Good day and thank you for standing by. Welcome to the Millennium bcp Q1 2023 Earnings Conference Call and Webcast. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you need to press star one and one on your telephone. You will then hear a recorded message advising your hand is raised. To withdraw your question, you can please press star one and one again. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Miguel Maya, Vice Chairman and CEO. Please go ahead, sir.
Good afternoon. Miguel Maya speaking. Welcome to BCP Earnings Conference Call. As usually, I will mention the highlights of our performance, followed by Miguel Bragança and Bernardo Colaço, who will provide additional details. We have achieved a net income of EUR 250 million on the Q1, increasing 90% year-on-year, although still influenced by significant effects coming from Poland. Costs related with the FX mortgage loans reached almost EUR 206 million, including adjustments to the provisional model with more conservative assumptions that led to an amount of EUR 61.6 million in additional provisions this quarter.
Bank Millennium took another important step forward in the strategy of the bank in Poland by concluding the bank insurance partnership with an insurance company that belongs to a German insurance group, and which included the sale of 80% of Millennium Financial Services with a positive one off effect of EUR 127 million, combined with the 10-year agreements that will enhance future value creation in the Polish market. All three core markets, Portugal, Poland and Mozambique, have contributed positively for net income in the Q1, notably Portugal, with a profit of almost EUR 171 million, which corresponds to an increase of nearly 59% year-on-year.
As we have been underlined, we have a sound and effective business model and high quality franchise that provide growing income levels in our main markets, even in challenging contexts like the one we are going through. Core income grew more than 30% year on year, reaching EUR 860 million, driven by the growth of net interest income and our rigorous management of operational costs, which had increased just 5.3%, revealed crucial to contain the growth of operational costs below inflation in all our operations. Our discipline in managing capital and the capital measures undertaken fostered the significant improvement of the capital position in the previous quarter, which has been further improved this quarter.
Besides the incorporation of the positive impact from the approval of the waiver under the Article 352 by ECB, our business model continues to consistently generate capital, which altogether led to an increase of 205 basis points in CET1 and 245 basis points in total capital since the Q1 of 2022. Capital ratios were significantly reinforced this quarter, with CET1 ratio standing at 13.6% and total capital ratio at 18%. A very important improvement that give us confidence to tackle the uncertainties of the current macroeconomic context. Our robust capital position is complemented with a strong liquidity situation.
We have liquidity indicators clearly above regulatory thresholds, a conservative loan-to-deposit ratio, I would say a very conservative loan-to-deposit ratio and EUR 25.3 billion of eligible assets to discount at the ECB. The quality of our retail banking business model, supported on strong relationship established with our customer base, is prevailing in the challenging competitive landscape for deposits, which has been driven by swift changes in monetary policy. On balance sheet, customer funds grew 4% since Q1 last year, driven by an increase of 5.1% on deposits, of deposits in Portugal in the same period. Of the top five banks operating in Portugal, as far as I'm aware, BCP was the only one in which customer funds grew compared to the Q1 of 2022.
Meanwhile, we didn't deviate from our trajectory of steady reduction in non-productive assets to keep improving the quality of the balance sheet. Since March 2022, we have managed to reduce almost EUR 1.1 billion, namely if EUR 506 million in NPEs, EUR 260 million in foreclosed assets, and EUR 372 million in restructuring funds. On the Q1 , we reduced EUR 30 million in foreclosed assets and EUR 82 million in NPEs, with the NPE ratio standing at 3.8%. The rigorous management of the balance sheet risks enable us to keep a controlled cost of risk despite the challenging environment in which we are operating and the demanding provision level in Poland due to the Swiss franc mortgage loans.
At group level, the cost of risk decreased 6 basis points since March 2022, reaching 56 basis points, driven by a significant improvement in Portugal, where the cost of risk came from 68 basis points to 53 basis points. Overall, this was another quarter in which we further strengthened the franchise, the asset quality, the capital ratios, and the operational efficiency of the bank. The symbiosis between the top quality service provided by the bank's excellent teams and distinctive digital competencies lays the backbone of our competitive edge, which is highly evaluated by customers and reflected in the consistent organic expansion of our customer base. Individual and corporate clients continue to choose Millennium as their preferred bank, and our services are awarded with prestigious distinction recognized by the market.
At group level, our customer base expanded 5% since March 2022, overcoming the threshold of 6.5 million, of which more than 2.6 million in Portugal. Most notably, mobile customers grew 16% during the same period, accounting for 65% of the group's customer base and 54% in Portugal, which is a very good indicator of the success and acceptance of our digital transformation journey. Our digital capabilities are widely recognized by customers, which make us the bank they must recommend in Portugal and one they most spontaneously nominate as the best digital bank. The investment and priority we give to mobile solutions with a clear focus on customer-centric innovation and permanent improvement means that our app continues to lead the rankings and deserves top reviews on the most relevant platforms.
The customer-centric orientation of the app is reflected in the use they make of it, having gained increased relevance as their preferred way to interact with the bank. This quarter, customers carried out 32% more transactions through the app than on the Q1 of 2022, with a significant growth in the number of transfers and payments. The number of sales through the mobile app has also increased 32% in the same period, with emphasis to saving solutions that increased 34% and which is a particular relevant figure in the current context of greater demand for these kind of products. Meaning customers use the app not only for their daily basic transactions, but also to find updated solutions to match their most important financial needs.
The results, achieved in this year Q1, in which the main targets that we set in the strategic plan for the end of 2024 are already well framed, signal and recognize the deep transformation that we have undertaking at the bank. BCP has excellent professionals in all business areas and we are quite confident that the bank is well prepared for the future. Miguel, the floor is yours.
Now in page 9, explaining a little bit here the income statement. What you see is a very healthy growth in the NII, growing almost 43% year on year, which reflects in a 31% growth of the core income. The operating costs very contained in spite of the inflationary environment, growing 5.3%. Here we have to split the situation in Poland from the situation in Portugal, because in Poland the inflation is higher than 15% right now. The core operating profit grew 47%. Other income had also very good evolution, as my CEO just explained, mainly reflecting the partnership related to the Millennium Financial Services, which contributed with EUR 127 million. Thereby, the operating net income grew 64%.
Impairment and other provisions, mainly with a very strong increase in the coverage for the Swiss franc loan risk in Poland, grew 25%. These then reflected in a growth of more than 100% in terms of income before tax, which after taxes and of course, non-controlling interest, which became more relevant because our Polish operations had a positive net income, reflected in the net income of around growing around 90.5%. In terms of the main group variables, we see the NIM at a very healthy 3%, which reflects the 2.4% that we see in Portugal, more or less aligned with the NIM in some other European countries.
The NIM in Poland reaching almost 5% due to the higher interest rates environment and high inflationary environment that I just commented. The fees and commissions stable, as we see, growing around 1.3%, reflecting on one hand the growth of 3.8% in Portugal and some decrease in the international activity, mainly in Poland. Other income reflects the sale of the Millennium Financial Services, which was tantamount to getting the evolution of the capital ratio in Poland. The other areas in terms of equity and earnings and dividends, relatively stable. The net trading income, due to the high the evolution of the interest rates, relatively small number when compared with last year's. The mandatory contributions still high at EUR 17.8 million.
What I here would like to comment is that this is mainly due to the international operations, because as you know, the mandatory contributions in Portugal, because they are due on Q2, they are reflected in the Q2 numbers as it happened last year. Operating costs, strong discipline with the cost-to-income reaching 31% in consolidated terms, 29% in Portugal, and 33% in the international operations. Here, a strong containment in the different areas, where we see that the staff costs grow very slightly in spite of the high inflation and the other administrative costs more aligned with inflation. Cost of risk.
In spite of the environment, the more challenging environment, we were able to decrease the cost of risk to a more normal cost of risk to going from 62 basis points to 56 basis points, of which 53 basis points in Portugal and 63 basis points in the international operations, mostly reflecting the Polish activity. What we see in terms of the other impairment and provisions, we see very clearly a strong increase in the adjustment for the provisioning model in Poland, which has to be separated in two parts.
One part more aligned with what was Q2, the more, I would say, the more recurring part, and some adjustment to the inputs of the model that we did also, taking advantage of the strong capital buildup in Poland links to the insurance deal. There is a EUR 100 million more or less aligned with what was the more normal provision for Swiss francs in previous quarters and the EUR 72 million as communicated by the bank in Poland. That was an additional provision to reflect the changes in some of the inputs of the model, mainly the probability of remuneration getting very close to 0%. Sorry.
In terms of credit quality, very good evolution as you see in spite, in page 16, in spite of the situation or of the challenging situation. We see that the past due 90 days ratio, so the real, the real default, the legal default is already close to 1%, so 1.3%. The NPE ratio, including securities and off balance sheet according to the EBA definition at 2.6%. If we use only loans, so no securities and no off balance sheet at 3.8%. Still reducing at EUR 500 million with a 30% reduction, almost 30% reduction, year-on-year in Portugal and some stability in the international operations. I will pass the floor now to Bernardo. Sorry. I'm sorry. I will continue here with the customer funds.
Customer funds, relatively, stable if you include off balance sheet and off, and on balance sheet funding growing at 0.8%. Customer funds in Portugal growing 0.5%, but of which on balance sheet funds growing 5%, which is important, considering the present, the present situation. In the total, in the international operations, what we see is an increase of 1.4%. Excluding the FX impact, the evolution of customer funds in local currency was higher than 2%.
The loans reasonably stable, with the NPEs reduction being partly compensated by a growth in the performing assets in Portugal and some decrease in the international operations also linked to the effort that has been done to optimize the capital ratio levels. In terms of capital, a strong capital buildup going to a level of 13.6% in terms of Common Equity Tier 1, which is more than 4 percentage points above the minimum ratio. In terms of total capital ratio, the evolution was to 18% which is also 4 percentage points above the minimum ratio already, including the O-SII buffer. The leverage ratio continues to be a very healthy leverage ratio at 6.2%.
This together with a quite high RWA density, which gives us comfort in terms of evolutions or of RWA floors and so on. MREL requirements. We are already above the last number that was communicated to us, formally communicated to us for the 1 January 2024. We are at 27.7, whereas this number is at 27.3 in terms of TREA. We are executing our funding plan as you see here, we are very disciplined in terms of this execution. The last market transaction that we had was the exchange offer in December of 2022.
In principle, we, in terms of our funding plan, in spite of being already above the MREL requirement, we are considering the benchmark issue of senior preferred notes for this year. In terms of liquidity ratio, we are above 200% in spite of repaying totally the TLTRO. We still have eligible assets of EUR 25 billion, so we could have immediate access to liquidity of EUR 25 billion. Just for you to have an idea, this is substantially in excess of all including term deposits and demand deposits, non-guaranteed deposits that we have in our, in our balance sheet. The net loans to deposits ratio is also a very conservative ratio with a 74% value. I'll pass the floor here to Bernard.
Okay. Good afternoon, ladies and gentlemen. On page 26, starting with Portugal, net income increased 59% from EUR 107 million to EUR 171 million. This positive evolution was driven by stronger net operating revenues that went up more than 19% and strict cost management that went up just 2.3% compared with Q1 2022. It should also be noticed the positive contribution to net income arising from the reduction of 22% of credit impairments. On page 27, there's a detailed information of NII in Portugal and at the end of the Q1 2023, NII stood at almost EUR 340 million, meaning 60% up year-on-year or EUR 128 million above previous year.
The favorable performance of NII in Portugal largely reflects the higher income generated by loan book and the positive impact from the securities portfolio, both resulting from the increase in interest rates. On the other side, the rise in interest rates had an impact on the remuneration of deposits. At the same time, the bank had to support higher costs with its own debt. It should also be noted that NII in Portugal was also influenced by the impact associated with the funding obtained from the ECB through TLTRO recorded in the Q1 of 2022. NIM stood at 244 basis points, 103 basis points higher than one year ago. Sixty-seven basis points above Q4 2022. Moving to page 28, which shows the evolution of fees and commissions as well as other income.
Banking fees and commissions increased 5.2% with most significant impacts coming from cards and transfers that grew 27.6%, driven by the increase on transaction ability. Market-related fees registered a decrease of 3.4%, and that was influenced by significant maturities of insurance products and the negative impact from financial markets. All in all, fees and commissions went up 3.8% to a level higher than EUR 140 million. Looking to other sources of income, other operating income provide a small positive contribution on Q1 results that compares with more than EUR 10 million in the Q1 of 2022. Equity accounted earnings contributions stood at EUR 12 million in the Q1 of 2023. That compares with EUR 16 million one year ago.
Trading gains were much lower than in the Q1 2023 than in the Q1 2022, mainly driven by low results from sovereign debt trading activity. All in all, other income, including equity accounted earnings, trading, and other operating income, was much lower than 1 year ago. Going to page 29, regarding costs. Bank continues to apply a strict policy on cost management, and costs grew only 2.3% compared with the Q1 2022, and at a much lower level than inflation. To what regards to branches, there was a reduction of 13 branches since the Q1 of 2022, although it has been stable since last quarter of 2022. Moving to page 30, which refers to asset quality. As highlighted over last quarters, there was a significant reduction of NPEs.
NPEs were reduced by 28.5%, meaning more than EUR 500 million in just one year. In the Q1 2023, there was a reduction of EUR 82 million, clearly showing that the bank is still committed with the reduction of the NPEs. As you can see on the top left chart, reduction occurred mostly on non-performing loans 90 days past due. That registered a reduction of EUR 370 million, and that's been the main driver, taking into consideration the write-offs, for the higher cost of risk compared with peers. NPEs as March 2023 stood at EUR 1.28 billion, compared with EUR 1.8 billion a year ago. Cost of risk stood at 53 basis points. That compares with 68 basis points, showing the convergence of the bank to a normalized cost of risk.
Now let's move to page 31, which looks in more detail to NPE coverage. As you can see, total coverage of NPEs stood at 129%. NPE coverage by loan loss reserves stood at 74%. Total coverage for individuals with high levels of real estate collaterals stood above 100, and for companies at 136%. Coverage by loan loss reserves on companies at 87%, and coverage by real estate collaterals at 47%. If you look at the top right chart coverage of on non-performing loans 90 days past due related with companies, you can see that it stood at a level above 240 basis points. On page 32, which shows the evolution of foreclosed assets and restructuring funds, there was a strong reduction year-over-year on both of them.
Net value of foreclosed assets stood at EUR 153 million, that compares with EUR 369 million in the Q1 of 2022, meaning a reduction of more than 58%, or if you want, a decrease of EUR 250 million. On the Q1 of 2023, bank achieved also a reduction in terms of foreclosed assets of more than EUR 30 million. Regarding property sales, there was a significant reduction in the number of transactions compared with the Q1 2022. Regarding restructuring funds, there was a reduction of 47% year-on-year that was explained in the previous quarter, and it's related with the sale of a significant amount of restructuring funds. Moving to page 33, total customer funds were stable year-on-year at around EUR 67 billion.
Off-balance sheet funds decreased more than 12%, and as I said before, it was influenced by market conditions and the significant maturities of insurance products. It's worth mentioning the increase of more than 5% on total deposits compared with Q1 2022. In terms of gross loans, there was a decrease of less than 1%. Loans to companies went down 4%, strongly influenced by the reduction of EUR 500 million of NPEs. Mortgage loans went up 2%, but were not sufficient to compensate the decrease on loans to companies. Going to page 34, analyzing the evolution of the performing loan book by segment, and also the recognition of BCP as the main bank for Portuguese companies. Performing loans in Portugal went up EUR 200 million year-over-year, supported on the growth of mortgage loans of EUR 400 million.
It is worth mentioning that as of the end of Q1 2023, guarantees provided by the European Investment Fund and the Portuguese entities represent around 3% of loans to companies. Let me also reinforce the leadership of BCP in SMEs, in the PME Líder for the 5th consecutive year, as well as in the Valor Ecotech program for the 3rd consecutive year, and the recognition as the best bank for companies from Data E. Moving to page 36, providing some information about international operation. As mentioned before, results were again impacted by specific items related with Bank Millennium, although it's important to highlight that Bank Millennium registered for the 2nd consecutive quarter positive results after several quarters with losses. Net income of Bank Millennium stood at EUR 53.6 million. That compares with a loss of EUR 26 million one year ago.
Mozambique contribution increased 14% compared with Q1 2022, and it's also worth mentioning that contribution from this international operation has been quite constant over last quarters. In summary, contributions from international operations stood at EUR 44 million, which compares with EUR 5 million one year ago. If we exclude the specific items from Poland, as it was already mentioned, costs related with the FX mortgage and the sale of 80% stake in Millennium Financial Services International, contribution from international operations would have increased 24% to almost EUR 90 million. Moving to page 37, which refers specifically to Bank Millennium. As you can see, net income in Poland continued to be impacted by costs related with CHF mortgage loans. It is important to highlight in Q1 2022, Bank Millennium was already profitable after several quarters with losses.
In the Q1 of 2023, net income in Poland was aligned with the Q4 of 2022 and reached EUR 53.6 million. If we exclude specific items, and as I said, meaning, or the meaning on a comparable basis, net income would have stood at EUR 143 million in Poland. That represents almost 37% more than Q1 2022. Net operating revenues increased 77%, excluding the impact of credit holidays on NII. Operating costs, excluding mandatory contributions, went up 9.5%. CET1 and total capital were at the end of Q1 2023 above regulatory requirements and stood at 11% and 14.1% respectively.
It should also be remembered that Bank Millennium was able to bring back capital above requirements at the end of 2022 and prior to what was initially estimated. On page 38, some detailed information about Bank Millennium. NII increased 31% to EUR 268 million. That compares to EUR 204 million one year ago. This movement was mainly driven by interest rate hikes since the Q4 of 2021. NIM increased from 377 basis points to 458 basis points and was slightly lower than in Q4 2022, where it stood at 4.63%. Fees and commissions decreased 9% year on year to EUR 43 million. Other income was strongly impacted by the positive result arising from the sale of 80% of Millennium Financial Services.
Most of this was booked on the trading line. Operating costs, excluding mandatory contributions increased 9%, at a much slower pace than inflation. Regulatory contributions were down 50% as Bank Millennium is still under the recovery plan. Moving to page 39, related with asset quality in Poland and taking into consideration the high level of interest rates and high levels of inflation, cost of risk stood at 60 basis points and aligned with Bank Millennium estimate for this year. Increase on cost of risk was mainly driven by consumer loans. Non-performing loans more than 90 days past due, decreased 20 basis points to a level of 2%. Coverage by loan loss reserves of non-performing loans stood at 159%, meaning an increase of 22 percentage points compared with Q1 2022.
On page 40, customer funds grew 2% year-on-year. Off-balance sheet funds decreased significantly due to market conditions and high interest rates on deposits in Poland. In terms of loans to customers, gross books stood at EUR 16.6 billion, less 4% than one year ago. It's also important to highlight the significant decrease of mortgages in foreign currencies that, deducted by provisions for legal risk, went down 38%. These reductions strongly influence the decrease of more than EUR 700 million of gross loans compared with last year. On page 41, regarding FX mortgage portfolio, it's important to start saying that Bank Millennium have continued efforts that has been in place for a long time of reducing the weight of the FX mortgage portfolio. In Q1 2023, there was a reduction of 4% and year-on-year of 16%.
At the same time, Bank Millennium increased provisions against legal risk, and at the end of March, reached an amount higher than EUR 1.2 billion. It's also important to mention that in the Q1 2023, Bank Millennium made an extraordinary adjustment on the provisioning model of EUR 71 million in anticipation of some deterioration of some parameters against legal risk versus the gross mortgage book to close 56% at the end of the Q1. At the same time, Bank Millennium continued the efforts to reach amicable settlements with clients. Even in a smaller number than in previous quarters, Bank Millennium was able to achieve 806 extra-judicial agreements. This slowdown was somehow expected because during last quarters, Bank Millennium was able to close more than 18,000 amicable settlements.
The lower number of amicable agreements in this quarter brought lower costs of such settlements, which stood at around EUR 50 million. Moving to page 42, with regards to Mozambique. We can say that Mozambique, even under a challenging environment, continues to provide an important contribution for the group P&L. Net income increased 13.9%, mainly due to higher net interest income. Net operating revenues increased almost 15%, operating costs were 12.6% higher than 1 year ago. Capital stood at 37.6%, meaning 100 basis points above the level of the end of 2022. Moving to page 43, NII went up 20% year-over-year to more than EUR 56 million and was influenced by higher interest rates.
NIM stood at 9.5%, that compares with less than 8% at the end of Q1 2022. Commissions went up 22% to EUR 11 million from EUR 9 million. Other income decreased 24%. Costs increased at a lower pace than revenues and cost-to-income stood at 41%, similar than one year ago. Moving to page 44, 90 days past due, below 8%, which compares to 11% one year ago. Coverage by loan loss reserves or non-performing loans, 90 days past due, above 107%, compared with 83% one year ago. Cost of risk to the lines with the Q1 of last year. To finalize and regarding volumes, on page 45, you can see that customer funds registered a small reduction. Loans to customers increased 9%. And so let me thank you for your attention. Before we move to Q&A, I will return to Mr. Bragança for some final remarks.
Dear ladies and gentlemen, as we do all the time in every presentation, we aim to show our commitment with the strategic plan that we presented to you in 2021. We show here our progression towards our 2024 target. I want here to highlight that our objective in 2024 is, in financial terms, to really be the reference bank in terms of what are the excellent financial ratios that we deserve to be, as also an excellent bank that we are in terms of customer franchise and customer service. As you see, we are ahead of the plan in most of them, in most of the metrics.
I would here like to highlight the franchise transformation in terms of share of mobile customers and growth of customers that together with the cost-to-income and improvement in the quality of the assets, is allowing us to generate the ROE that we intends to have. Of course, the ROE in this quarter, is not the totally sustainable ROE because, even because there are some regulatory costs that come on in Q2, so we have to take a full year's view. When we take a look here at the evolution of the Common Equity Tier 1, the healthy ROE that we are presenting, the cost of risk in the current situation, we feel very comfortable that we will meet the 2024 targets, and probably most of them will be even anticipating their delivery. Thank you very much. I'm ready here for the Q&A.
Thank you, sir. As a reminder, to ask a question, you need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, you can please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced. Thank you. We are now going to proceed with our first question. The questions come from the line of Maksym Mishyn from JB Capital. Please ask your question.
Hi, good afternoon. Thank you for the presentation and taking our questions. I have 3 on Portugal. The first one is on NII. Your guidance for 2023 has been low teens, and the Q1 results imply upside risks to this figure. I was wondering if you could update us on your expectations and what kind of quarterly evolution should we expect for 2023. The second is on loan book growth. Performing loans fell slightly quarter on quarter. I was wondering what are your expectations for loan demand in 2023 per segment in Portugal. The last one is on other provisions. I was just wondering if you could guide us what to expect for the whole year. Macro scenario for Portugal seems to have been improving. Do you think we could see any releases? Thank you.
Thank you very much for your questions. Effectively, what is happening in the Portuguese market is that the evolution of the deposit rate has been somewhat slower in the market than what we were initially projecting. The guidance that we gave for the NII for the full year of the low teens today is probably too conservative. The guidance that we are closer today to the twenties and to a value between 20% to 25% growth than to the low teens, exactly because of these dynamics of the deposit rate that is being more, I would say, inertial than what we were originally anticipating.
In terms of the loan book growth, we are expecting the loan book growth to pick somewhat up, not least because of the funds from the European Resilience program that will then, of course, have a multiply effect in the companies. What we are here expecting is a growth in most of the segments in Portugal on the low single digits in terms of loan growth. The other provisions, as you correctly point out, have to be seen across the year. There is some volatility in these numbers. We would be expecting values between, I would say, between EUR 80 million and EUR 100 million per year. That's what we would say a normal scenario. What we had in this quarter was probably, in terms of run rate, somewhat above it. Of course, I'm speaking about numbers related to Portugal. Thank you.
Thank you.
We are now going to proceed with our next question. The questions come from the line of Noemi Peruch from Mediobanca. Please ask your question.
Good afternoon, and thank you for taking my questions. I have three. One is a follow-up on NII. What deposit beta are you assuming in your new guidance? If I remember correctly, it was 30%, with the previous guidance. My second question is on deposits in Portugal. We see a switch from a deposit to sovereign bonds or certificates by customer during the quarter. Do you expect this trend to slow down in the future? Can you give us some color on your strategy on deposit retention, as we have seen that you have managed to retain more deposits than competitors in Q1. My last question is on capital deployment. Clearly, you now have a more comfortable capital position with a buffer also on the pension fund. I was wondering, what's your strategy here? What is your priority? Is it a higher dividends, buyback, M&A, fixing Poland maybe, or just increasing your common equity target? Some color here would be very much appreciated. Thank you very much.
Thank you. Thank you very much for your questions, Noemi. It's exactly, we have the view of a deposit beta of around 30% for term deposits that we would reach quite quickly. We are maintaining the deposit beta of around 30%, but instead of reaching this beta almost in the beginning of the year, our idea is that this will be much closer to an average beta of the term deposit rate during the year than something that will be reached on the beginning of the year. The end rate more or less the same, but getting to it at a slower pace than what we were originally envisaging. In terms of the deposit and funding strategy.
This has a lot to do with our franchise as a bank. As a bank, we clearly try to differentiate ourselves through service, through relationship, through cross-selling, through an integrated approach to the customer, more than as a mono product, price sensitive strategy. This has allowed us to maintain more deposits than the ones of our customers, because we somehow compensate it also through service. On top of this, what we try to do is both through the strong commitment of our relationship managers, but also through sophisticated CRM and so on, to differentiate the value that we offer to each customer so that it makes sense for both parties. This has allowed us to maintain this view.
Another point that of course helps us a lot is a very comfortable liquidity situation in which we are and the fact that we foresaw somehow this evolution of the interest rates already last year. We create a very strong liquidity buffer last year that allows us to be comfortable and to take the decisions that we have to take during this year. Going forward, exactly, given this liquidity cushion and so on, our view is that we will continue to gain market share. Probably the full system will lose funding to the, if you want to the national savings products. We expect from now on to be reasonably at zero.
We are not expecting to grow, we are expecting to grow market share. In terms of capital deployment, we want to be a reference bank in Europe, not only in terms of customer service, in terms of franchise, in terms of innovation, in terms of products, but also in terms of financial ratios. We will present next year our new strategic plan. Of course, the capital ratio that we want to have is a capital ratio that is aligned with what other banks in Europe have.
Here we will look at our comparables, and the capital ratio that we will set and with which we will feel comfortable will depend a lot in what the market, the investors, our competitors also deem there's to be the reference capital ratios for the banking industry. I think that this is a reasoning that we still have to do as a company and in the appropriate governance bodies. What I also would like here to highlight, independently of the level, what we think right now is that on a steady state, a bank with more than 10% ROE, that we probably will be growing RWAs at 4%-5% a year at most, should be able to have a payout on a steady state between 40%-50%.
Once we get to the steady capital ratio, that's what we would expect once we get to this level. Exactly what this level will be is a process that we will have to go through based on what we think objectively a bank such as ours, that is a pure retail bank, that has more than 50% of mortgages, that has a very resilient business model. We think that a capital ratio around 12.5% should be enough. It's not enough to see what we think. We need to see what investors think. We need to see what equity investors think. We need to see what fixed income investors think, and we need to see where the other banks in Germany, in France, in Spain are.
Thank you.
We are now going to proceed with our next question. The question comes from line of Carlos Peixoto from CaixaBank BPI. Please ask your question.
Yes. Hi. Good afternoon. Thank you for taking my questions. I actually have three. First one would actually be a bit of a follow-up from the previous question. I was just wondering whether there was any dividend being accrued against Common Equity Tier 1 in the Q1. If so, what type of focal was done? Second question would be more on the ALCO portfolio. Basically, what's the strategy here? Are you comfortable with the current size? I was also wondering whether you could shed some light on the average yield on the portfolio. Also, any the size of potential unrealized losses on the held to collect portfolio. Finally, the third question would be on the interest rate hedge. Basically, if you could update us on the size of the hedge, how much of the portfolio is covered by it, and what type of impact should it have throughout the year? Thank you very much.
Okay. In terms of dividend being accrued, yes, there is a dividend being accrued, but I don't think it is public information now exactly what the size is. Because this could create here an expectation there is a dividend being accrued that we think could be the a possible decision by the board of directors, but I don't think it's public information right now. In terms of the of our interest rate management, what we have right now, we manage the bank with basically two types of ALM. We have the margin sensitivity. I'm speaking now about Portugal, and then speak about Poland. The margin sensitivity and the EVE sensitivity.
In terms of margin sensitivity, what we have is if there is an immediate shock of 100 basis points up or down in terms of margin, and if we assume a parallel shock, the impact would be broadly around EUR 100 million in terms of margin. Another indicator that we use is the indicator of the EVE, so the enterprise value sensitivity, which we also use as a level whereby if the interest rate goes up, the equity, so to say, the equity fair value would also go up by around EUR 100 million per each 100 basis points of each 100 shock.
In terms of the different hedges that we use, we use these hedges exactly to model this. What we can tell you is that in terms of the mark-to-market, in terms of the mark-to-market of our diversified demand deposits, so to say, the mark-to-market of our diversified demand deposits it would be substantially higher in the current interest rate environment, so in terms of EVE, than the mark-to-market of our hedges, which as you comment, have two legs, have a leg that is the leg of the held to collect portfolio and the leg of the cash flow hedge. Still, I would say, we have this margin sensitivity that I was commenting.
In terms of the unrealized, if you want, held to collect net losses, if we were to, they would be around EUR 450 million in terms of net value. What I here would like to highlight is that they are much more than compensated, much more than compensated by the increased value of the franchise of the demand deposits. In any case, I would also here like to highlight that the holds to collect portfolio is materially lower, materially lower than the value of the uninsured deposits. Our insured deposits are around 60% of our deposit base. We have a deposit base of EUR 50 billion. Our uninsured deposits are around EUR 20 billion.
The ALCO portfolio, in terms of early on the packet is fixed rate, is around half of it. In terms of our balance sheet structure, it is very conservative. This is what I can say at the moment. Of course, as you see, our bank is positively exposed to the interest rate movement, as we are just seeing because with the present interest rate movement, what I'm commenting is that we will grow probably between 20% and 25% vis-à-vis the margin of last year.
We are now going to proceed with our next question. The question comes from line of Ignacio Ulargui from BNP Paribas Exane. Please ask your question.
Hi. Good afternoon, gentlemen. I have two questions. The first one is on other provisions. If you could just elaborate a bit on what should we expect on other provisions and also what was the reason behind of the top-up in the quarter? It was in a particular topic or litigation or asset where you decided just to increase provisioning? The second one, coming back a bit on the question before, add-on, or follow up on capital distribution, I mean, when do you think that the bank will have a better view about the level of distribution? I mean, should we wait until the end of the year to get some color on that or there could be news flow coming beforehand? Thank you.
As I have commented in terms of other provisions, there is of course, because these are linked to risks and to, and to specific situations that happened across the quarter. I commented that our expectations for the year would be between EUR 80 million and EUR 100 million, and this is at this moment what I can say. This quarter was somehow above this trend. Probably there will be other quarters below the trend. This has to do with several risks, with guarantees, with all the types of risks that are not linked to credit.
In terms of dividends, what here I would like to say is the following: Our project and our plan that we have presented to the market is to have an excellent reference bank by 2024. This means that by 2024, we will have a reference payouts for the result of 2024. For the result of 2023, that is immediate, I think we have to see exactly how it will go because this is a year in the process. I would not expect any useful during the year. We'll see how it goes.
What I would expect is that we should be a value between the reference normal value for the result of 2024 and the situation that we had in the past. What I would like to say in the moment, but I think this is too soon to speculate exactly on the amount of the dividend, because this is only one quarter that passed, so to say. Thank you very much, Ignacio.
We are now going to proceed with our next question. The question comes from the line of Hugo Cruz from KBW. Please ask your question.
Hi, thank you for the time. I have a few questions. First of all, a clarification on capital. What was the impact of the CRR 352 approval in the quarter? Second, I was wondering if you could give guidance on OpEx growth and cost of risk for Portugal for this year. Third, you know, a lot of the mortgages in Portugal are variable rate. What is the level of interest rates that you think could trigger a more meaningful increase in default in your resi mortgage book? Are you planning any actions to help mitigate the impact of these rates on your client base that's struggling more with these mortgages? Thank you.
Thank you. Thank you very much for your question. In terms of the CRR, in terms of the building blocks of capital, what we have commented at the time, was it depends exactly on the moment in which you compute the RWAs, but it was close to 50 basis points. In terms of the CRR 2, the value was close to 50 basis points. By the way, what we had also this year was an impact of around 20 basis points of the Swiss franc mortgages. That was compensated in terms of order of magnitudes with the insurance partnership in Poland.
From the, from the values that, the evolution that you see from 12.5 to 13.6, you have here 50 basis points more or less that are linked to the CRR2 . You have here two values around 20 basis points that more or less compensate each other, related to Poland. The remaining was the, I would say the, the normal capital accretion, capital creation of the commercial activity. That, of course, was particularly high this quarter because as I was commenting, when I commented the deposit beta, in spite of the fact that our end value for that it is end value. In terms of OPEX, in Portugal, in spite of the high inflation, we expect our OPEX to grow below inflation.
To have a mid-single-digit growth in Portugal. In terms of cost of risk, we are expecting a value between 50 and 55 basis points. In terms of mortgage in Portugal, the mortgage market has been very resilient in Portugal due to the institutional framework. The liability of the customers is not constrained, is not limited to the value of the property. They cannot simply hand over the property and go away, which, I mean, creates a different, I would say, institutional environment for mortgages in Portugal vis-a-vis other countries. Even in very difficult situations, such as when we had here the troika and the GDP went down by 7% and the unemployment was above 16%.
If you take these 3 years, the cost of risk of mortgages was around 50 basis points. Of course, 50 basis points for mortgages is a high value. Still, when you compare it with our average cost of risk, that is also 50 basis points, you see that this could be I mean, it is not something that would be dramatic for the banking industry. In terms of the approach to customers, I mean, we are doing what you expect a diligent bank to do, that is, for customers that want to pay and have the affordability and the capacity to pay, but have issues with the timing of the cash flows.
What we try to do is to adequate the timing of the cash flows to the capacities of the customers of paying this. Of course, this is a very segmented approach. Up until now, to be fair, we are not having a lot of customers doing this type of restructurings. As you have communicated, we have around 6,500 customers with whom we have done this renegotiated the contract, which is still very, very little. Most of the customers, the Bank of Portugal, has also demanded a kind of stress test to test the affordability, making sure that the loans are affordable, even if the interest rate goes down by 3 percentage points, which is more or less what is happening right now. The credit to the customers that use variable rate mortgages were stressed to this 300 basis points shock. We are comfortable that even if there is some type of I would say, a higher cost of risk than in the counterfactual. The 55 basis points, 50-55 basis points cost of risk that we are giving as guidance would accommodate this effect.
Very well. Thank You very much.
We're now going to proceed with our next question. The question comes from the line of Sofie Peterzens from JP Morgan. Please ask your question.
Yeah. Hi, here is Sofie from JP Morgan. I wanted to ask about the loan growth outlook. How do you see loans developing both on the mortgage side and corporate side in Portugal? My second question would be around the deposits. Do you think, yeah, that at some point you will have to start to pay up for transaction accounts in Portugal? Kind of, could you just let us know how much you pay, kind of, on the savings and term deposit accounts in Portugal as well? Regarding Poland, kind of, you know, what's your base case assumption for additional provisions in Poland?
If you take a fair case view on the negative ruling from the ECJ, what would your view be on the Polish provisions? Just my final question, I know you don't want to say too much on capital returns, but hypothetically speaking, would you have a preference for share buybacks over dividends or dividends over share buybacks? How do you think about the kind of the two ways of remunerating shareholders? Do you have a preference for one of the two? Thank you.
Thank you very much, Sophie. Starting with your last point. We have presented a strategic plan that ends in 2024. We will probably present a new strategic plan once this strategic plan ends. In this new strategic plan, we will, as I was commenting, look at the market, we will look at the preferences of investors, we will look at equity valuation, look at regulators, and we will define what is the appropriate capital level for a reference excellent bank in Europe. Okay. This is. Up until now, we are close to 2024. We are in 2023. This is a process that we will do later on, not now. Our view is that we have to separate it in two parts, so to say.
One part is the normal dividend payout based on, the normal capital generation of the bank, and this should be accommodated through a payout. To say, if we, if our ROE is significantly above the RWA increase of the bank, this normal difference should be accommodated mostly through a payout. If you, if we see any abnormal, I would say, step changes, we could consider either an extraordinary dividend or a share buyback conceptually. This would have to be seen so soon to take a look at it and we will not probably take any decision on this matter this year.
In terms of loan growth, as I was just commenting, we are expecting a low single-digit loan growth in Portugal, also depending a lot on the resilience funds that will come from Europe. We are expecting probably a higher loan growth in the SME and corporate segment than in the mortgage segment. In any case, we are speaking about low single-digits, and it's difficult. I mean, whether we think that whether it will be half a percentage point higher or half a percentage point lower, one percentage point higher than the other, it's a little bit difficult to see in the current uncertain environment.
In terms of the deposits, we would separate here, as you correctly point out, the transactional demand deposits from the term deposits. The term deposits, then the savings, as you, as we have pointed out, it is normal that there is a pass-through to the customers, and this pass-through is happening. It is happening at a pace that is not as strong as the pace that we were initially expecting, but is happening. Probably the end result will be an average pass-through this year around with a bit implicit beta around 30%. If it is the average of the year, probably at the end of the year, slightly above 30%. Right now, slightly below 30%. That's what we are expecting.
It also depends on the interest rate evolution at the end of the year. If at the end of the year, we reach a situation in which suddenly the expectations of the interest rate and the news in terms of interest rates are that interest rates will go down, that the central bank interest rates start going down because of fears of a less favorable macroeconomic scenario, of course, probably the pass-through will be lower. A lot of it will depend on the interest rate movement. In terms of Poland, our methodology almost already assumes a very low probability for remuneration. As you know, on the 15th of June, on the 15th of June, the European Court of Justice will issue a decision on remuneration, and there can be several types of decisions.
One decision is that banks cannot be remunerated in zlotys even after the loan is converted to zloty. Another type of decision is that banks can be remunerated. The third type of decision is that it is up for the local courts to decide, according to local law, whether banks can or cannot be remunerated. There can be these types of decisions. Also there is also a decision on whether customers can be remunerated or not. Our base case is that the probability of remuneration of I would say the case that is implicit in our projections, in our models, let's call it this way, is that the probability of remuneration is low.
There will be a flow of cases that will be somewhat higher than what happened in last years, but not dramatically higher, under the assumption that the Swiss franc debtors already are expecting this scenario. The ones that are really keen to sue the banks are already suing the banks. Our base case is a scenario of continuity, where the customers, the flow of new cases is of the same order of magnitudes than the ones that we had last quarters, so to say. With remuneration or without remuneration.
As our model already reflects totally the absence of remuneration, or almost reflects totally the absence of remuneration, what we would expect is if the flow of cases is aligned with what happened in the last quarters, the type of recurrent, so to say, provision that we have for Swiss franc will be aligned with what happened last quarters. If the input is the same, the output is the same. Okay? This is our base case. In any case, this would mean that we'll have probably between one and two years of Swiss franc provisions or at these levels that we have seen last year. In any case, what we see is that the bank would be profitable if it is if it's only for this case.
I think this is the message that I would also like to give. The bank in Poland, if it were not for Swiss francs last year, would generate all the pro forma net income without Swiss francs is EUR 500 million. The bank has the capacity to absorb shocks up until EUR 500 million before entering into losses. Very clearly, the capacity of the bank to generate pre-provisioning profit will is making it able to absorb these provisions. To make a long story short, if we are preparing ourselves for the worst, that is absence of remuneration.
If there is an absence of remuneration, and if there is, so to say, this very high level of flow of cases that we are seeing in the last quarters, we will continue to see the same type of provisions that you've seen last quarters. Maybe, in Q2, probably there will be this final adjustment that we'll have to do between almost no probability of remuneration to no probability of remuneration. I would say that this is the level would be maintained. Of course, this is our projection. It is still possible that the European Court of Justice decides otherwise, and it is possible that the flow of cases, I mean, either decelerates or accelerates. This is all for something that is not in our powers to have perfect foresight. Thank you.
Thank you. That's very clear.
We're now going to proceed with our next question. The question has come from the line of Benjie Creelan-Sandford from Jefferies. Please ask your question.
Yes, good afternoon, everyone. Thanks for taking the questions. I just had some follow-ups on net interest income in Portugal. I was just looking for a couple of numbers, first of all, if possible, please. I was wondering if you could tell us the average deposit cost in Portugal in the Q1, and similarly, what the average level of the loan rate was in Portugal in one Q and how that compares to a year ago, if you happen to have those figures to hand. I guess just more broadly on the NII in Portugal, you know, the one Q run rate implies growth of over 40% on net interest income versus 2022. I was wondering if you could just perhaps talk us through a bit more the dynamics that bring you back down to only 20%-25% growth for this year. Is it purely your assumption around the beta, or is there something else in there? Based on that 20%-25% growth guidance for this year, you know, are we right therefore to assume that the Q1 was the peak in net interest income in Portugal? Thank you.
Thank you. Thank you for your questions. In terms of the, of the, average value in the quarter, we'll leave it in the year, but in the quarter, for deposits and credits, we are not giving this out. This is sensitive information, so we'll give it at the year. It's also sensitive information for our competitors, so it's not something that we are right now communicating to the market. We'll give it the full year number. You are right. You are right that the most important parameter for modeling the margin and the difference in the margin is the speed at which we reach the final, I would say, the final deposit rate. This is the speed.
This speed has been lower than the one that we were originally forecasting. That's why we were expecting the margin to grow vis-a-vis last year between 10% and 15%, and now we are saying probably it will grow between 20% and 25%. Of course, as right now, the value is much higher, this means that at least the second half of the year will be lower than the first half of the year. You don't have to be, I would say, a very sophisticated mathematician to see this, but that's the normal, the normal evolution, I mean, the volumes are growing at low single digits and the cost of deposits is, I would say, normalizing, because it's normal that we reach a value around 30%.
Even if you look at Spanish banks and so on, that's more or less what, where they are. Of course, we are with a mean of 2.44% in Portugal, which is not a normal mean in Europe, so to say. What we expect is, during the year, to reach a more normal mean. Exactly it is this trend that will be partly compensated by some growth in volumes, as we are commenting mainly in credit volumes. That explains why we expect right now the margin to grow between 20%-25%.
Thank you.
We have no further questions at this time. I would like to hand the conference back to Mr. Miguel Bragança for closing remarks.
We are very pleased to announce you these results. In spite of the fact that a part of the margin evolution is not totally recurrent, we do think that this will be a substantial improvement in the profit and the capital accumulation of the bank. As you've seen in the last months, we were able to grow from a ratio of 11.7 in September to a ratio of 13.6 in basically six months. This shows very strongly not only that we deliver on what we promise, our very strong business model that is based on genuine customer relationships is also making it possible for us to compensate with service and with customer loyalty. I would say this is the a possible rivalry, excess rivalry in terms of the deposit rates, which for us is also very important and clearly shows the robustness of our model. We expect to deliver on our targets for our strategic plan of 2024, at least some of them already by the end of this year. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.