Good afternoon, Miguel Maya speaking. Welcome to BCP Earnings Conference Call. I will go through the highlights of our performance in the first quarter, then Miguel de Bragança and Bernardo Roquette de Aragão de Collaço will follow to provide you more details about our earnings. Looking back to the beginning of 2022, a marked global economic recovery was already evident following the two years of pandemic crisis. Recovery that in Portugal has been based on the increase in the investment aimed at the energy and digital transitions and modernization of the productive sector, as well as by the resumption of tourism and private consumption, which was recently reflected in a GDP growth of 2.6% in the first quarter.
This positive perspective was at the time only conditioned by uncertainty about the adverse effects that could result from the inflationary expectations that were already felt at the end of last year. Looking ahead, I emphasize the increase of risks as consequence of the invasion of Ukraine and the persistence of the impacts from the pandemic on the logistics chains, mainly due to new lockdowns in Asia. The main consequences of the conflict for the Portuguese economy stem almost exclusively from its indirect effects, as Portugal's trade relations with the countries involved have a very small weight in the national trade balance.
The second and third order effects of the conflict, namely, on commodity prices and on agricultural production, are driving the rise of inflation, increasing spreads, and accelerating the normalization of the monetary policy, which requires that we remain prepared to deal with the highly volatile and demanding environment. It should be noted, however, that the Portuguese economy is currently much more robust than in the past. Recovery from the pandemic crisis proved to be swift and allowed the unemployment rates to fall close to historic lows, and for families and companies to present a more solid financial condition, crucial to mitigating the adverse effects of the current economic environment. Additionally, Portugal benefits from an unprecedented stimulus from European funds within the Next Generation program, which will allow for the continuation of a favorable dynamic of investment.
I would like to add that in current circumstances, Portugal's location on the western edge of Europe gives our country a comparative advantage in the tourism sector, which is an important element for support for economic activity. The earnings of the first quarter confirmed our robust business model, having achieved a net profit of almost EUR 113 million, a 95% year-on-year increase, despite the cost of CHF 123 million associated with the litigation related to the Swiss franc loan portfolio in Poland. The domestic activity confirms once again the growing relevance of BCP in the Portuguese economy, having contributed with more than EUR 107 million for the group's net profit, an increase of 29% year-on-year.
Excluding the costs related to with the FX portfolio, the adjusted net profit of the group stood at almost EUR 175 million, increasing more than 52% year-over-year, with the international operation reaching an adjusted net profit of EUR 67 million with an increase of 116% year-over-year, which confirms that our operations in Poland and Mozambique also have strong business models that can generate relevant contributions for the group core income. We have an adequate capital position with a total capital of 16.1% and the common equity tier one of 12% on a pro forma basis, subject to approval by the supervisors of the request submitted by the bank according to Article 352 of the CRR.
However, and despite our capability to organically generate capital, we continue with a very strict capital management, as we are well aware of the high level of uncertainty over the Swiss francs issue in Poland. The level of liquidity remains well above regulatory requirements, and we have almost EUR 24 billion assets eligible for funding on the ECB. We kept a very intense commercial activity this quarter, supported by proximity and greater involvement with companies and households, enhanced by the potential of the symbiotic relations between our commercial network and the cutting-edge digital solutions. This commercial activity reflected in a growth of 5.8% year-on-year of the performing loans portfolio, which increased EUR 3.1 billion while keeping a strict control over the quality of the portfolio.
In Portugal, the performing loans also grew 5.7%, increasing EUR 2.1 billion, supported by mortgage and corporate loans. As a commercial bank that relies on long-standing relationships with the clients, the customer funds acquisition remains very important for our business model going forward. The significant increase of 7.7% since March 2021 is an important reinforcement of the customer's trust and of their perception about the quality of our value propositions. With the change of the monetary policy, this business front assumes further relevance as a significant source of income.
BCP's ability and competencies for managing the NPE legacy have been crucial for our steady path of improvement at the asset quality level. Still dealing with an unfavorable environment, we have been well succeeded in decreasing NPEs quarter after quarter, reaching an NPE ratio of 4.6% after having reduced EUR 421 million over the last year, of which EUR 405 million in Portugal. This quarter, the NPE reduction in Portugal was EUR 91 million. The cost of risk also continued its downward trajectory, reaching 62 basis points at the consolidated level and 68 basis points in Portugal. This was done while reinforcing 3 percentage points in the coverage by impairments over the last year to a well-positioned level of 68%, which compares very well with our European peers.
The expansion and the renovation of our customer base is a clear sign of the recognition of our service quality by the clients. We have more than 6.2 million active customers, of which 2.6 million in Portugal, having increased the number of mobile customers by 20% across our operations over the last year. I also highlight that, our digital capabilities are widely recognized by the customers. Mobile has been a strategic priority in which we have strongly invested as an essential part of the modernization and adaptation process of the bank. We are permanently improving and uploading our app, having been continuously nominated by customers as best digital bank and obtaining top ratings on the most relevant platforms.
This investment and the constant innovation in the mobile solutions are also reflected in the intense use they made of our app, which is highly integrated in their daily transactions and is clearly their preferred platform to interact with the bank. 48% of our customers in Portugal use our mobile platform, and this quarter, they realized 30% more transactions than in the first quarter of 2021, particularly in transfers and payments. The intense use is also reflected this quarter in the increase of 46% in the number of sales done through this channel, with the emphasis to the 250% increase in personal loans granted, the 160% increase in cards sold, and the 32% increase in savings solutions. Now I give the floor to Miguel de Bragança.
Thank you very much. Going to page 12, what we see is a very robust top-line growth with net interest income growing 24.1% and commissions growing 12.7%, which means that the recurrent net income grows more than 13% comparing with the growth in operating costs of around 1.1%. Which means that due to the operational leverage effect we have, we are showing a core operating profit growing almost 40%, 37.2%. The other income also performed well, namely through the trading gains in the sovereign portfolio, so that the operating net income grows also around 37%.
The impairment and other provisions relatively aligns with last year, that the net income before tax grows 130% and after tax 95%. Adjusting for the costs related with the CHF portfolio, which were higher than last year than this year, the total costs, our net income grows 52.6%. Looking a little bit more in detail, the net interest margin, we have here a story of two perspectives. What is happening in Portugal vis-à-vis what is happening in Poland.
In Poland, influencing the number for the international operations, the general level of interest rates went significantly up, as you know, due to the increasing of the central bank rates, so that the net interest margin grows from 2.9% to around 4.1%. On the other hand, in Portugal, owing a large part due to the excess liquidity and the excess liquidity costs that bear negative interest rates for the time being, as you know, at the central bank, we have a contraction of the net interest margin. However, this contraction of the net interest margin is more than compensated by volumes, so that the NII, even in Portugal, in spite of this low interest rate environment and the excess liquidity, grows low single digits, as I've been saying, 3.6%. Sorry.
The fees on commission line, very robust, growing in Portugal 14%, with a strong contribution both from the banking fees and commissions from market-related fees, and in the international operations growing 9.4%. This is a critical element of our strategy going forward. Other income, we see in Portugal, still in spite of the market or connected with the market volatility, the net trading income still at a reasonable level, almost EUR 50 million in Portugal, comparing with EUR 33 million more or less last year. In the international operations, some influence, as you know, about the or from the negotiations with Swiss franc borrowers, in terms of their negotiations of conversions of Swiss franc loans in floating loans.
Operating costs, with a lot of discipline a s we've commented last year, we had a payback of, or we're expecting a payback of around three years in the costs, ceteris paribus that we had last year. Part of the benefit were already reaped last year, as you know, mainly in the third and fourth quarter. The administrative costs also with a very strong discipline in Portugal, which means that we were able to show a nominal contraction of the cost in spite of the inflation, so that our costs in Portugal were contracted 5%.
On the other hand, in Poland, as you know, there is a high inflation, and in general, there is a high salary inflation also, so that the costs grew 10%, but nevertheless, with very, very positive jaws, because as you've seen, the revenues in Poland grow at a much, much higher rate. Impairment, w e are in the progressive process of normalizing our cost of risk, so that in the general group level, we were able to decrease the cost of risk from around 80 basis points to 62 basis points. This was particularly evident in Portugal, where we were able to come to a risk of already below 70 basis points on a recurrent basis. In international operations, the cost of risk is stable, and this is our perspective for the time being.
In spite of the very complex context, we are continuing to reduce NPEs. As we've told you in the past, some of the NPE files are complex and take some time to solve. The other side of the issue is that as time goes by, some of these more complex files get eventually solved, and that's what's happening. In Portugal, we were able to reduce EUR 400 million. That was the problem is with an NPE ratio according to the EBA, i.e., including all the exposures already below 3%. Sorry. In terms of the general activity level, we see a very healthy acquisition of new business in terms of customer funds growing 7.2% in Portugal and 9% outside of Portugal.
Unfortunately, we had a stronger contribution from on-balance sheet funds than from off-balance sheet funds. However, as time goes by and in, I would say, a more favorable interest rate environment, this-- that today is not a very strong contribution to our P&L. As the interest rate normalizes, we will eventually become an important contribution. The loan portfolio grew materially, mainly in Portugal, with the performing loan portfolio growing almost EUR 2 billion in a portfolio of EUR 38 billion, which is more than 5% for the performing part. In the international operations, we see also an interesting growth of around EUR 1 billion in a portfolio of EUR 17 billion.
In terms of capital, the capital ratio decreased somewhat because, as you know, in this favorable interest rate environment, there is a general positive effect in terms of the value of the bank, in terms of the economic value of the bank. Because for a retail bank, a general level of interest rates that is higher is more favorable than one that is lower. However, there tends to be an immediate negative effect in terms of the capital ratio because of the fair value reserves of the AFS portfolio that is used to hedge the deposits and that the term deposits and the current accounts. As you know, there is not a mark-to-market of the term deposits and of the current accounts.
However, for capital purposes, there is a sort of mark to market of the portfolio that is hedging this. In spite of a very positive, I would say, evolution of the net income, there was more than a compensation of this in terms of the evolution of the fair value reserves. However, as you may know, the EBA has approved guidelines about the Article 352(2) of the CRR that come into effect after the first of January this year. The impact of the Article 352(2) basically is the exclusion from capital requirements of the structural FX hedge positions, the positions that we hold to hedge our capital ratios in the context of the international operations.
We have filed the application for using this already last year. It was only possible for the central bank to give us the authorization this year. We see no reason why we should not have it. The impact of this would be around 50 basis points, so positioning ourselves 50 basis points higher than what we are right now. In leverage terms, I would say a very healthy ratio with a high arguably density that also gives us some comfort in terms of the review of the models that we are doing.
We are in normal terms reviewing the add-ons and our models, and we that we expect to have some news during the current year or at least until the first half of next year. These are the way density gives us comfort that we may get even some slight positive news on this matter. Liquidity ratios, I would say very comfortable. As I was commenting on, almost too comfortable in this low interest rate environment. However, in a scenario of increasing interest rates, this is clearly a good place to be. I'll pass now the floor here to Bernard.
Okay. Good afternoon, ladies and gentlemen. As usually, we start with the Portuguese operation on page 27, where you can see that the net income increased 29% year-on-year to EUR 107.6 million, and was positively impacted by core revenues, decrease in operational costs and lower credit impairments. Net operating revenues increased 13.6% and operating costs went down 5%, demonstrating the robustness of the Portuguese operation and the resilience of the business model. On page 28, looking to NII in Portugal, at the end of the first quarter of 2022, it stood at EUR 211.8 million, meaning 3.6 percentage points or if you want, EUR 7.3 million above the previous year.
There was some favorable impacts as the expansion of the performing credit portfolio, supported on mortgage loans as loans to companies, as well as the other positive effects of the wholesale funding, the repricing of deposits, and higher yields on securities that more than compensate the negative effects arising from lower price on credit from the NPEs reduction and the excess of liquidity. NII stood at 141 basis points. That compares with 150 basis points on the first quarter of 2021. On page 29, regarding spreads on terms deposits, back book spreads stood at -55 basis points and are pretty aligned with the 3-month average Euribor. Customer rates, customer rate on deposits went down 2 basis points.
Spreads on loan book were slightly compressed year-on-year, and that can be explained, as I mentioned, on the previous earnings releases, that it's related with basically with the credit lines with guarantees associated. Meaning that 144 basis points, 9 basis points lower than last year and 3 basis points lower than the previous quarter, mainly due to the excess of liquidity and the reduction of the average credit rate related with the guaranteed lines provided. Moving to page 30, that presents the evolution of fees and commissions and other income.
You can see that banking fees and commissions increased 13.1%, and the most significant impact comes from cards and transfers that grew 31%, showing the increase in transactional activity compared with the same period of the previous year that was affected by confinement. Market-related fees registered an increase year-on-year of 19.1%, supported from securities operations and asset management fees. Looking to other sources of income, in the first quarter of 2022, there was a positive contribution from trading related with sales of debt securities, both sovereign and corporate, and from loan sales. On the equity accounted earnings, contribution for P&L was EUR 1.2 million higher than the first quarter of 2021.
Regarding other operating income, contribution from this line was much better than one year ago due to higher results coming from real estate sales. Going to page 31, regarding costs, there was a reduction of 5% year-on-year. Total operating costs decreased, was mainly related with the headcount adjustment in place in 2021. As a result of that process, the net evolution of employees year-on-year was a reduction of 740 employees. As regards to branches, there was a reduction of 55 branches from the first quarter of 2021. Moving to page 32, which refers to asset quality. Even under a challenging environment, BCP was able to reduce more than EUR 400 million of NPE year-on-year, meaning 18.5%. In the first quarter, there was also a significant reduction of EUR 90 million.
NPE stood below EUR 1.8 billion at the end of the quarter. That compares with EUR 2.2 billion a year ago. Cost of risk stood at 68 basis points. That compares with 94 basis points on the first quarter of 2021. Let's move to page 33, which looks at the NPE coverage breakdown. As you can see, total coverage stood at 132% and above the level registered at the end of 2021. With the reinforcement of the NPE coverage by loan loss reserves to 69% from 66% a year ago. Total coverage for individuals with high levels of real estate collaterals stood at 99%, and for companies at 143% from 133% a year ago.
Coverage by real estate collaterals on companies at 43%, and loan loss reserves higher 5 percentage points from 76% to 81%. On page 34, which shows the evolution of foreclosed assets and restructuring funds, there was a reduction year-on-year of almost 42% and 4% respectively. In terms of property sales, there was a significant increase compared with the first quarter 2021 due to the restrictions in place in the first half of 2021 in Portugal. The number of properties sold were much higher than a year ago, and as usual, sale value continues to be above the book value. In the first quarter 2022, sale value exceeds book value by EUR 15 million, that compares with EUR 5 million one year ago. Now moving to page 35, total customer funds grew 7.2% to EUR 66.6 billion.
The growth was more than EUR 4.5 billion and was mainly supported by the increase of demand deposits. Off-balance sheet funds with a slight decrease due to market impacts and the expiry of insurance products that were not fully compensated by new subscriptions of mutual funds and other financial insurance products. In terms of gross loans, there was an increase of 4.3%, supported by an increase of almost 6% in mortgage loans and 3.2% in loans to companies. It is also important to highlight that performing loans went up 5.7% or EUR 2.1 billion more, and NPEs were reduced by EUR 405 million or 18.5%. Going to page 36, it is possible to see the strong performance on new loan origination and the recognition of BCP as the main bank for Portuguese companies.
Performing credit portfolio in Portugal went up EUR 2 billion or almost 6% from March 2021, and it was supported in growth in mortgage loans and loans to companies. Let me also highlight the reinforcement of the European guarantees to support small and medium-sized companies affected by the pandemic with more than EUR 3.3 billion. Now moving to international operations on slide 38. Regarding international operations, you can see that there was a positive contribution from those international operations to consolidated net income that compares with a loss of EUR 25 million one year ago. Bank Millennium in Poland had a loss of more than EUR 26 million. That compares with a loss of EUR 67 million in March 2021.
Mozambique contribution was significantly better than the previous year and amounts to EUR 24.3 million in the first quarter of 2022. Combining all contributions from international operations, there was a positive contribution in the first quarter of EUR 5 million, as I said, although if we adjusted by the CHF impacts on a comparable basis, contributions from international operations more than doubled compared with the previous year. Moving to page 39, which refers to Bank Millennium in Poland. Net income in Poland was again on the first quarter 2022 strongly impacted by costs related with CHF loan portfolio. That amounts to more than EUR 123 million after taxes, which compares with EUR 113 million one year ago.
Total provisions related with Bank Millennium CHF portfolio, and that excludes the provisions for Eurobank portfolio, that amounts to EUR 10.4 million that were, as you know, neutralized at the P&L level at the other income line, stood at EUR 97.4 million. Costs associated to conversions to early repayments of CHF loans have an impact of around EUR 26 million. As you can see, excluding these factors, due to the evolution, we can see the strong performance of the Polish operation, where NII improved more than 50% year-on-year.
Net operating revenues increased EUR 63 million or almost 34%, and operating costs went up 13.8% due to inflation that is having some pressures on salaries and services in Poland and higher mandatory contributions. CET1 ratio to 12.9% and total capital ratio at 16% and comfortable above the requirements. On page 40, some detailed information about Bank Millennium. NII have a strong increase of 54.5% to more than EUR 205 million. That compares with EUR 134 million one year ago, and that's due to the interest rate hikes in place since the fourth quarter of 2021.
NIM increased significantly from 2.56% to 3.77% at the end of the first quarter of 2022, improving from a level below 3% at the end of 2021. Fees and commissions increased 7.8% to EUR 47.7 million, and other income decreased significantly, as explained before, by the impacts on the trading line related with the out-of-court settlements related with CHF loans. Operating costs increased more than 13.5%, influenced by higher staff costs and higher mandatory contributions, as I mentioned before. Moving to page 41, related with asset quality at Bank Millennium, NPL 90 days past due ratio decreased 40 basis points, and cost of risk was stable at a level around 40 basis points, which was slightly higher than the level observed in the full year of 2021.
That stood at 37 basis points. Coverage ratio of NPLs by loan loss reserves at 137%, meaning an increase of 15 percentage points from last year. On page 42, you can see how strong is the franchise, where customer funds increased 8% year-on-year. In terms of loans to customers, gross book to that at EUR 17.5 billion, up 5.4%, and it is important to highlight the increase of the zloty mortgage loan portfolio of almost 24% and the decrease of the mortgages in foreign currency. On page 43, regarding the FX mortgage portfolio, it now represents 10.7% of total loan portfolio at Bank Millennium. As you can see, the reduction of the CHF year-on-year was 19%.
Bank Millennium, due to the increase of out-of-court claims and decisions more favorable to customers, made additional provisions of more than EUR 97 million in the first quarter of 2022, increasing coverage to more than 30% from 25.7% at the end of 2021. Cumulative provisions for legal risks on the FX mortgage portfolio of Bank Millennium, and once again, not including Eurobank, stood at EUR 741 million. It is also important to mention, as you can see on the bottom right chart, that Bank Millennium is maintaining high levels of extrajudicial agreements with CHF borrowers that in the first quarter 2022 were above 200,280 cases.
In the first quarter of 2022, those amicable agreements had a cost of EUR 26.8 million that were booked at, on the trading line. Turning to page 44, which regards to Mozambique, net income increased to EUR 24.3 million due to the higher NII fees and commissions and lower credit impairments. Net operating revenues increased almost 20% and operating costs were 6.7% higher than the last year. Capital ratios stood at 38.5%. Moving to page 45, NII went up year-on-year, 12.3% to more than EUR 45 million. NIM increased from 7.4% one year ago to 7.9% in March 2022. Commissions and other income increased 41%, and costs increased at a much lower pace than revenues and only 6.7%.
Cost-to-income stood at 42%. That compares with almost 47% in March 2021. Moving to page 46, NPL 90 days past due decreased 10.9% to 10.9%. Cost of risk at 203 basis points from 306 basis points one year ago, and coverage by loan loss reserves increased 16 percentage points to 83%. That compares with 77% at the end of 2021. Regarding volumes on page 47, you can see that customer funds registered an increase of 6.3% and loans to customers went down 3%, reflecting once again the conservative approach under the challenging environment of the country. Let me thank you for your attention. Before we move to Q&A, I'll return to Mr. Miguel de Bragança for some final remarks.
Thank you. We clearly, you clearly see in page 49 that we are clearly on track to achieving our objectives. We are growing customer engagement and the share of mobile customers. We are improving the quality of the balance sheet, and this is allowing us to have an adjusted ROE that is also on a positive path. We are very comfortable in terms of the recurrent costs, cyclical cost of risk, and this has been shown in the numbers that we are presenting. As you know, as you've seen, the cost-to-income also evolves well, albeit that we have to consider that one quarter for a measure such as cost-to-income that includes trading gains is not probably the most appropriate measure.
In any case, we are clearly on track to achieving our objectives, and we really appreciate your interest and your commitment with our equity stories. Thank you very much.
Thank you, dear participants. We will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone keypad and wait for a name to be announced. The first question comes from the line of Noemi Peruch from Mediobanca. Please ask your question.
Good afternoon, and thank you for taking my questions. I have three. The first one is on capital. Can you walk us through the process of applying for Article 252( 2), and when do we expect the approval by? Also on capital, can you shed more color on the internal model update that you expect this year in terms of timing and size? My last question is on Poland. The discussion around the deposit rate is very much ongoing, with some banks already offering 5% deposit rate. Without loan-to-deposit below 100%, this level of remuneration could considerably reduce the benefit on higher rates. Can you please share your thoughts around this discussion? Thank you very much.
Thank you very much. As you may know, the EBA has issued guidelines in how to apply the Article 352( 2), some time ago. The implementation of these guidelines was deferred to the first of January of this year. What we have done and these guidelines are very sensible because they basically say that the position or the structural position that is held to hedge the capital ratio, I'm simplifying it a little bit, should not generate other RWAs because its motivation is a hedge motivation. We have applied for it in November last year. We think our situation is a quite simple one because we effectively try to hedge the capital ratio with structural hedge positions.
We are expecting the answer from the supervisors. We have not the answer yet, but we are expecting this any time. Having said that, of course, we cannot commit for the supervisors, and they are always sovereign in their decisions and in their timings. In terms of the model updates, it's a regular model updates that we do. We are expecting this model update, as I was commenting, to occur or the approval of the model test to occur until the end of this year/first half of next year. What we expect is by the information and by our application is a slight positive impact. Non-negative impact, so a slight positive impact.
Of course, I will not enter into more details because this is also something to be discussed with the regulators, and I don't want to, I mean, to create here a difficult situation in the relationship with the regulators. In terms of the deposit applied, so it is normal. When interest rates go up, so to say, there is some inertia in terms of the deposit rate. Of course, the type of growth of NII that we had in the first half of this year, when one compares with the first half or with the first quarter of this year, with the first quarter of next year, will not occur every quarter going forward, because this would be excessive.
As you know, in retail banking, what happens typically is that we have different speeds of repricing in terms of the assets and the liabilities. The first impact is in the indexation of the assets that has to a large extent already occurs in Poland, not totally, but to a large extent already occurs in Poland. As time goes by, a part of this interest rate movement gets transferred, so to say, via pass-through to the deposit rates. There is also a change in the mix of the deposits, typically, so that customers that did not mind having a current account at zero when the deposit becomes higher. Some of these customers also then prefer also to have term deposit accounts, as it happened in the past when it was the other way around.
In any case, we are expecting. I would say that the full year NII in Poland, even with this more intense competition that you are saying for deposits or this pass-through of deposits to be sort of aligned with the NII that we had in this quarter. Let's see. I mean, we are not. We don't know exactly what the competition will do. A part of it will depend on the competition. We were already expecting a part of the deposits, a part of the fight for deposits to become more intense as the deposit rate goes up. You are right. I mean, this is occurring, but this is normal business. I believe I've answered your questions. Thank you. Next question, please.
Thank you.
Thank you. The next question comes from the line of Carlos Peixoto from CaixaBank. Please ask your question.
Hello, good afternoon. Thank you for taking my question. The first question will actually be on capital as well. I was thinking a bit here on capital evolution going forward. I believe that there are some items to take into consideration.
Carlos, I'm sorry. Can you please speak up because the connection is not so good.
Hello.
I'm having some-
Are you hearing me better now?
Much better. Thank you.
Better now? Okay. Sorry. As I was saying on the capital evolution, basically, besides the point you already mentioned, I was wondering in terms of measures that could be adopted by BCP to reduce the volatility that the capital ratios have been having to the evolution of the bond yields, the mark-to-market of the bond portfolio. Whether this is something that we can see this volatility reducing going forward. At the same time, what type of organic capital generation do you expect to see throughout the rest of the year, particularly considering the efforts on FX mortgages in Poland, which I believe should probably remain at levels around these loans.
On the second question, in terms of costs, the first two could be a reference for the full year. I was thinking here, particularly in Portugal, where costs have a particularly good evolution. Should we think about first Q and annualize for the balance of the year or is there something else we should take into consideration in the balance? Thank you.
Okay. Let's separate here. I mean, in terms of capital evolution, there are three questions. One is the volatility of the ratio, so to say. The second is what is the organic capital evolution. The third one more linked to measures, so to say. In terms of the volatility, we have a balance sheet that is what it is with the size that it has. Effectively, when there is a trade-off between managing the economic value of the bank, basically by hedging, so to say, the economic value by investing in fixed income, fixed rate portfolio, and managing the risk, so to say, of the capital ratio.
Typically, this trade-off makes us, I mean, have choices, and these choices are dependent on where we are exactly at each point in time. Right now, we are changing somehow our decisions so that we are weighting more the hedging of the capital ratio than the hedging of the economic value of the bank. Of course, as time goes by, the negative impact of the mark to market of the AFS portfolio that is used to hedge the deposits, of course it tends to become lower. There is a pull to par, if we want, in all these bonds.
There's a natural evolution, both in terms of dimension and in terms of the situation as time goes by, because the economic value was also considered in this situation, effectively benefits in terms of organic capital generation from the higher interest rate environment. As time goes by, then the interest rate environment becomes higher, and the contribution of the interest rates to the capital ratio becomes higher. In terms of our organic capital generation, I would separate here the Swiss franc portfolio from the remaining part of the business.
In terms of the remaining part of the business, what we are expecting here is a quarterly generation of the organic capital in terms of the core business that is around 15-20 basis points per quarter and increasing in this higher interest rate environment. Okay? Ex Swiss franc portfolio. In terms of the Swiss franc portfolio, it depends a lot on the decisions and on the final decision by the courts, which, I mean, my guess is as good as yours as to what where it will be.
What I can tell you is that until there is a final decision of the courts, because of our methodology and because of our models that is dependent on the courts that come into the processes that come into courts and so on, I would expect the same, roughly, I mean, in terms of order of magnitude, the same type of cost that we are having right now in the next quarters, except if there is a decision, a final decision by the courts, in which case we will have to wait what would this final decision would be. In terms of costs in Portugal, effectively, up until now, we are over-performing in terms of costs in Portugal, but we are seeing some signals of inflation as we all, as you all are seeing now.
I would say that our target right now is to come to an end of year number that is in nominal terms aligned or slightly below what we had last year, so to say, compensating the inflation with the efficiency gains. That's what we are targeting. Maybe a little better, but until we have more visibility on what the inflation will be, that's what we are targeting. In terms of capital measures, the capital measures that we are implementing is basically organic capital generation, net income, the pressure that we are feeling to perform better and better so as to generate more capital. Of course, being careful or being even more careful in terms of some decisions so that they do not increase the capital ratio volatility.
I would say the main capital generation, both in Poland and in Portugal, is through pre-provisioning profit, is through core income, is through this type of, is through management effort and delivering.
Excuse me, Carlos, all your questions have been answered?
Yes. Yes. Thank you.
Thank you very much. The next question comes from the line of Ignacio Ulargui from Exane. Please ask your question.
Thanks very much for taking my questions, and thanks for the presentation. I have just two questions. Miguel de Bragança, I know that you are not a fan of guiding in the quarter, but given the relevance of the sort of like proximity of Poland over Ukraine, are you seeing any slowdown in lending, anything that you can share with us in terms of activity levels in Poland and how you think this might impact in the coming quarters? A link to Carlos' question on the Swiss mortgage portfolio. Do we have any kind of deadline for the final decision of the court? Because last year we were sort of like waiting and waiting. Do we have any visibility on that? Could it be beyond 2023?
Because if I understood correctly, Bank Millennium management, the expectations for elevated CHF related provisions will be during 2022, but it won't be extended beyond into 2023. Just wanted to get a bit of clarity on up until when we should be expecting this kind of provisions from the CHF mortgage portfolio. Thank you.
Okay. Thank you very much for your questions. I'm not, as you say, a big fan of trying to anticipate exactly the calendars and decisions of judges. Based on other cases, there is a very important case at the European Court of Justice that concerns our case and concerns on how remuneration should be calculated in case of invalidity. This case is in the European Court of Justice, and if you want, without the commitment from my side because I cannot commit, by my best guess is Q4 this year, Q1 of next year. Let's see whether the answer. One of the problems that sometimes happens is that the decisions are not clear enough, so it could happen that this decision is clear enough.
I would expect to have a decision by the European Court of Justice by Q4 or Q1 or this year or Q1 of next year, expecting it to be clear enough. Of course, we have to see what the decision will be and what is the degree of clarity. In terms of activity, I would say in terms of the macro situation in Poland in general, I would say the situation of an increase in interest rate, of course, is beneficial, in the short term is beneficial for banks, for commercial banks. Having said that, the speed at which it occurred was probably not the optimal speed for retail banks.
We would have preferred, if we could design it exactly as we wished it, which is, I mean, a theoretical case, to have a smaller pace of the interest rate increase in terms of our objectives, not necessarily objectives of the country. Having said that, we are having, as you are seeing, a very positive top line growth, and we expect this top line level to be maintained across the year. Having said that, because there are still some assets to be repriced, as I was commenting to Noemi, but there will also be some, I mean, rivalry, some pricing rivalry on the liability side. Having said that, in this scenario of higher interest rates, we will have less volumes and there is more uncertainty.
The new mortgages in Q1 came down significantly, roughly 40%. The new consumer loans, the new cash loans also came down. I'm speaking about market levels, not necessarily bank level. In general, of course, with a war next door, people are more cautious when they think about buying houses, when they think about new consumer loans, et cetera.
If the situation stabilizes, this could provide even a new energy, so to say, to the market, because we are speaking about a couple of million people that moved, and some of them with qualifications, with high qualifications that moved to Poland and some of them may stay there for some time because of the destruction that happened in Ukraine. Over the short term, there are some reductions in terms of production. These reductions do not. We are not expecting them to have a very high impact in terms of the P&L of this year because, as we all know, the P&L is much more explained by the back book than by the front book.
A lot of the final impact will depend on how long the war takes. Here, I think we are all on the same level of information in terms of how it will happen. In general, I would say that at least in organic terms and before Swiss francs, we are optimistic relatively to Poland. There's also another dimension, by the way, relative to Poland, that is the cost of credit dimension. I think it's also an important dimension. We were targeting a 50 basis points cost of credit. We think right now that it may be somewhat higher, but very controlled, so to say.
If anything, of course, with the war next door, if anything, if there is a deviation, there will be a negative deviation rather than a positive deviation. In any case, we are expecting a very robust set of earnings this year for Poland before Swiss franc costs.
Thank you very much.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star and one on your telephone keypad. The next question comes from the line of Sofie Peterzens from JP Morgan. Please ask your question.
Yeah, hi. Here is Sophie from JP Morgan. I had a quick question on your rate sensitivity. Could you just walk us through kind of how we should think about higher interest rates, how kind of that feeds through on your asset side but also on the liability side and kind of if rates kind of normalize to 1.5%-2% by end of 2024, how should we think about the potential NII benefits for BCP? My second question would kind of go back to one of the previous questions. In terms of the AFS portfolio, we saw some hits to capital from the bond portfolio this quarter.
In general, how should we think about the sensitivity to capital from kind of rising bond yields? Finally, how should we think about kind of trading income outlook, especially given that the out of court settlements are booked in trading in the trading line in Poland? Should we expect trading income to continue to be kind of negative or how should we think about that? Those would be my questions. Thanks.
Okay, thank you very much. Starting with your last question. We have been making around 2,000 negotiations per quarter as we are commenting, with roughly the same cost per quarter in the last quarters. I would, of course, it's always difficult to project how customers will react and so on, but our base case is to maintain these trends around 2,000 per quarter, which has a cost between EUR 26 million and EUR 30 million in Poland per quarter. That's how we are seeing it.
In terms of the theoretical impact of an interest rate parallel movement in our NII, if we have a parallel movement of 1% in all the interest rates at once in our NII, both in Poland and in Portugal, the impact that we would be expecting is around a 10% impact in Portugal, around EUR 80 million give or take, and 6% impact in Poland. This is a theoretical impact that is a one-off impact in terms of NII.
However, looking in a more sophisticated way of the second order impacts, the impacts that they may have in volumes, the impacts that the interest rates do not occur through a shock, but rather occur as time goes by.
What I can tell you is, for instance, for Portugal, if the interest rates evolve as projected by the forward rates today, so if instead of having constant interest rates, the rates evolve, evolves as per the forward interest rates, we would, and in spite of the headwinds, as you know, the TLTRO will end by the middle of this year, which is a clear headwind, we would, instead of having a growth of low single digit in Portugal, have a growth of mid-single digit in Portugal, and this year, and probably a growth of around high single digit, low double digit next year.
The impact of the interest rates evolving as per the current forward rate is clearly positive in Portugal, even with the side effects. Most of the impact, because of the repricing mechanism and so on, will occur next year. In any case, as I'm commenting, in spite of the TLTRO headwind, we would be expecting a positive NII this year. In terms of Poland, the situation is more complex because the interest rate movement was so sharp as we were commenting, that it may have a stronger impact even in terms of credit demand, because when the interest rate goes, I mean, goes up five percentage points as we were commenting, it may have an impact also in terms of credit demand.
However, having said that, as I was commenting, we would be expecting levels of NII aligned with the run rate of this quarter, which is a very high run rate this year. For next year, a clear double-digit number, but it's still to be seen. Because the models, when the situation is so strong, when the change is so strong, the models are obviously less perfect. We would expect a clearly double-digit. The run rate of this year for this year and double-digit, for low double-digit for next year. Okay.
The capital sensitivity. We have, as I was commenting, a fixed rate portfolio, but this fixed rate portfolio, typically, a part of it or the longer part of it is hedged through interest rate swaps. The duration of our hedges is lower than the duration of the fixed rate portfolio and that's why in spite of the size of our portfolio, the impact on our capital has been relatively mitigated when you take a look at the size of our portfolio.
It changes over time, but typically the impact on capital of a 1% change oscillates depending on the positioning of the ALM portfolio between EUR 50 million and EUR 100 million for each 1% of interest rate changes when we take a look at the interest rate, okay. The general interest rate movement.
That, that's very clear. Thank you.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star and one on your telephone keypads. The next question comes from the line of Hugo Cruz from KBW. Please ask your question.
Hi. Thank you very much. A couple of questions. First on the capital measures, I know you said it was mostly capital should grow mostly organically, but there's a couple of moving parts there. I wonder if you could give guidance. First is on the you know Mozambican minorities. Is there room to find some regulatory adjustment there to offset the negative impact you've had in Q4? Second, I understand from reading the press that there could be some restructuring fund sales in Q2. Could you give guidance on the potential impact on capital? Third, you typically update the pension fund with you know every six months as well. Could there be any potential impact on capital from that as well, at least based on the current rates? Then my second question is on NII.
You know, deposit betas in Portugal. You know, my assumption is once rates go up, you know, probably as long as rates continue to be, you know, around zero, there's not gonna be any, you know, repricing of deposit rates by the banks. You know, my question is, at what point do the banks start to, you know, pass on the rates to the deposit holders? Is it gonna be you know, when the deposit betas start to be positive, is it gonna be around 50 basis points of the ECB rate? Is it around 1%? Obviously, that will depend on competition, but if you could give guidance, that would be great. Thank you.
Okay. I'm seeing some of my competitors here listening to my call, and so I don't think it would be a good practice to tell in anticipation how I will behave in terms of my customer and deposit pricing to market movement. I'm sorry, but you'll allow me. I will not comment how I will react in the future in terms of deposit pricing. In any case, we will be sensitive. We will take trust as we will take sensitive economic decisions in these situations. We are right, we are not in a hurry to gain market share in the deposits, so we will be quite prudent and conservative in the management of this.
At this point in time, I don't think it's in the interest of our shareholders to comment this. In terms of the pension funds, effectively, you're right. We typically only update the pension funds discount rate every half year. Right now, what we are seeing is that if we were to update that, you can consult, for instance, the Mercer discount rates, which are always interesting guidelines for this issue. We have communicated to the market in December what is our sensitiveness to the Mercer discount rates. What you would see is probably roughly applying a simple calculation an impact of around a decrease over in terms of liabilities of around EUR 400 million.
If you do a very simple calculation applying the Mercer discount rate, which is not, I mean, which if you were doing it today, we don't know exactly how it will be by the end of June. However, for you to consider this in your capital ratio, you have to have a special authorization from the pension authority to distribute these excess assets or liabilities to BCP, so which we could. What happens is that for the time being, this buffer that is already there, so we already have a buffer around EUR 200 million, absorbs negative shocks on the pension fund.
For the time being, our decision has been that it's more in the interest of the shareholders to have there a buffer that absorbs the pension fund risk and the pension fund volatility, taking out volatility out of the capital ratio than to distribute this. It may change, but for the time being, this has been our decision. Of course, if you need, we may always review this decision, but we really think there is a lot of value in taking this risk out of the conversation by having such a high capital buffer. In any case, the numbers are the ones that I commented. We have right now a buffer around EUR 200 million. This buffer, applying only the discount rates, and maybe then other movements on the other side, but we would go from EUR 200 million to EUR 600 million.
In terms of the restructuring funds, you're absolutely right. We are not necessarily looking at it as a capital initiative, but more as a balance sheet initiative in terms of de-risking the balance sheet. If we were to sell the funds or the funds that are now being analyzed, the impact that we would be expecting would then be something between 10 and 15 basis points positive, of course, in terms of the capital ratio, give or take. Of course, it depends on the RWA at the time and so on, but that's the area in which we are. In terms of Mozambique, you're absolutely right also.
I mean, this is also not really a capital initiative because it's a decision from the Mozambican authorities to implement the CRD concepts in Mozambique and to implement the concept of Common Equity Tier 1 as it is defined in Basel III, to be more precise. This is worth around 20 basis points for us. We are, I mean, there's not a lot of things that we can do, but we think it would be a good practice for them, of course, to implement the Basel concepts as most of the countries in the world, not all, but as most of the countries in the world have already done.
There are not a lot of initiatives that you can take there, except hoping that they align with the world's best practices in terms of supervision. The value is around 20 basis points there.
Makes sense. All right. Thank you.
Thank you.
Thank you. We have the next question comes from the line of Carlos Peixoto from CaixaBank. Please ask your question.
Hello. Hello. Good afternoon. Thank you for taking my question again. On a follow-up, I was wondering on the guidance you have provided on NII in Poland. Are you considering any potential impact from the measures announced by the support package to borrowers that the government has discussed, mainly the potential changes to the WIBOR and also the scheme of moratoriums that has been discussed? Whether that has to be somewhat incorporated in the guidance or separately, whether you have some sort of view or insight to what it might be on this front. Thank you.
Okay. I've provided the guidance that includes some of the more intense pass-through of the interest rates to the deposits, which was some of the assertion that the government has issued. We think that I mean except for if there are some extraordinary circumstances, and of course, I have to say that we cannot anticipate in such a volatile environment what our competitors will do. If we could, we would be having other type of problems, so we cannot anticipate this, but it already includes this. In terms of the WIBOR, I'm speaking about basically this year, and we do not expect any type of WIBOR impact to occur this year. I mean, the substitution of the WIBOR by another interest rate.
The numbers that I've commented do not include, of course, this year, but we are not expecting this to occur this year. We expect to occur next year. Of course, we do not know exactly how it will be substituted. It is not prudent from our side to say what the impact will be because basically what you said is that as it occurred with some WIBOR rates, the WIBOR rate in Poland will be substituted. In terms of the moratoria, the values that I was commenting do not include the impact of the moratoria, but it's also difficult to know as of the moment what the impact of the moratoria will be on the NII, because it may be rather an impact in terms of the modification of the loan.
We have to see exactly what the impact will be. It's still very early days. As you know, there is not even a proposal yet sent to the parliament, so a lot of it will depend on what is done. We have to see which line of the income statement it affects. It is not obvious that it will affect the NII. It depends a lot on what, how it is done. Deposits, yes, WIBOR in principle in 2023. The moratoria, it's not included because we do not know the size and what line of the income statement it would affect.
Thank you.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star and one on your telephone keypad. The next question comes from the line of Noemi Peruch from Mediobanca. Please ask your question.
Thank you for taking my question again. I have just a follow-up on cost of risk. If you could share with us your outlook for 2022 in this macro context in Portugal, and when do you plan to update your macro assumption? Thank you.
Okay. Contrary to what happened in Poland, where the interest rate movement was very sharp, the interest rate movements in Portugal have not been so sharp yet. The economy is performing for the time being quite well, and as our CEO, Mr. Miguel Maya was commenting, we may even profit in terms of tourism and so on from the fact that we have a lot of people that are already vaccinated. We were one of the front runners in this field. Being on the western part of Europe, we have, I would say, a competitive advantage when you compare with other countries such as Turkey and so on.
We are expecting a good year in tourism, which is one of the key levers for the Portuguese economy. The sectors that are being affected by this crisis are very different sectors from the sectors that have been affected from the previous crisis. We don't want to sound complacent, but for the time being, we think that this type of cost of risk of around 60 basis points, which is still very much above the cost of risk of our competitors, is, I would say, an unbiased estimation of what the year will be. Maybe higher, maybe lower, but I would say it's quite unbiased for the time being.
Taking into consideration, please keep this in mind, that half of our book is mortgages and that our competitors in Portugal have much lower cost of risk. It is a conservative number in terms of cost of risk. In terms of the macro assumptions, our last update was done in December of 2021, and we are now revaluing whether it is needed to update it or not, exactly because of the situation that I am commenting that the Portuguese economy is performing relatively well in this scenario. We have not taken a decision on even whether to update the macro assumptions for model purposes or not. We are still analyzing this.
Thank you.
Thank you. There are no further questions. I would now like to hand the conference over to your speaker, Miguel de Bragança, for closing remarks.
Thank you very much, ladies and gentlemen, for staying so close to us and following on our equity story. As you know, we do think that the situation of Millennium bcp in Portugal is a situation of a very solid turnaround. As you see, we have been able to show very strong top line increases with contained costs and with the progressive normalization of the cost of risk, and this is the path that we are following. In parallel, in Poland, what we also see is a very, very strong pre-provisioning profit that is allowing us to cope with the Swiss franc risk, so that in spite of all these uncertainties that we are living and that all the banking industry is living, we remain very confident on the strength of our business model.
Thank you very much. We are of course available to take on a one-to-one, other questions if you wish so. Thank you very much.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.