income, standing at EUR 100 million this year. It's worth noting that the planned measures in Poland, such as the securitizations carried out and the partnership in banc assurance through the sale of 80% of Millennium Financial Services, along with the capital generation from our high quality franchise, not only accelerated the capital recovery ahead of initial expectations, but also enabled Bank Millennium to issue EUR 500 million third quarter, which was relevant for complying with MREL requirements in that market. The contribution from the activity in Mozambique amounted to EUR 67 million, in line with the previous years and confirming the quality of the franchise and the relevant profitability of this operation.
In Portugal, the activity showed remarkable evolution, having achieved a profit of EUR 557 million in the first nine months and an increase of 93% year-on-year. These results confirm the strong ability of our business model to steadily generate organic capital. The capital ratios comfortably exceed regulatory requirements, with the Common Equity Tier 1 at 14.9% and total capital at 19.4%, resulting in increase of Common Equity Tier 1 by 337 basis points and total capital by 431 basis points in the last 12 months. In the current context, the evolution of customer funds is also noteworthy. On balance, customer funds reached EUR 76.99 billion, showing a year-on-year growth of 2.3%. BCP has developed specific capabilities that allow for a consistent reduction of non-productive assets.
Since September last year, we have managed to reduce EUR 3,398 million in NPEs, EUR 149 million in foreclosed assets, and EUR 404 million in restructuring funds. These capabilities, combined with sustained business growth, have led to a continuous trajectory of reduction in the NPEs ratio, which decreased from 4.1% to 3.6% year-on-year. Despite the challenge and uncertainties in the operating environment, including the significant provisions related to legal risk in Poland, we have maintained a very rigorous balance sheet management, keeping cost of risk at a level we consider suitable for our business model. The cost of risk stood at 50 basis points at group level and 53 basis points in Portugal, having decreased nearly five basis points over the last year.
In this quarter, we have achieved a highly relevant milestone that confirms the success of the normalization path that BCP has been implementing for several years. After a series of upgrades, we obtained investment grade rating from the four major rating agencies. Our customer base continues to grow consistently, having exceeded 6.6 million clients at group level, of which nearly 2.7 million in Portugal, confirming the bank's ability to meet the customer expectations and to attract new clients. The priority we gave to mobile has been fueling its adoption by customers across the group, showing their recognition of the quality of our mobile solutions. Last year, mobile customers grew 11%, with the mobile customers already accounting for 66% of the group's customer base and 56% in Portugal, which is a good indicator of the success of our digital transformation journey.
Our digital capabilities are also widely recognized by customers, which make us, quarter after quarter, the bank they must spontaneously nominate as the best digital bank. Customer recognition of our digital capabilities is also reflected in the use they make of the app, which continues to gain increased relevance as their preferred platform to interact with the bank. On the first nine months of this year, customers carried out 29% more transactions through the app than on the same period last year, with a significant growth in the number of transfers and payments. The number of sales through the mobile app have increased 27% in the same period, with emphasis to saving solutions, which increased 30%, and sale of cars, which increased 17%.
The investment and priority we give to mobile solutions with a clear focus on customer-centric innovation means that our app continues to lead the rankings and deserves top reviews on the most relevant platforms. We are on the way to closing a year of transition for BCP, a year in which we are already realizing the results of the transformations implemented in recent years. The reference metrics we set in the strategic plan have been generally achieved ahead of schedule. It's also highlight the increasing relevance that the bank assumes in Portugal, a relevance that is amplified by the significant strengthening of capital ratios. In Poland, it's worth noting that despite all the adversities coming from the Swiss franc issue, the bank has presented positive results for the fourth consecutive quarter.
I also emphasize our efficiency level, which was already distinctive and has been further strengthened by increased revenues, combined with our ability to maintain very effective cost control, even in a high inflation context. We are on the right track. We're well prepared for the future. Miguel, the floor is yours.
Thank you very much, ladies and gentlemen. On page eight, we see the synthetic summary of our income statement, where very clearly it shows that the core income increased by 27.2%, mainly explained by the growth of the margin of around 37%, while the operating costs have only increased 8.5%, which shows a very positive jaws that then translate into an evolution of the core operating profit of 38%. The other income was, of course, influenced by the sale of the Millennium Financial Services or our insurance broker in Poland to generate capital, so that the operating net income then grows around 52%.
The results of NII modification, which were basically explained by the credit holidays last year in Poland, this year, by the absence of of credit holidays, improves substantially, and the loan impairments have also decreased, due to a progressive normalization of our credit risk charges. The legal risk in in Poland still at quite high levels, at around 482, but I would say that the risk is still contained and within the expected values. The net income before before taxes is EUR 1.1 billion, so that after taxes, minorities, we reach the value that Miguel Maya referred of around EUR 651 million.
Looking at the profitability, we see that the net interest margin is at a very high level of 3.4%, where in Portugal, the value is 2.6%, which is a very high value for a mature market such as the Portuguese market, as you know. In international operations, which is basically Mozambique and Poland, the NIM is at five percent. This evolution of the NIM is basically what explains the growth of the NII of 37% year-on-year. The fees and commissions stable with the market-related fees and commissions due to the turbulence in the markets, quite stable, and the banking fees and commissions also at levels very similar to the levels of 2022.
In Portugal, the growth has been 0.5%, in the international operations, 1.6%. There is also some compensation between the fees and commissions, P&L and the NII, because there were some charges to the wholesale customers for deposits and for transactional banking, and so on, that now, with the demand deposits being as profitable as they are today, do not make necessarily a lot of economic sense. The other income grew very substantially from -EUR 55 million to EUR 97 million, with an important contribution, both of the sale of the Millennium Financial Services and of the decrease in the regulatory contributions. Operating costs contained with the growth of 3.5% in Portugal, a mature market, and the growth of 15% in Poland.
The inflation last year in Poland was around 15%, and there is some, of course, tension in the salary market in Poland. In Portugal, we have been able to compensate the salary increases with efficiency gains. The impairment and provision charges normalizing, so our cost of risk evolved from a value of 55 basis points to a value of 50 basis points with the contribution from both Portugal and the international geographies. Portugal decreased the cost of risk from 57 basis points to 53 basis points, and the international geographies decreased the cost of risk from slightly above 50 basis points to slightly above 40 basis points. The credit quality showing high resilience in spite of the economic challenges, I would say, in the world due to geopolitical risks and to the inflationary risks.
The NPEs decreased year-on-year, around 16%, around EUR 400 million, most of it in Portugal, so that we are now with an NPE loans ratio of around three percent. And if we consider off-balance sheet exposures and securities, our NPE ratio in Portugal is already 2.2%. In our international operations, the NPE ratio of EBA, also considering securities, is already at 2.6%. So, all in all, a very positive evolution in these values. In terms of customer funds, here, it has been an area that was, that is slightly below our initial expectations before this more restrictive monetary policy started. This more restrictive monetary policy reflected itself on volumes, mainly in Portugal.
The total customer funds in Portugal decreased very slightly, so around two percent. Right now, they are quite stable, and they are, and our forecast is that they will continue broadly stable until year-end. In our international operations, on the contrary, there was a very buoyant growth of around 12%. Loans to customers, here also, being affected, I would say, by both our efforts to reduce the NPEs, which is positive, and the more restrictive monetary policy that we are all living. Right now, it is stabilizing, but it decreases around EUR 1 billion in Portugal and EUR 270 million in the international operation.
In the international operation, there was also here a movement of a more restrictive, I would say, and disciplined capital allocation due to the effort that we were doing in Poland to meet successfully the capital requirements. In terms of capital ratios, a very strong quarter in terms of capital ratios, exceeding even our own initial targets, so we have grown to 14.9% of capital. This was explained by some factors. So besides the just mentioned factor of the reduction of the credit portfolio, that was more focused on, I would say, higher RWA clients, mostly in Poland, but also in Portugal.
We had an authorization to use new IRB models in terms of LGD and ELBE, which is responsible for more or less 20 basis points. We also have the impact of the securitization in Poland, which was where most of the work occurred in Q2, but the settlement was already in Q3, which is responsible for around 13 basis points. Leverage ratio, very comfortable, not to enter into it. MREL, with the issues that we have been doing, a comfortable position, as we know. Already doing a pro forma with the issue that was performed, we are above , 30%, 31.6%, which compares with the mandatory MREL requirement for 1st of January of 2024, of 28.15%.
We are also meeting the MREL requirement in Poland, as was publicly announced by our bank there. Liquidity ratios, also in spite of the restrictive monetary policy, very, very comfortable. As you see, the net stable funding ratio at 160, and the liquidity coverage ratio at 244%. With our eligible ratios, eligible assets in Portugal in excess of EUR 24 billion, our eligible assets in Portugal are higher than the amount of uninsured deposits. So this gives us a very strong resilience in terms of liquidity risks. I will pass now the floor here to Bernardo.
Okay. Thank you, Miguel, and good afternoon, ladies and gentlemen. Starting on page 25, which is related with Portugal, net income increased 93% from EUR 288 million to almost EUR 557 million. This positive evolution was driven by stronger net operating revenues that went up more than 27%, and still the strict, the strict cost management that went up just 3.5% compared with the first nine months of 2022. It should also be noticed, the positive contribution to net income arising from the reduction of 15% in total provisions.
On page 26, you can find detailed information about the NII evolution in Portugal over last year, and at the end of the first nine months of 2023, NII stood at EUR 1.1 billion, meaning 64% up year- on- year, or EUR 427 million above the same period of last year. The favorable performance of NII in Portugal largely reflects the higher income generated by the loan book and the positive impact from securities, that more than compensate the impact on the remuneration of deposits and the higher costs supported with the Bank on wholesale funding. Moving to page 27, which shows the evolution of fees and commissions, as well as other operating income and trading. Banking fees and commissions were flattish year- on- year, and market-related fees grew two percent. Total fees and commissions were EUR 2 million higher than one year ago.
Looking to other sources of income, and starting with other operating income, were almost EUR 5 million above the first nine months of last year, and this, this positive evolution is explained by, by the reduction on mandatory contributions. Regarding equity earnings and dividends, the contribution was EUR 46 million in the first nine months of this year, which is a similar level than last year. In terms of trading, results were much lower than in last year, mainly driven by lower results from sovereign debt trading activity, as well as the negative impact from sales of NPEs. Going to page 28, regarding costs, and as I comment, banks continue to apply a strict policy in terms of cost management, and total costs grew 3.5% compared with the first nine months of last year, and at a lower pace than inflation.
It should also be noticed, the non-recurrent costs, that includes mainly the compensation for the temporary reduction of remuneration in the period of 2014 and 2017, that reached the final reimbursement in the first half of this year, so this should be considered as a one-off that will not be repeated. Moving to page 29, which refers to asset quality, and as highlighted before by Miguel, there was a significant reduction in NPEs. NPEs reduced 22% year-on-year, meaning more than EUR 340 million in just one year. In the first nine months of this year, there was also a reduction of almost EUR 170 million, and this clearly shows that the bank is still committed with the reduction of the NPEs.
As you can see on the top left chart, year-on-year reduction occurred both on 90 days past due loans, as well as in other NPEs. NPEs, as of September this year, stood below EUR 1.2 billion. That compares with EUR 1.5 billion one year ago. And as it was also mentioned by Miguel, the cost of risk stood at 53 basis points. That compares with 57 basis points, showing once again the convergence of the cost of risk to the normalization. Let's now move to page 30, which looks at in more detail to NP coverage.
As you can see, total coverage of NPEs stood at 138%, NP coverage by loan loss reserves above 80%, and total coverage for individuals with high levels of real estate collaterals stood at 100%, and for companies above 150%. On page 31, which shows the evolution of foreclosed assets and restructuring funds, there was a reduction year-on-year on both of them. The net value of foreclosed assets stood at EUR 117 million, that compares with EUR 265 million one year ago, meaning a reduction of more than of 56% or a decrease of almost EUR 150 million. On the first nine months of this year, there was a reduction of more than EUR 60 million.
Regarding property sales, there was a significant reduction in number, in the number of transactions compared with the first nine months of last year, which was somehow expected due to the reduction of the portfolio. Regarding restructuring funds, and as we mentioned, several quarters, before, I mean, the reduction of 50% was, is explained by the transaction that happened at the end of 2022. Now moving to page 32, total customer funds with a slight decrease of 2.28%. Total deposits went down 1.7%, and off-balance sheet products decreased 4.5%, and once again, still influenced by market conditions and the significant maturities of insurance products. It's worth mentioning the stability of deposits on the Portuguese operation that were established, that were flattish compared with the previous quarter.
In terms of gross loans, there was a decrease of almost four percent. Loans to companies went down eight percent, and somehow this is influenced by the reduction of the NPEs. Remember, EUR 340 million, and some early reimbursement of credit lines that were provided by the Portuguese government under COVID. Remember that BCP, by that time, had a much higher market share than its natural market share on the first wave of COVID lines. Loans to individuals were almost flattish year-on-year. Going to page 33, analyzing the evolution of the performing loan book by segment and the recognition of BCP as the main bank for Portuguese companies. Performing loans in Portugal went down three percent.
Loans to individuals were stable year-over-year, and loans to companies, due to the interest rate environment, went down almost seven percent, and it can be explained by the factors that I already mentioned. Let me also reinforce the leadership of BCP in the SME program for the fifth consecutive year, as well as the Inovadora COTEC program for the third consecutive year, and the recognition as the best bank for companies from Data E. Now, moving to international operations on page 35, results were still impacted by specific effects related with Bank Millennium. Although it's important to highlight that Bank Millennium registered for the fourth consecutive quarter, positive results after several quarters with losses. Net income of Bank Millennium is still at EUR 100 million. That compares with a loss of EUR 276 million one year ago.
With regard to Mozambique contribution, we're more or less at the same level of last year. In summary, contributions from international operations stood at EUR 94 million, which compares with -EUR 96 million in the same period of last year. It's also important to remember that in the first half of last year, that it was registered, the impairment of the goodwill related with Bank Millennium, with an amount of EUR 102 million. Excluding these specific effects from Poland, as I mentioned, costs related with FX mortgage, the sale of 80% stake in Millennium Financial Services, and the goodwill impairment, contribution from international operations would have stood 40% higher than last year. Now on page 36, which refers to Bank Millennium, net income in Poland continued to be impacted by costs related with CHF mortgage loans.
It's important to highlight once again that Bank Millennium had positive results since the fourth quarter of last year. In the first nine months of this year, NII in Poland stood net income in Poland stood above EUR 100 million, which compares with a loss of EUR 276 million in the first nine months of last year. But it's also important to highlight that excluding specific effects, net income would have stood at almost EUR 500 million, 44% above the same period of last year. Net operating revenues, excluding the impact of credit overlays on NII, increased 32%. Operating costs, excluding mandatory contributions, went up 14%, and if you consider the reduction of mandatory contributions, total operating costs went down 10%.
In terms of capital, as mentioned before, in Poland, there was a strong improvement and, the CET1 stood at 13.5% and total capital at 16.6%, which are comfortable levels above the minimum requirements. On page 37, some detailed information about Bank Millennium. NII increased 16% to EUR 867 million. That compares with EUR 745 million one year ago. It's important to mention that NII on the third quarter of this year was higher than the second quarter of this year. NIM improved from 4.36% to 4.72%, which is also aligned with the level that was presented on the previous quarter.
Fees and commissions with a slight decrease of 2.4% to EUR 129 million, and other income was strongly impacted by the positive results coming from the sale of 80% of Millennium Financial Services in the first quarter of this year. That was mostly booked on the trading line. As mentioned before, mandatory contributions in the first nine months of this year were much lower than last year due to the activation of the recovery plan and the one-off that was registered last year related with the institutional protection scheme.
Moving to page 38, related with asset quality in Poland, and still taking into consideration that there was still an environment with high interest rates and high inflation, the cost of risk stood at 44 basis points, which is a lower level than was initially projected by Bank Millennium for this year, taking into consideration market conditions. Non-performing loans, more than ninety days past due ratio, steady year-on-year, at a level of 2.2%. Coverage by loan loss reserves of non-performing loans stood at 153%, meaning an increase of almost 10 percentage points compared with last year. On page 39, customer funds grew nine percent with a significant increase in deposits, as well as to what regards to off-balance sheet funds.
In terms of loans to customers, gross books stood at EUR 16.6 billion, six percent less than one year ago, but it's important to highlight the significant decrease of the mortgage in foreign currency, that deducted by provisions for legal risk, went significantly down. On page 40, regarding FX mortgage portfolio, let me start that Bank Millennium have continued the efforts to reduce the weight of the FX portfolio, of the FX mortgage portfolio. On a yearly basis, there was a reduction of 15% and four percent quarter-on-quarter. At the same time, Bank Millennium increased provisions against legal risk, and at the end of September, reached an amount higher than EUR 1.5 billion.
It's important to mention that during 2023, Bank Millennium made some extraordinary adjustments on the provisioning methodology, incorporating more conservative assumptions on the methodology. Most important is that by the combination of the creation of these provisions and the decrease of the loan book, Bank Millennium brought the ratio of total provisions against legal risk versus the gross mortgage book to 73.5%. At the same time, and as I mentioned before, Bank Millennium continued the efforts to reach amicable settlements with clients, and in the third quarter of this year was able to achieve almost 180 extrajudicial agreements. Now, moving to Mozambique, we can say that even under a challenging environment, Millennium bim continues to provide an important contribution for the group.
Net income to EUR 67 million, meaning a small reduction compared with the same period of 2022. Net operating revenues grew more than six percent, and operating costs were 13% higher than one year ago. Capital ratios stood at a very comfortable level of 34%. Moving to page 42, NII went up 7.5% year-on-year, to more than EUR 150 million, which compares to EUR 141 million one year ago. NIM stood at 8.6%. That compares with less than 7.9% in September 2022. Commissions went up 13% to almost EUR 30 million from EUR 26 million, and other income decreased 11%. Operating costs went up 13.5%, influenced by an increase of three percent on staff costs and by more than 15% on other admin costs.
Moving to page 43, non-performing loans, 90 days past due, stood at 4.9%, which compares to almost 10% in the same period of last year. Coverage by loan loss reserves of non-performing loans, 90 days past due, stood at 79%, and the cost of risk decreased 14 basis points year-over-year, and stood at 167 basis points at the end of the first nine months of 2023. Regarding volumes on page 44, you can see that customer funds registered a small reduction of two percent, and loans to customers were stable compared with the first nine months of last year. So let me thank you very much for your, for your attention. And before we move to Q&A, I will return to Mr. Braganca for some final remarks.
As we always do, because we like to show our commitment, around three years ago, we have, we had approved a strategic plan with the target that we are seeing here in page 46. We have basically met those targets or overachieved those targets one year in advance, at least most of those targets. Of course, with some tailwinds, with the link to the normalization of the interest rate, but also with much more regulatory or political risk difficulties in Poland, but we have surpassed these challenges. As I have commented in our last session, we are intending to review our strategic plan during our planning process of next year, and come up with a new strategic plan next year, with more ambitious targets than the ones that you are seeing here for 2024.
At this moment, I think we will engage with the investor community in what will be BCP for the next four or five years. Thank you very much.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to your first question. Your first question comes from the line of Maks Mishyn from JB Capital. Please go ahead.
Hi, good afternoon. Thank you for the presentation and taking our questions. I have three. The first one is on the NII. You look to be on track to outperform your guidance in Portugal, and I wanted to ask you to please update us on your expectations for 2023 and 2024. Would be very helpful if you could touch on both customer spreads and your expectations for volume. The second question is on costs. There were several articles in Portuguese press on your negotiations with labor unions. I was just wondering if you could tell us what kind of cost inflation this could imply for BCP in 2023 and 2024? Then the last one is on capital. Do you see any headwinds for your CET1 ratio in the coming quarters?
If not, could you please share your view on which options could you consider to eventually deploy it? Thank you.
Thank you, thank you very much for your questions. Effectively, I will start with the cost questions. What we are seeing both for this year and for next year is a low to mid- single digit increase in the costs, aligned with what we are presenting right now. So nothing, nothing to nothing new in this aspect. In terms of the NII, I had commented, we have been positively surprised by the dynamics in the market. Last time when I was here, I commented that the 2022, the 2022 margin was more, I would say, more steady state margin, and we had to compare both 2023 and 2024 with 2022.
I was pointing out for, to, an extraordinary, so to say, increase in the margin in this year of 2023, that then would be partly compensated in 2024. I pointed to a growth of high 30s in 2023 and low 30s in 2024, relatively, both of them relatively to 2022. Right now, due to the dynamics in the market, we are revising this guidance upwards. For 2024, which will, I'm saying it will be a more normal margin, we would expect a growth in the margin relatively to 2022 in the low 40s. Instead of low 30s, low 40s. In 2023, we are expecting a margin on the high 40s, plus around 50. That's what we are expecting right now.
This means that this process of normalization of the margin to 2024 will imply a slight decrease from the extraordinary margin that we have in 2023 to the normalized margin in 2024 in the mid-single digits. In terms of volumes, our volumes until the year-end, we are expecting them to be broadly constant between now and year-end, and for next year we are expecting volumes to grow in the low-single digits. In terms of capital, what we have always said is that we want to affirm ourselves as, I would say, a bank of excellence in Europe in several dimensions. We want to be a bank of excellence in Europe in several dimensions.
Being a bank of excellence means having the right rating, having the right capital ratios, and also having the right distributions to shareholders, so to say, and that's our goal. When we presented our last plan, and that's why we are showing this slide right now, the slide 46, our target was we will be normalizing the bank up until 2024. We are broadly in the process, we are broadly there. So, what we would expect is starting in 2024, we will be a normalized excellence bank, in Europe.
So the way we will approach the question, and there will be times for approaching the question, and one of the important times will be within our strategic planning framework, is that we will look at what investors want, the several types of investors, and we will look at where the reference banks in Europe are, both in terms of capital ratios and in terms of distributions to shareholders. That, that's what we are going to do.
In terms of and based on this, we will come to the market, we'll say, "Look, what we want to have is this amount of capital ratio, and what we want to have is this, this type of payout ratio," keeping in mind that it will be very difficult for us to find in Europe and in the geographies in which we are interesting growth opportunities that will imply a growth of otherwise higher than four or five percent . So the, the remaining, in principle, unless we find other opportunities, the remaining, in principle, once we get to the capital ratio we want to get, it has to be, or should be distributed to shareholders. That's the way we would like to approach it. Regarding 2023, we will take the decision in the beginning of 2024.
What we have always said is that 2023 was a transition year. Effectively, as we are all seeing, our performance is better than what we were expecting. We will have, by the beginning of next year, once we prepare the decision of the general shareholders meeting, we'll have to see where we are in terms of capital ratios, where our competitors are in terms of capital ratio. There is also an important point. We have the maturity of an AT1 in January, and it's important to know, I mean, whether it makes more sense to refinance this with AT1 or to, so to say, fill the gap with capital. It will depend on the AT1 conditions in the beginning of the year.
And we will take the decision in the beginning of the year, keeping in mind that we want to be a reference bank in Europe. We don't want to accumulate excessive capital, but we want to have the rating and the access to the market, and the reputation that the other banks that the other reference banks in Europe have. So decision, beginning of next year.
Thank you very much.
Thank you. We'll now go to the next question. The next question comes from the line of Noemi Peruch from Mediobanca. Please go ahead.
Good afternoon, and thank you for taking my questions.
Noemi, could you please speak up because the sound is not very good?
Yes. Can you hear me now?
Better, better.
Okay. Thank you. So, I have a few questions to better understand how you look at your capital position. Firstly, what do you consider surplus? Is it whatever is above a certain common equity, as of now your target is 12.5, or whatever is above a total capital requirement, plus a buffer, or above whatever is above MREL requirement, plus a buffer? My second question is on capital still. You are now on a really strong position in terms of common equity, and do you see the sizable buffer over MDA as an opportunity not to reissue AT1 post call, or to boost capital remuneration on top of dividends, or to fund growth in the future, both organic and inorganic?
Last but not least, BCP has recently launched the preparation phase of its own CBDC. What do you see as risk and as opportunities of the digital euro implementation? Thank you very much.
Okay. Starting with the next, with the last question. I think everybody in Europe is taking digital euro very seriously for the impacts that this may have in our relationship with customers, at, in the beginning. And with, in terms of fees and commissions, basically linked to transactionality, in terms of the information that provides us in terms of credit quality. So what our key priority here is to maintain the front end and the mind share of our customers, and we are doing everything in this regard that we can. Of course, we are not, I mean, the rule makers here. We will try to preserve as much as possible our franchise and our relationship with customers.
We think that as a bank that is customer-focused and where we clearly have a preference of our customers, we are the bank, by far, with the most, for instance, paid package accounts, in Portugal, and the customers value our service quality. We think we are particularly well positioned. We also think that this is an additional motivation to outperform in terms of customer service, so that we preserve the relationship and the customer loyalty at the end of the day. In terms of the opportunities that this may have, I think the main opportunities is that any large challenge, I would say, creates a bias in favor of the competitors or of the banks that are that have more capabilities.
Without wanting to sound arrogant or complacent, we think that as a bank, we are particularly adaptable, and we have very good capabilities in terms of systems, in terms of customer interaction. So this will be a differential value for us when you compare ourselves with the other competitors. But there is not a silver bullet here. There is not a strategy that we can announce very quickly here. It's more a marathon, I would say, with a lot of a lot of small measures than a very large measure. In terms of capital, as I as I commented before, in principle, starting with the issue of AT1.
In principle, over the cycle, we think that we should fill the AT1 bucket with AT1 and not with capital, because, generally, over the cycle, AT1 is cheaper than capital at the end of the day. So, the investors of AT1 demand a lower return on capital than the investors on common AT1. At least this is what the theory says. So over the cycle, this is what makes sense. So we will want, at some point in time, to issue AT1. But then there is an issue of timing, whether we will issue AT1 in January, or whether we will, fill the bucket, in January with common AT1. This is a decision that depends on the relative prices of AT1 and capital that will be in the market in January.
So this is something that we have to look at, at the moment, based on the specific prices. But over the long term, this is not what is more relevant, because over the long term, we will not fill the AT1 bucket with capital. We will use these buckets to, so to say, we will not freeze, so to say, capital in this area. In terms of the way we look at the CET1. First, we are a bank with the appropriate governance processes, and this is a collegial decision with a lot of checks and balances, and with a lot of judgment and input from the different stakeholders and from the different board members, where the independent board members are, which represents, I would say, in general the market and all the stakeholders, where the board members that represent the largest shareholders are present, and so on.
So this is a decision that will be a shared decision within the board. And will be properly announced once the decision is taken. What I can tell you is what I had told to Maks before, is that our process will consider the value of the CET1 and the MREL values, and the ratios of the reference banks in Europe. So if the reference bank in Europe have a lower capital ratio, we will not try to have a higher capital ratio, just because we like to have a higher capital ratio.
So we will look at where the reference, where the benchmark is, where the reference bank are, and we will take a decision based on, based on the market, based on what investors want, based on what shareholders want. And typically, these values are explained, of course, by the regulatory minimum, plus a buffer. And so we will take a look at where we are, what are the normal buffers that the market really values. The different, I would say, stakeholders in the market, including shareholders, bondholders, AT1 holders, et cetera, and we will take a decision with all these inputs. So this is the way we will approach the problem at the appropriate time. But we have not any type of prejudice, either one way or the other.
Thank you.
Thank you. We will now go to the next question. Your next question comes from the line of Carlos Peixoto from CaixaBank. Please go ahead.
Yes. Hi, good afternoon, this is Carlos Peixoto from CaixaBank. A couple of questions from my side as well. The first one is actually just a follow-up on what you were mentioning before regarding capital. Basically, whether you should, when you mentioned that in early 2023, sorry, in early 2024, you'll take a decision on shareholder remuneration. Are we just discussing here the payout policy over 2023 earnings, or things such as share buybacks or capital or extraordinary dividends could well as well be on the table? Just to make it clear whether that could be a reference for that or not. Then the second detailed question would be basically on the timing.
You mentioned a new strategic plan for next year. Do you have any, if you could share any timings on when you intend to disclose it, it would be helpful as well. And then just a third question again on capital. Looking at the evolution of RWAs in this quarter, you have nearly over EUR 2 billion, a reduction in our RWAs. I was wondering if you could shed a bit the light on what were the drivers behind this. I guess that one of them could have been the synthetic securitization or the and the reduction we saw in other ways in the Polish unit. But what type of other impacts were there?
Any type of model adjustments or things of that nature helping the RWA evolution, and whether we should expect anything of that nature going forward as well? Thank you.
Thank you. Starting with your last question, Carlos. In this quarter, we had, I would say here, two extraordinary effects. The securitization in Poland that we had announced, that is, around 13 basis points, and an approval of our new LGD models, which impact is slightly above 20 basis points. Then within the context of our deleveraging, mainly in Poland, this leverage was more focused on RWA intensive assets than on non-RWA intensive assets. I would say these are the three parts. In terms of the capital and distribution, so on. The deadline of early 2023 is for the normal dividend distribution, regarding, I'm sorry, the deadline of beginning of 2024 is for the normal dividend distribution regarding 2023.
So there's, we have there a fixed deadline, because we have to decide on this, and to present this for the approval at the AGM. Okay? So the deadline is for the normal dividend distribution. Having said that, and probably within the strategic plan that you are asking, we have not any type of prejudice relatively to other possibilities. So, we are, we are not, we will reason, I would say, professionally on this issue, and we will analyze different alternatives, and based on the different alternatives, on the capital accumulations, on the risks that we'll be facing. I mean, I would like here to stress, we are all seeing what's happening now in Palestine and Ukraine.
So based on the risks, on the geopolitical risks that we'll be facing, based on the, on the capital ratios that we want to have, which benchmark will be the key reference banks in Europe, as I was commenting, we will analyze different alternatives and come up to the market with a view on what will be our capital distribution strategy within our normal strategy that we intend to come up with by, in principle, by Q3 of next year. Okay?
Thank you. We will now go to our next question. The next question comes from the line of Sofie Peterzens from JP Morgan. Please go ahead.
Yeah, hi. Here is Sofie from JP Morgan. So I guess going back to the favorite question of the day, your excess capital. You mentioned that you will look at reference banks in Europe. Can you kind of just outline which are the reference banks that you would be looking at, and how many are they? And if you can't give specific bank names, is it possible to just give details around the kind of market cap size, just so that we can do our own estimates? And kind of in general, just how do you think about share buybacks? I mean, I know you have a dividend payout, but how do you think about the liquidity of BCP share price?
How easy is it to get the approval? What discussions do you need? Do you need any approvals from Bank of Portugal, or is it just ECB? But if you could maybe just talk a little bit about the process. And then, the second question would be, Novo Banco, there has been, kind of, discussions in the press about other banks potentially looking at Novo Banco. Is this something you would ever consider, and why? And then my final question, interest rates and also in Portugal. Thank you.
Thank you very much for your questions, Sofie. Starting with your last question about rate sensitivity. Considering the volatility of interest rates in Poland, we have managed our balance sheet in Poland with a very low interest rate sensitivity in the last month. In Portugal, we have been very stable also, in terms of the interest rate sensitivity. Our interest rate sensitivity has been, in the last quarters, between EUR 80 million and EUR 120 million for each 100 basis points of change in the Euribor rates. We are within this interval, which I mean, which we think is appropriate in terms of risk management.
Novo Banco, as we have always said, I think what gives us comfort is that we do not need Novo Banco, so we are large enough. We value the clients. We have a strong customer preference. We are very much focused in serving our customers better and better. We are gaining market share, so we do not need Novo Banco, okay? So, will we look at it? I think even not needing it, it is the obligation of a professional if the bank comes to the market to be sold, to analyze it. Keeping in mind that because we don't need it, we will only advance if this makes strategic sense for us and for our shareholders, and if this generates shareholder value, because exactly because we do not need it.
In terms of reference banks, at this point in time, I don't want, so to say, to limit my board. This is a decision that will be taken by the board. I think it is a collegial decision. We have the appropriate governance processes. I think you can make your view also on what are the reference banks there, and this will be a decision that has not been taken yet, will be taken by the board, and one of the decisions will be with which banks we would want to compare. But it will not be very difficult for you to see what are the banks that excel in customer service, that excel in perception in the market, that excel in shareholder value creation. So, and this will be the criteria to choose them.
In terms of share buybacks, they are subject to approval, of course, by the ECB. I mean, the Bank of Portugal here is, so to say, integrated within the ECB decision process, so it is basically the ECB that approves. We do not have any, I would say, any prejudice against share buybacks. What we think is that the normal capital distribution should occur via a dividend and via a payout, that should match what the customer, what the bank needs to withhold over, so to say, the cycle and over the long term. If we are above some normality, we may have share buybacks, at least in theory, and we may analyze it.
Keeping in mind that we would have to have clear rules on this, also to keep our bond investors and our AT1 investors confidence on the financial strength of the bank. This is something that we'll analyze, but we don't have to have any prejudice against share buybacks.
That's very clear. Thank you.
Thank you. We will now go to the next question. The next question comes from the line of Alvaro Fernandez- Garayzabal from UBS. Please go ahead.
Yeah, hello, good afternoon, and thanks for taking my questions. I have two. First, on Poland NII, what are you expecting in terms of NII growth for 2023 and 2024? And also related to that, you mentioned that your NII sensitivity in Poland is two percent decline for every 100 basis points. But, so I wanted to ask, why is your sensitivity low compared to peers, and also compared to your own history? You know, NII sensitivity to hikes, in your case, has ranged between 10%-15% for every 100 basis points increase. So just wanted to understand, why what you have done to reduce the sensitivity that much. And also in Poland, what level of CHF charges are you expecting, next year in 2024? Thanks.
As you know, our bank in Poland is listed. There was a conference call specifically on the in Poland is the fact that we were expecting the interest rates to come down. And the impact on the capital ratio of the bank could be asymmetric, because we need the margin of the bank to outperform and to digest, so to say, the Swiss franc charges or the Swiss franc mortgages charges.
So considering the upside and downside of hedging very much or not hedging very much, we, we opted, or the bank in Poland opted to, for having a very much closed position, more so than I would say, it's normal for a pure commercial bank, that typically has always some sensitivity to the, to the interest rates. In terms of, this is for— In terms of the Swiss franc charges, I mean, I cannot go very much beyond what was said in the, in the, in the conference call. We are, we are already with, I would say, a ratio between the, the, the Swiss franc provisions and the outstanding capital above, above 70%.
The key factor for new provisions is the estimation of the number of cases that will go to court or that will not go to court. What I can tell you is that it is our expectation, as I had said several times, that we will continue to have a material level of provisions at least during 2024. So, but I also can tell you that the bank has been able, in the last quarters, in spite of that, to have a positive net income. And once the Swiss franc issue is solved, what you see is that the net income of the bank is very substantial.
So we are speaking of a bank, which market cap is around EUR 2 billion, and with a net income ex-Swiss franc impact, around between EUR 500 million and EUR 600 million. So it is a bank that even with one year to one year and a half of Swiss franc provisions, is has a very interesting valuation.
Thank you. Once again, if you would like to ask a question, please press star one and one on your telephone keypad. We will now go to our next question. Your next question comes from the line of Hugo Cruz from KBW. Please go ahead.
Hi, thank you very much for the time. I have a few questions, some of them are clarification. So, in the quarter, other provisions, not cost of risk related, were a bit higher than I expected. I was wondering if you did anything there, if you could explain what drove the number in the quarter? Then, on RWAs, perhaps I missed it, but can you give guidance on the trends for the coming quarters? Are there any one-offs or any model effects we should consider coming up? And then finally, on this discussion around capital, you know, I'm thinking, you know, if you wanna do the buybacks, there is an issue around liquidity potential, potentially given the, you know, the concentration in shareholder base.
You've talked about Novo Banco, including outside the Portuguese markets, to use your excess capital. Thank you.
I mean, starting with your last question. I mean, we are not proactively looking at M&A options, point. So we are not proactively looking at it. We are totally focused on to forecast or it's like trying to forecast trading gains in any specific quarter, exactly what the amount will be. But we were speaking about values around 180-100 per year. In general, we are more or less in this type of values. We expect next year, by the way, these values to come down. I think this is important in Portugal. But there is nothing special that I would highlight here, besides the normal volatility in different files.
Thank you very much.
Thank you. There are no further questions. I will hand the call back to Mr. Miguel de Bragança. Please go ahead.
So, thank you very much for this, for your effort, for your commitment in following us. As you know, we take our relationship with the investor community and with the market very, very seriously. We are proud of showing you these, these results, and we do think that we are on a very sustainable path of shareholder value creation. Thank you very much.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.