Good afternoon, Miguel Maya speaking. Welcome to BCP's earnings presentation. As usual, I will go through the highlights of the past nine months, and then Miguel Bragança and Bernardo Collaço will follow, providing you a more detailed presentation of our earnings. The successful execution of the vaccination programs, particularly in Portugal, has been decisive to lower the impact of the pandemic and switch into a more controlled phase. Confidence clearly raised among the economic agents, bringing a significant degree of normalization across the economy that is steadily supporting the recovery mode. Under this scenario, we have achieved a net profit of EUR 59.5 million, still contained along the year by provisions of EUR 313 million of legal risks in Poland related to FX loans, including a provision of around EUR 100 million done last quarter.
Impairments and provisions stood at EUR 726 million, growing 31% year-on-year. While the complexity around FX loans in Poland didn't enable yet required qualification for this legacy issue, which is constraining the profitability of our Polish subsidiary, Bank Millennium management has been firmly committed to accelerate conversion of existing FX loans with the dedicated teams that are closing agreements with clients at high pace, having achieved this year a decrease equivalent to approximately 16% of the FX loan portfolio. Bank Millennium has a very good franchise and a solid business model, and the complexity of the FX file did not distract the bank from steering the enduring value creation path by growing organically, grasping the opportunities to increase the engagement with the customers in the high-potential Polish market.
In Portugal and within a tight timeframe, by the end of last quarter, we successfully managed to execute the headcount adjustment program that was deployed in June. A very rigorous and balanced implementation of a well-conceived plan, which kept the cost control within the envisaged amount, will lead to a reduction of nearly 800 employees this year without significant setbacks and having not affecting the working environment, nor the bank's regular functioning. This is an important step that will enable us to deliver on the annual cost reduction target of around EUR 35 million included in the strategic plan for 2024, while adjusting the bank's workforce for the evolving challenges of the competitive landscape. The strong and resilient business model of the bank is reflected on the very positive evolution of NII and commissions, which have supported the increase of 3.1% on core income.
Combined with 2.7% decrease on the recurrent operational costs, this performance resulted in a growth of 8.3% of the recurrent net core income to almost EUR 940 million. We have a capital position above regulatory requirements with total capital of 15.2% and Common Equity Tier 1 of 11.8%, with our business model showing capability to organically generate 20 basis points of Common Equity Tier 1 on the quarter. Our liquidity levels remain high, well above regulatory requirements, having EUR 25 billion in assets eligible for ECB funding. The quality of our franchise and the strong commercial activity of the bank is shown by the evolution of the performing loans, which increased EUR 3.1 billion year-on-year.
In Portugal, performing loans increased EUR 2.2 billion, a year-on-year growth of 6.2%, of which 56% in loans to companies, confirming our strong position as leading bank for companies and our distinct capabilities to support them in the ongoing upward trend of the economy, economic recovery. Customer funds have been increasing steadily each quarter, being an evidence of the confidence customers have in the bank. Since September 2020, customer funds increased by more than seven billion, a growth of nearly 9%. Off-balance sheet assets grew 10%, reaching almost EUR 21 billion, proving our competences in assisting customers in their investment decisions throughout their life cycle. Still under an adverse economic context caused by the pandemic, we didn't deviate from our downward trajectory for NPEs, being firmly committed with our priority to improve the bank's asset quality.
Over the last year, we managed to reduce more than EUR 770 million NPEs in Portugal, of which EUR 433 million in the current year. This improvement in the asset quality has been well-balanced with the normalization path for the cost of risk, which has decreased to 60 basis points at the group level and 68 basis points in Portugal. Alongside the reduction of the cost of risk, the coverage levels of NPEs by impairments increased by 6 percentage points year-on-year, reaching 68%, while the total coverage increased to 120. I must underline that for the first time, the NPE ratio, loans only, is now below 5% in both group and Portugal levels.
Together with a relevant increase in coverage by impairments and collateral, this is a clear evidence of the very positive path undergone by BCP in the past years concerning balance sheet quality. The clients recognize the value and the enhanced usability of our digital interfaces, namely the mobile app, which combined with the proximity and insights of the customer's needs, enabled by the human interactions throughout our high quality physical network, have been crucial to drive the growing onboard of customers to our mobile solutions. 55% of our group-wide client base are mobile users, 45% in Portugal, where mobile customers increased 21% over the last year. I also highlight two relevant milestones achieved last quarter. We exceeded 6 million active customers at group level and reached the result of 2.5 million active clients in Portugal.
The constant improvement and the new features released in our app provide an increasingly superior user experience that is reflected in the strong growing figures of mobile adoption by the customers. More than 77% of the customers transactions with us are performed through the digital channels, and their high adoption level of mobile is reflected on the number of transactions performed over the app, which increased 40% year-on-year with the peer to peer transfers more than doubling, national transfers up 44% and payments increasing 39%. A large proportion of our sales, 70%, are also made throughout the digital channels, and the sales throughout the app increased 57% year-on-year with more and more customers choosing our app as a preferred platform to acquire cards, to save or to make personal loans.
This growth in the number of transactions and sales through the app is more typical of FinTechs rather than in regulated banks, clearly showing the relevance we provide to innovation, our focus in execution and BCP's capability to adapt. Our digital strategy to prioritize investment in a mobile breakthrough by designing outstanding app that provide customers with a top user experience and seamless access to products and services that fulfill their daily needs, has been very well perceived and widely recognized by the customers who consistently choose Millennium as the best digital bank in Portugal. Millennium app leads the competition on the ratings of major platforms and in the terms of Net Promoter Score, which has been consistently increasing since 2018.
As I have already underlined, in a competitive landscape where new players such as big techs have strong arguments, this positioning of Millennium bcp as customer digital first choice, it is a very important competitive advantage for the bank's future, enabling us to differentiate in an efficient, and in efficiency and customer engagement, combining an outstanding capability of target human interactions with a leading mobile platform. We have been preparing the bank for the challenges associated with the transition on ESG dimensions. The planet may not afford the actions to mitigate the effects of climate-related events kept being postponed. Worldwide action is needed. Institutions and companies must also adjust procedures and business models to the growing and more frequent climate-related effects.
As an example, our electricity consumption in Portugal already come exclusively from renewable sources, and we have defined a credit policy that excludes financing to projects that do not comply with the responsible lending principles that we are committed with. Moreover, we define ESG priorities in our strategic plan and have already presented to the ECB our action plan to prepare the bank for swiftly and efficiently manage both the physical and transition risks that come from climate changes. We have a governance model adjusted to deal with ESG priorities and have recently issued our inaugural ESG bonds, having raised EUR 500 million that will be mainly applied to finance micro and the small companies to support their recovery from the pandemic's economic impact. I also highlight that the management team incentives model already includes ESG factors.
That being said, we are well aware that profitability is an imperative for the bank to have a sustainable position. Finally, I conclude reaffirming our trust in the execution skills of the bank teams, as has been shown each quarter, and also our belief that the rejection of the budget by the Portuguese Parliament will not hinder the bank's execution capabilities in 2022. Miguel, the floor is yours.
Good afternoon, ladies and gentlemen. Going down here to page 12, as you've probably already seen, as a group, we show a very healthy top line development focusing on fees and commissions, as you see with the growth of 7.2%, but also a positive evolution of the net interest income in spite of the challenging interest rate environment. The recurring costs have gone down materially 2.7% in spite of all the pressures.
Recurrent core operating profit, i.e., the core income minus the recurring costs, grows 8%. The other income that includes, among others, the trading gains, decreased somewhat as you may see, but still positive, so that the operating net income is aligned with the value of last year. The impairment and other provisions increased vis-a-vis last year, mainly explained by the evolution of the coverage of the legacy assets in Poland, i.e. the Swiss franc mortgage book that has been originated until the end of 2018. This is the main cause of the decrease in the net income.
In terms of the net interest income, I would here like to highlight the very positive evolution in Portugal, how it grows almost 5% with an important contribution of the volumes of credit and of the reduction in the interest rate of deposits. In the international operations, it goes down when compared with last year, but mainly in Poland. When you see the evolution quarter-on-quarter, in the last few quarters it has been positive. There was an important interest rate reduction in the beginning of the year in Poland, as you know. In the meantime, we have compensated most of it, so that basically now we are relatively aligned.
Going forward, we expect this year already to be very much aligned with the NII of last year in Poland. Fees and commissions, a very healthy development, both in Portugal and in the international operations, with the growth of around 7% in Portugal and around 8% outside of Portugal, in market-related fees and commissions, i.e. investments, funds, bancassurance products, and so on. Also a positive evolution of the more transactional fees, and this is linked to the progressive normalization of the economic activity. In terms of other income, as you may see in page 15, there is some reduction in equity earnings. As we explained last year, there was a non-recurrent gain in the insurance income last year.
The trading income positive in international and national activity, as you see, from EUR 47 million to EUR 64 million. What we see here is a stabilization of the regular mandatory contributions in Portugal with even a small decrease and some decrease of the mandatory contributions in Poland. An important effect that we see here in the trading income, I would say, is a positive effect. We have around EUR 32 million on the quarter and EUR 47 million year to date of FX losses linked to negotiations in order to reduce the FX, the Swiss franc portfolio. This is a positive evolution.
We have been able to engage with customers so as to reduce the Swiss franc portfolio, but it is showing here as this cost. I would say that even this line that is showing some decrease has some virtuous factors behind it. Bernardo will go a little bit in detail into this. In terms of the operating costs, with a lot of discipline here. As you see the staff costs, a part of it already linked to the reduction effort that we are doing, reducing EUR 17 million, as you see here in the graph. The other administrative costs stable in spite of these tensions that exist now in some of the value chains, and this is exactly what makes it possible to benefit in terms of cost reduction. The cost of risk.
The cost of risk, I would say adjusted by one-offs. We had commented before that in Q2 we had an exceptional recovery. Adjusted by one-offs, nevertheless, we progressively come to a more normal cost of risk considering our present balance sheet. We are around 70 basis points in the international operations, more or less the same as in Portugal. As you see, in terms of total provisions, there is a strong influence of the loan loss provisions for the Swiss franc mortgages in Poland, as you see here. Sorry. This is a graph that really shows the focus of the bank and the capabilities of the bank in reducing NPEs.
As you see, the NPEs in Portugal around 11 years ago were above EUR 10 billion. Now they are below EUR 2 billion, and the NPE loan ratio is already below 5%. That, as you know, is a focal point or a benchmark in the European industry. I would say the balance sheet and its quality has improved dramatically. When we use the NPE ratio as calculated by the EBA, i.e., with all the exposures, including off-balance sheet exposures and securities, it is already 3.3%. This is a massive evolution in terms of the transformation of the balance sheet of the bank. Sorry. I'm sorry. In terms of activity, very healthy activity.
You see in terms of customer funds on page 20, that they are growing 9% in consolidated terms, of which around 10% in Portugal and around 7% in the international activity. I would like here to highlight the positive evolution of the off-balance sheet funds. We had said in the past that we will focus a lot in off-balance sheet funds. Actually, this is one of the main levers for the evolution of the commissions. We are being able to do so with a lot of levers, helping our relationship managers to do a proper advice to the customers. Making sure that in the app, the user experience is a good user experience for investments, and this is showing and we expect this to continue.
In terms of the loan portfolio, we see that in Portugal, the performing loan portfolio has increased more than EUR 2 billion. In excess of 5%, compared with the performing book. Even after the reduction of NPEs of almost EUR 800 million in Portugal, we are able to show an increase in the portfolio of around EUR 1.4 billion. In the international operation, there is also a very healthy evolution of the activity with an increase of EUR 850 million. Sorry, I'm sorry. As commented by Miguel Maya, there is a positive evolution on the quarter in terms of total capital ratio.
We are re-approaching our 12%, so effectively based on the pro forma, considering the sale of our operation in Switzerland, we are already there. We are already with a 12% fully loaded ratio. Which is a value that is reasonably above the minimum requirement that we have. This is also like that for the total capital ratio, where we are at 15.3 comparing with a requirement of 13.3 as of today. The leverage ratio compares, as always, very favorably with the one of our competitors, which is, I would say, a comfort when we consider the possible future evolutions of floors in terms of RWAs methodologies for new methods.
We do have models that are quite conservative in terms of RWA density. Liquidity, it's a non-issue in the sense that we have, if anything, excess liquidity. We do not need cash and we do not need liquidity for our business model. We are trying to evolve our balance sheet so as to increase the size of our off-balance sheet customers investments, and to increase the credit portfolio. We have. This is evolving in the right manner, but notwithstanding that, we do maintain a wide cushion of liquidity. I'll pass now the floor here to Bernardo.
Good afternoon, ladies and gentlemen. On page 27, starting with the Portuguese operation, net income increased 25% year-on-year to a level of EUR 150 million. However, the strong operational trends, net income was impacted by the head count adjustment costs of around EUR 87 million booked in the second quarter of 2021. Net operating revenues increased 7% and recurring costs went down 1.4%, demonstrating the strong operational trends in a very challenged and demanding environment. On page 28, NII in Portugal, as you can see at the end of the 9 months of 2021, it stood at EUR 690 million, meaning almost 5% up compared with the previous year or EUR 28 million above the previous year.
There were some favorable impacts of the expansion of the credit portfolio, supported on loans to companies and mortgage loans, as well as the positive impact coming from the wholesale funding, which includes the TLTRO, and the repricing of deposits that were more than enough to compensate the negative effects of EUR 61 million arising from lower price on credit. That has been influenced by lower interest rates, lower yields on securities, the NPE reduction, and the excess of liquidity. On page 29, regarding spreads on term deposits. Back book spreads to Euribor minus 57 basis points, the same level of the first half 2021, and almost aligned with the three-month Euribor, as you can see, that stood at minus 54 basis points.
Customer rates on deposits went down 9 basis points from 11 basis points in September 2020 to 2 basis points in September 2021. Spreads on loan book were compressed year-on-year and can be explained by the guaranteed credit lines provided by the Portuguese government. Although spreads were stable quarter-on-quarter. Means stood at 145, 10 basis points lower than September 2020 due to several effects. As I mentioned before, liquidity, the lower interest from the ALCO portfolio, and the reduction of the average credit rate related once again, as I comment, with the guaranteed lines. Moving to page 30, that presents the evolution of fees and commissions and also other income.
You can see that banking fees increased 12.7% due to the withdrawal of measures relative to the lockdown that was in place in Portugal in the beginning of 2021. The most significant impact came from cards and transfers that grew almost 10%, showing the increase on transactional activity and from customer accounts related fees with an increase of 7% explained by the performance on customer acquisition and pricing optimization. Market related fees registered a strong increase year-on-year of almost 13% as a result of the performance on asset management, where we have seen a significant move to mutual funds over the last quarters. All in all, fees and commissions went up 6.8% to a level of around EUR 377 million.
Looking to other sources of income, in the first nine months of 2021, there was a positive evolution of EUR 70 million on the net trading income from last year, arising from positive impacts related with securities and lower negative impacts from loan sales. On equity accounted earnings, there was a stabilization of the contribution from this line in the first quarter 2021, and the reduction from last year is related, as mentioned by Leo, Mr. Miguel Bragança, with the one-off relative with insurance company. On other operating income, contribution is better than one year ago due to higher results from real estate sales, even taking into consideration that mandatory contributions increased EUR 7 million year on year. Going to page 31, regarding costs. There was a reduction of 1.4% in terms of recurring costs.
Total operating costs increased year-on-year, and as explained before, it was due to the impact of EUR 87 million related with the account adjustment. In terms of employees, there was a reduction of almost 650 employees year-on-year and as regards to branches, there was a reduction of 42 branches out of which 11 were closed in the third quarter 2021. Moving to page 32, which refers to asset quality. Even under a challenging environment, BCP was able to reduce almost EUR 800 million year-on-year of NPEs, meaning a 28% reduction. NPEs stood below EUR 2 billion at the end of September, and year to date, there was a reduction of EUR 433 million.
Cost of risk stood at 68 basis points, but if adjusted by one-offs stood at 79 basis points, which is, as you know, performing according to our estimates. It's better, even better or slightly better than the initial estimates that we present when the pandemic came. Let's move to page 33, which looks at the NPE coverage breakdown. As you can see, total coverage stood at 130% above 118 registered in September 2020 and of 126 in June 2021. With a reinforcement of NPEs coverage by loan loss reserves to 69% from 61% one year ago.
Total coverage for individuals with high levels of real estate collateral stood at 96% and for companies at 142% from 136% when in June 2021. Coverage by real estate collaterals on companies at 46%, 10 percentage points more than one year ago, and by loan loss reserves, 9 percentage points more from the 71% one year ago. On page 34, that shows the evolution of foreclosed assets and restructuring funds. There was a reduction year-on-year of 33% and 7% respectively. In terms of property sales, there was a slight slowdown in the first nine months of 2021 compared with the first nine months of 2020 due to the restrictions in place in the first half of 2021 in Portugal.
Number of properties sold decreased 9%, but value of sales went up 5%, compared with last year. Once again, it's important to highlight that sales values were above book value, and it has been happening over the last quarters. Now moving to page 35. Total customers funds grew almost 10% to EUR 64.5 billion. The growth was more than EUR 5.7 billion and was supported by some increase in demand deposits, but also from the strong increase in off-balance sheet funds, explained by, as I mentioned before, by the high level of subscription of mutual funds. In terms of gross loans, there was an increase of 3.7%, supported by an increase of 4% in companies and by 5% in mortgage loans.
It is also important to highlight that performing loans went up 6.2% year-on-year, more than EUR 2.2 billion, and the NPEs were reduced by more than EUR 770 million or 28%. Going to page 36, which is where it is possible to see our strong support to companies and their recognition of BCP as the main bank. The growth of the performing portfolio of 2.2 billion mentioned before was strongly supported by companies, where this segment was responsible for 56% of the total performing loan growth. Let me also highlight the reinforcement of the agreement with European Investment Fund, signed last week of EUR 1.7 billion that will support small and medium-sized companies affected by the pandemic.
Going to page 37, to what regards to moratoriums, you can see on the left-hand side, that we have been monitoring moratoriums since the inception. To what regards to moratoriums that expired in September, which were the bulk of the moratoriums, and others that will expire until the end of the year, more than 90% are performing and almost slightly below 10% is already marked at Stage 3. It is included, of course, on the NP level, that is now below EUR 2 billion. It means that, there's no signs of major concerns, although it's still an issue that we are working close to our customers, providing them solutions if needed.
From the experience that we have of the expired moratoriums between March and June this year, you can see the breakdown on the right side, where the breakdown by stages is aligned with the pre-expiration levels and better than the moratoriums that were expiring in September and until the end of the year. Moving to page 39 regarding international operations, you can see that there was a significant reduction of the contribution from international operations to the consolidated net income. The strong decrease is explained by the Polish operation that booked significant provisions during the first nine months of 2021 for potential litigation risk. Bank Millennium had a loss of EUR 182 million, and Mozambique contribution was slightly better than the previous year to EUR 61 million.
Combining contributions from international operations in the first 9 months, it represents the loss of PLN 55 million that compares with a positive contribution of PLN 54 million in the first 9 months of 2020. Moving to page 40, net income in Poland was impacted by the CHF provisions that amounted to PLN 313 million, and costs associated to the conversions or early redemptions of CHF loans with an impact of PLN 47 million. Excluding those factors and due to the excellent operational performance, net income from Bank Millennium should have stood at PLN 177 million, meaning 52% above last year. Even considering the substantial decrease of the three-month WIBOR over this period. Looking at the operational trends, you can understand how strong the franchise is.
Even with a strong interest rate decrease, net operating revenues were almost flat year-on-year. It's important to mention the strong performance of new mortgage loan production and consumer loan production that in the third quarter 2021 reached levels prior to COVID-19. Operating costs went down 9.5% due to the optimization process that was in place last year and by the continued implementation of additional measures. Common Equity Tier 1 ratio stood at 15.1% and total capital ratio at 18.2% and well above the requirements. On page 41, some detailed information about Bank Millennium. NII has been recovering and is almost flattish compared with 2020.
Meaning that, 260 basis points an improvement quarter after quarter, even though at a lower level than one year ago. Fees and commissions increasing at double digits to EUR 136 million, and other income decreased 53% explained by the lower trading results from related with the out-of-court settlements with CHF borrowers. Operating costs with a decrease of almost 10% after the strong efforts taking place in 2020. Moving to page 42, related with asset quality in Poland, NPL ratio decreased 30 basis points, and cost of risk continues the downward trend registered since the second quarter of 2020. It stood at the end of September at a level of 36 basis points and aligned with the previous quarter.
It is important to remind that the first nine months of 2020, the cost of risk was at 92 basis points due to the COVID provisions. The coverage ratio by loan loss reserves at 128, meaning an increase of 12 percentage points from last year and similar to the previous quarter. On page 43, you can see how strong the franchise is, where customer funds increased 6% year-over-year. The major recovery was related with the off-balance sheet funds, as the trend of subscription of mutual funds is evolving at a strong pace. In terms of loans to customers, the gross book stood at EUR 17.3 billion, more 6.4%, and it is important to highlight the increase of zloty mortgage loans of 28% and of 5% on consumer loans.
Bank Millennium reached year to date a market share of new mortgage loan sales of more than 12% and of more than 10% on new cash loan sales. On page 44, regarding the FX mortgage portfolio, it now represents less than than 13% of total loan portfolio. As you can see, the reduction of the CHF portfolio has been accelerated. Bank Millennium, due to the increase of court claims and decisions more favorable to customers, made additional provisions of more than PLN 313 million in the first nine months of 2021, increasing the coverage of the outstanding amount to 20%. Cumulative provisions for legal risks on FX mortgage portfolio stood above PLN 505 million.
It is also important to mention, as you can see on the bottom right side chart, that Bank Millennium has been entering into extra-judicial agreements with CHF borrowers over last quarters, and those amicable agreements had a cost of EUR 47 million in the first nine months of 2021. On the second and third quarter of 2021, the number of extra-judicial agreements were above the new individual lawsuits. Turning to page 45, which regards to Mozambique now. Net income increased 3.4% to EUR 61 million. Net operating revenues increased 5.5%, and operating costs 3.7% higher than last year. Capital ratio at 48.7%. Moving to page 46, NII went up year-on-year 4%.
NIM decreased due to the normalization of interest rates in Mozambique that are now on an upward trend. Commissions and other income increased 10%, while cost of risk, cost to income was stable year on year at 43%. Moving to page 47, non-performing loans, 9 days past due ratio decreased almost 10 percentage points, due to a specific operation mentioned on the previous quarter, and the cost of risk stood at 141 basis points, and coverage by loan loss reserves at 76%, which is 5 percentage points higher than last year. Regarding volumes, on page 48, you can see that customer funds grew 7.5%, and loans to customers decreased almost 15%, reflecting our conservative approach under the challenging environment of the country.
Let me thank you very much for your attention. Before we move to Q&A, I will return to Mr. Miguel Bragança for some final remarks.
As you know, when we presented our strategic plan, we have committed to presenting to you exactly how we're evolving vis-à-vis the different ratios. Here is our commitment. At September 2021, we are evolving well in the cost to income ratio and in the cost of risk. Unfortunately, this is not translating yet in our target evolution, due basically to the influences of the Swiss franc mortgage book. In terms of capital ratio, we are on track, I would say. We want to be above 12.5%. There were some one-offs in June, as we had commented, namely the provision for the restructuring and the evolution of the available-for-sale reserve.
We maintain a lot of confidence in achieving this target. In terms of NP ratio, we are clearly on track. In terms of the quality of the franchise and our positioning in terms of ESG, we think we are also clearly on track. I would say, some months after the presentation of the strategic plan, we do think that we will deliver on it. Everything is pointing to achieving these ambitious targets by 2024. Thank you very much. We now open the floor to questions.
Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your phone and wait for your name to be announced. If you wish to cancel your request, please press the pound or the hash key. Once again, it's star one if you have any questions or comment, and it's the pound or the hash key to cancel. We have the first questions coming from the line of Ignacio Ulargui from Exane BNP Paribas. Please ask your question.
Good afternoon, gentlemen, and thanks for the presentation and taking my questions. I have two questions and one small follow-up, if I may. The first one on NII, if you could give us a bit of guidance on call on how do you expect NII to perform in the coming quarters, particularly thinking on the impact from TLTRO from June 2022 onwards. How do you expect that to offset that impact? The second thing is on credit quality, and given the positive trends that we have seen in the quarter, how do you see the cost of risk evolving in the coming quarters? Also how the, I mean, Bernardo has explained it in the call, but how do you think this is gonna interplay with the moratoria that has expired in end of September?
Just one nitty-gritty question on the cost side. When we should start to see the benefits from the restructuring charges that you took in in 2Q? It will be Q4 or it will be more into 2022? Thank you.
In terms of starting with the last question, Ignacio, in terms of the restructuring targets and charges, what we would say is that the total benefit from it will be above EUR 30 million, as we had commented at the time. A part of it is already flowing in the costs because the people are not going all at the same time. I would say in the first quarter of next year compared with the first quarter of this year, we will see the full impact.
Not everybody goes out at the same time, but we will get the run rate of the first quarter of next year compared with the run rate of the first quarter of this year. We will show the impact of the reduction of the headcount. In terms of the credit quality and the moratoria and how everything interplays. I mean, since the beginning, we have been saying that this is a new situation for all of us. All in all, we thought that our portfolio is structurally healthy, so to say, and that the companies that are adhering to the moratoria, most of them are companies with healthy business model and with a healthy long-term performance, and that can support more debts.
Also, the fact that we had a furlough scheme in Portugal meant that many of these companies did not have a negative or a strongly negative cash outflow during the period, which meant that the level of debt did not increase that much. If the companies go back to the same level of EBITDA that they had before, and if there is not an increase, a material increase in the size of the debt, I think we should be comfortable with it. This effectively is happening. It is, we have seen now with the moratoria that ended in March that were the riskiest moratoria because these were mostly consumer loans. They are performing well, as Bernardo has shown.
In terms of the other moratoria, mainly mortgages and credit to companies, what we are seeing in terms of early signs now in October is that the day past due, the first impact day past due, I mean, is not materially different from the clients that are not under moratoria. As of today, we have absolutely no indication that we should be particularly stressed about moratoria, based on even early warning indicators like customers that are one day past due or two days past due. The difference is not material. In terms of the evolution of the cost of risk, we have a business model that is structurally across the cycle, consistent with the cost of risk of around 50 basis points.
That's where we want to get at 2024. As you know, right now we are around 69 basis points, 70 basis points, excluding the one-off reversals. We expect next year, of course, to be below these 70 basis points that we have right now and with some convergence, I would say, towards the 50 basis points. Exactly the pace of the convergence between 2022 and 2023, it's a little bit early to say exactly the speed at which it would converge. It's early to say, but I mean, we are deeply convinced that we will converge in 2022 and 2023 to the 50 basis points in 2024. In terms of NII, I mean, there are several factors affecting the NII and the revenues.
The first point that I would like you to make is that in this scenario in which we are, we really think that the main factor behind the growth in revenues will be more fees and commissions than NII. That's why we are focusing so much in bancassurance, in asset management. Of course, as the activity normalizes, also the transactional fees and the credit card fees, they will also improve. We think that the key driver for the top line will be more fees and commissions than NII. Having said that, we do not expect particularly, I would say, bad news in terms of the NII. We expect some growth in the NII in spite of the TLTRO for a couple of reasons.
One is that, I mean, we have had in the last quarters some headwind in terms of NII, as we have commented already, because of the NPE reduction. As we approach our levels of NPEs, this headwind will come down. Second, as we are also seeing, I mean, the production and volume increase in credit is gaining traction. Thirdly, the situation of excess liquidity that was there in the last quarters will over time, we expect, somehow be reduced. This of course will at least, we expect so, decelerate the reduction of spreads. We will keep basically the positive effect of the volume growth in terms of credit without many of the headwinds that we have had in the past.
Of course, it will not be something spectacular, but we think it is enough to compensate for the TLTRO so that our view for the NII going forward is a low single digit increase, but an increase in spite of the TLTRO. I think I've answered all your questions. Okay.
Thank you very much.
We have the next questions coming from the line of Sofie Peterzens JP Morgan. Please ask your question.
Hi, this is Sofie from JP Morgan. Thanks a lot for taking my questions. My first question would be around the Swiss franc mortgage provisions. You have taken CHF 505 million already, which is around 23% of your portfolio. How should we think about the kind of potential provisions going forward? If you could just share with us your thoughts here, how do you think about potential provisions? On my second question would be on capital. You have the 20 basis points coming from the pending sale. Are there any tailwinds or headwinds in terms of Common Equity Tier 1 that we should be expecting over the next year or so?
Any regulatory impacts, any model approvals, anything that we should take into account in addition to the 20 basis points from the sale? That's it from my side. Thank you.
Sofie , we have lost you after your question about the Swiss franc provision. You were asking a second question. I'm sorry, on capital, but could you pose the question again, please?
Yeah. On capital, my question was just that in addition to the 20 basis points that you're going to get from the sale, are there any other kind of tailwinds or headwinds we should be aware of? Any regulatory headwinds, or any model approvals, or anything we should be aware of in terms of your core equity Tier 1?
Okay. Starting with the second question. From now until year end, we are not expecting any special headwinds, or by the way, tailwinds also, in terms of capital. We'll have the normal activity of the bank. The normal activity of the bank that you know that typically has an evolution of around, between, depending on the quarter, 10-20 basis points of capital per quarter. And that's what we would expect. Of course, a part of it depends also on the evolution of the Federal Reserve and so on. Sometimes it is in one direction, sometimes in the other. Over, I would say, over the quarters, we would expect it to be this type of evolution. Short answer is no special tailwind and no special headwind.
A contribution from the normal activity of the bank, as you would expect. In terms of the CHF provision, how to look at it? I mean, the situation in Poland is complex, and we have this issue with the Swiss franc portfolio. That is a legacy issue. It is a closed issue. The bank in Poland has communicated to the market some time ago that the assumption of the whole impact of the KNF proposal would mean a gross amount at the time between PLN 4.1 billion and PLN 5.1 billion. That's what the bank has communicated to the market.
We, I mean, the judiciary system is not, I would say, deciding at the pace at which we would all like and expect. What is happening is at the level of the Supreme Court, consistently, the key decisions are being postponed and some very important decisions are being asked even to the European Court of Justice and so on. How do we look at it? We think that in this period of high uncertainty, we have a methodology, and this methodology, we have to apply this methodology to the cases, and this methodology has some conservative elements also, because, for instance, the way it treats the remuneration and so on is conservative.
As more cases come to court and as more negative decisions affect the banks, the pure impact of the methodology is a high level of provisions. What I would expect is until there is some clarity on this issue, and I would not expect a lot of clarity in the next 2 or 3 quarters, I would expect this magnitude of provisions coming from Poland. That's what I would expect. In any case, what I would like here to highlight is that our Polish subsidiary is listed. It has a 50% free float. There are a lot of proficient investors that invest directly in our subsidiary.
In spite of this result, they look through the result, they look through the net income, they see that it's a closed issue, they value the bank with this issue, and the bank is trading in Poland above book value. I would also, I mean, as you know, banks without Swiss franc issue are trading significantly above book value, so that the Swiss franc issue, of course, is hurting the valuation of the bank, as you would expect to, but still the bank is trading above book value in Poland. Okay? Reflecting this risk.
Thank you. That's very clear.
We have the next questions coming from the line of Noemi Peruch from Mediobanca. Please ask your question.
Good afternoon. I have a couple of questions from my side, if I may. The first one is on moratoria. Can you share with us the amount of corporate moratoria expire at the end of September that asked for a further loan restructuring? My second question is on capital, in particular, the pension fund. Long-term yields are increasing sizably in H2. Do you see the possibility of crystallizing the gain in common equity in Q4 unlike in Q2? On RWAs. We see that in the quarter, the reduction of RWAs played an important role to increase common equity. My question is, how will you manage RWA vis-a-vis loan growth in the coming quarters?
We see Poland pulling the brakes already on volumes to protect capital ratios. My last two questions are on the provisions. Other provision in Portugal were quite high in Q3, but also in Q2. Did you start provisioning for the reassessment of the corporate restructuring funds? And if so, how much did you set aside? Last question is in Poland. Why didn't you use the provision you already taken for FX mortgages to offset the cost of negotiations? Thank you very much.
Starting with the last question, of course, the provision is also in Poland for FX is always a decision that has to be taken together with the auditors so that everybody is comfortable and so on. But typically, the negotiations in most of the cases are not in the context of court cases. We negotiate with customers to a large extent that have a high probability of going towards court, but they are not in court cases. While the provision that we are doing is for future court cases. As you know, I mean, Poland has disclosed to the market an impact only of the kind of solution that is one possibility of around PLN 5 billion.
I mean, we are still, even if you look at the total cumulative return, we are still below this level. In terms of the other provisions and what we set aside for other provisions and so on, I mean, the other provisions are for other risks in generic terms. A part of it may be linked to the restructuring fund.
As you know, this is a situation where no decision has been taken yet and where, I mean, I don't think it would be in the interest of the institution or of its shareholders to say exactly what we would have provided for the restructuring fund, because we are exactly in the midst of a negotiation. It would not be in the interest of the institution. We are not disclosing this. What we can tell you is that we would not expect any, should we decide to sell, we would not expect any important impact in terms of the P&L of the bank this year. Okay. That's what I can tell. In terms of the loan growth, we are managing the RWAs in a very intense way.
As you probably have seen, we have had high market share in government guaranteed lines. We also have EIB lines. All our strategy and all the incentive structure, all even of the commercial network and so on, is based on economic capital. If you want, I mean, the business areas have a much higher, I would say, economic result and compensation and bonus if they consume less capital. If you see one of the reasons why we are having also less spread in the corporate portfolio is exactly because we are using a lot of these government guaranteed lines, EIB lines, and so on. We expect to be able to grow this portfolio at a lower risk density than the average that we have right now, so as to achieve our impacts.
In terms of crystallizing the gain of the pension fund, in order to crystallize the gain, the gain is there first. In order to crystallize the gain, in terms of the pension fund, we have to take the money out of the pension fund. Okay. This is a bureaucratic. It is possible when you have for some time excess of portfolio over the liabilities, and we have it. It is possible. But we have not decided to take any of those decisions. We do not think it is necessary to achieve our targets. We are in a period of some volatility. We are not. We know that we can do it.
We know that the reserve is there, but we are not necessarily envisaging to do it right now because we do not feel pressured towards it. If at certain point in time we think it's in our interest, we will do it. The money is there. It's not because we take the money out that the money disappears. It has a bureaucratic process behind it. We know we can do it. In principle, we do not need to go to this resource right now. We feel comfortable that we can attain our objectives even without it. In terms of the moratoria, we do not have the value here with us.
The total portfolio that we have of corporate moratoria expiring is around EUR 3 billion. There have been no, I mean, no signs of worries since they expired. This, I can tell you. I don't have it here with me exactly the separation between Stage 1, Stage 2, and Stage 3 of the corporate clients, but it should be similar to the one that we have presented for our total portfolio. In any case, we can then share this with you later. It, I don't think it's very sensitive. The message that we give is that up until now, even in terms of leading indicators, we are not seeing anything that points to a red light.
Thank you.
We have the next questions coming from the line of Adrian Cighi from Credit Suisse. Please ask your question.
Hi there. Adrian Cighi from Credit Suisse. Thank you for taking my questions.
I have a few. One on capital and a few on net interest income. On capital, at 12% pro forma, the CET1 is now approaching the 2024 target of 12.5%. On the total capital, can you give us more visibility on your plans for issuing and filling up your Tier 2 and AT1 buckets over the next few years, and how you expect this to impact your earnings outlook and ROE targets, if at all? The second question on NII, it's a two-part question. You're clearly making very good progress on lowering your NPE ratio. Can you help us think through how this continued deleveraging impacts your net interest income outlook? And in terms of loan volume outlook in Portugal, how do you think the excess liquidity in the system is impacting corporate loan demand in the near term? Thank you very much.
Thank you very much for your questions. I mean, over time, yeah, of course, it is in our objectives to fill the buckets of Tier 1, of Additional Tier 1 and of Tier 2. We do not say in advance exactly when we will issue and how much we'll issue because we do not think it is necessarily in the shareholders' interest. What we can tell you is that this is always a balancing act with not leaving everything to the last day, so to say, but also not penalizing the shareholders through P&L when we think that the spreads are too high.
We do think that in terms of AT1 and Tier 2, the spreads are still very high, the market spreads, vis-à-vis our specific situation. Of course, we have to be realistic and not leave everything to the last day. We will not accelerate a lot the issues of additional Tier 1 and Tier 2. When we think that it's reasonable, we will issue and probably because of the situation which we are that penalizes even more the AT1 than the Tier 2, we would start by issuing the Tier 2 before issuing additional Tier 1. Of course, in our plan and in the data that we have disclosed to you, we have our own assumptions.
The ROE of 10% that we have there already reflects the issuance. I would also like to highlight that in our books, we have already issued that are at high spreads. We would expect that the amounts that we will issue will be larger than the stock that we have. By the end of 2024, the total of Tier 2, so to say, will be higher than the total of Tier 2 that we have right now, of course. The total cost may not be necessarily higher because we would expect the spreads to compress. This may not work out in any specific quarter. There may be some overlaps between the issues.
Overall, the total cost with additional Tier 1 and Tier 2 in 2024, we would expect it to be comparable to the total cost of additional Tier 1 and Tier 2 in 2020, for instance. Okay. Just to give you an idea. We would expect the spreads to compensate the additional amount. In terms of NII and I mean, a lot of the loans or the NPEs that we have been reducing are loans that are unlikely to pay and not necessarily in default.
Of course, we are still recognizing some NII, so that when we reduce them, and typically these are higher NII loans, when we reduce them, of course, this has an impact in terms of NII as Bernardo has explained in the presentation. For instance, in the presentation that Bernardo has shown in page of the evolution of the NII, there is one of the bars that clearly says what is the impact of the reduction of NII when you compare with last year. You see here that this reduction of NII, impact of NP reduction, was responsible for around EUR 14 million of reduction of the net interest income.
This type of headwind is something that we will progressively have less impacting our P&L. I mean, in terms of excess liquidity, I mean, as you know, right now, there has been some political turmoil in Portugal, and it's difficult to say exactly which type of investments will be maintained or not in this type of situation. We personally think that because the intrinsic situation is positive, that many of the planned investments we will continue. We do think that there are enough projects in Portugal to cope with the liquidity that there is in the market.
We are already seeing that some of the margin compression that happened last year for the same type of risks is already fading. We are seeing some companies asking for projects, asking for investments, mainly as a secondary effect of the European large envelope that will have, I would say, a multiplicative effect in several investments. We would expect the loan growth to continue at these low single digit numbers, I would say, but without so much margin compression at corporate level.
Thank you very much. Very clear.
We have the next questions coming from the line of Carlos Peixoto from CaixaBank. Please ask your question.
Yes, hello? Hello. Okay, thank you. Good afternoon, everyone. A couple of questions from my side. One on other provisions. I was wondering what should we think about or how should we look at other provisions in Portugal, particularly in the first quarter and the last couple of quarters, particularly this one, in the previous one? Were provisions and other provisions particularly higher than usual, I would say. I was wondering how should we think about it in the coming quarters. Also, another question on fees outlook. This information that you expected to be one of the main drivers for revenue growth in coming times.
I was wondering what type of growth are you expecting on fees, to influence the following phases too?
Carlos, I'm sorry, we are not able to understand what you are saying. The first question we understood about the provisions, but the second question, if you can probably
It was the outlook on fees f or 2022, what type of growth you expect to see there? Then, a follow-up on the MREL targets that you discussed before. I was wondering if what's the actual goal in terms of issuance, and not timing, but amounts to be issued? When do you expect to see an official target in terms of MREL being set? If I'm not mistaken, it hasn't been announced yet.
Okay. Thank you very much, Carlos. Starting with the last point, as you may know, Poland took some time to transpose the MREL directive. We have not been officially informed of the MREL target. We expect this all to occur, I would say, over the next weeks. Once we are officially informed, we will inform the market. Till then, I mean, we cannot do it. It would not be correct to do it. In the next, I would say two, three weeks, that's our expectation. We'll receive a letter with the official MREL target, and we'll communicate it to the market.
What I would say is that, I mean, based on all the interaction that we've had until now at BCP level, we are not expecting, I mean, these MREL targets to be particularly difficult to achieve. We think it's totally aligned with our funding plans and with the objectives that we have presented here in the strategic plan. No news, it is aligned with what we need and it's already incorporated in our plans, and we will communicate it to the market briefly. In terms of fees, I mean, we will have here several levers for the fees, but the two most important ones will be the recovery of the economy with the increase in transactional fees that will come with it, I would say.
For instance, the credit card fees are very sensitive to international travel because the fees that you make in local credit card transactions are totally different from the fees that you make in international credit card transactions, just to give you an example. We expect international travel to start to pick up, so to say, next year. Also, in terms of investments and bank insurance, because we have changed our model. This takes some time, I mean, to train the sales force to be able to sell funds, as you know, because it's your business. To sell bank insurance products, to sell traditional insurance products. I mean, all of this, I mean, has some time associated to it.
We are being very successful there, and it's picking up. What we are expecting for next year, for fees, is a level around mid-single digits. That's the level that we are expecting for next year.
Other provisions, Miguel.
The other provisions, I'm sorry. We would expect a part of these other provisions have to do with off-balance sheet exposures and with other contingencies. The part that they have to do with other contingencies are particularly hard to predict, by definition. I would model them going forward at least in line with the reduction of the cost of risk.
Does that answer your question, Carlos?
Yes. Yes. Thank you.
We have the next question coming from the line of Borja Ramirez Segura from Citi. Please ask your question.
Hi. Good afternoon, everyone. Thank you for taking the question. A couple from my side, please. First of all, I did notice that the Portuguese sovereign bond holdings were down quite a bit quarter-on-quarter. So I'm just thinking, strategically, you know, what's your view on the portfolio? Do you think you can rebuild or expand the size of that again going forward? Or is it a case that, you know, you don't see the current yield levels as attractive to rebuild that portfolio? And then, well, I guess two quick factual questions. First, can you just remind us of the interest rate sensitivity of net interest income in Portugal, if possible, please?
Secondly, if you have the number to hand, what was the level of loans that were classified as Stage 2 at the group level as of 3Q, please? Thank you.
Okay. In terms of the sovereign bond portfolio and of the NIM sensitivity, as we have commented here several times, we typically have a general NIM sensitivity of around, I would say, between EUR 70 million and EUR 100 million for each 100 basis points of increase in interest rates or in parallel increase in interest rates. Being that it is more sensitive, of course, to the short-term interest rates, to the Euribor, namely the six-month Euribor, than to longer-term interest rates. In a parallel movement, the type of impact that we have is this one. The second, by the way, it was not our question, but it is already public information, it has been disclosed.
In Poland, for 100 basis points of increase, and I will recall that the interest rate in Poland went up 40 basis points, the impact on NII is around 11%. It is also, you know, we are exposed, but not too much, to the interest rate movements. In Poland, they are already happening, so to say, which I think is interesting. In terms of. The Stage 2
At group level, we are having now, in June, 12% of Stage 2 at group level, 83% of Stage 1, and 5% of Stage 3. It's considering the COVID situation and so on, it has been relatively stable as you've seen, also in Portugal. In terms of Portuguese government debt, I mean, it is always a balancing act, so we are structurally confident that with evolution that happened in Europe and with more countries taking on more public debt on one hand, and on the other hand, with this evolution, with these steps toward a more European solidarity, there should be more convergence between the yields of the several European countries.
This is clearly a long-term view that we have there. Having said that, in terms of our own portfolio, we typically manage it's a part of our job, we manage it in spite of being structurally positive, so to say, in terms of the issue, we manage it dynamically within limits. Where when you think, of course, that the spreads may go up, we typically shorten the maturity and shorten the volumes. When we think that the spreads may go down, we do the reverse within very strict limits of balance sheet coverage. These are not trading positions. These are positions to hedge, so to say, the structural risk of the bank.
As you may imagine right now, I would not go into details on, I mean, on exactly what we are doing with the portfolio, but we have some flexibility within limits. We do not look at it as a trading portfolio. We look at it as a hedge of the current accounts and of the term deposits. The reductions typically, and the higher reductions typically occur more on Treasury bills. They have more to do with short-term liquidity than with longer-term portfolio.
Thank you.
We have the next questions coming from the line of Maksym Mishyn from JB Capital Markets. Please ask your question.
Hi, good afternoon. Thanks for the presentation and taking my question. I have one small follow-up on Ignacio's question on TLTRO III. Could you just remind us what's the contribution you currently have to your NII? And then the second one is on corporate restructuring funds.
I think this line just got disconnected during the questions. We have the next questions coming from the line of Alvaro Serrano from Morgan Stanley. Please ask your question.
Thank you very much for taking my question. The presentation and all the reports are very good and very useful. It's a follow-up question regarding your capital stack. As you said, you can print a larger Tier 2 bond and have the same cost, and the coupon will be lower. This is the same for your AT1 bucket. You have an AT1 call at the beginning of 2024, and I just want to make sure that you will follow the same approach if it is the case in 2023. Thank you very much.
I mean, what I'm one thing is to follow an approach and to decide. The other thing is an expectation. What I said is that our expectation is that as the bank improves its financial position and improves its situation in the market, and as the market recognizes the huge improvement of our credit risk, that our spreads reduce. This reduction of spreads will compensate boldly, so to say, the amount of debt we will need to issue, the excess amount we need to issue. This is our expectation, so to say. Another thing is to say that we are taking a decision to issue at a spread so as to compensate exactly the amount that we have. Of course, this is not what we will do.
I mean, we will, when we need to issue, we will issue on market conditions because else the issues will not be executed. Our expectation is the one I referred. The reality is what will happen, and I hope, really hope that the investor base will recognize the huge improvements that our business model has. I mean, we come from more than EUR 13 billion of NPEs in Portugal, and we are with less than EUR 2 billion. This should have a reflection in our credit spread. What we are thinking. I mean, of course, when we issue, we have to issue at market conditions, and we will try to issue in so as to not to harm our shareholders.
We will try to avoid excessive penalizing market conditions. That's what I'm trying to say.
Yes. I mean, very clear and makes total sense. Yes, this is based on the fact that you have improved your position and you should issue at a lower spread than three, four, five years ago.
I agree with you, right? A lot. I think we have to compensate. I count on you and now without joke, I count on you and your analyst community and so on, to help us explain to the market the situation and the improving situation which the bank is. If the market really sees through what is happening, I think this will be possible.
Perfect. Okay. Very clear. Thank you very much.
We have the next question coming from the line of Maksym Mishyn from JB Capital Markets. Please ask your question.
Yeah. Hi, apologies for the technical issues. I'm not sure which part you lost me, but I had two questions. The one was on TLTRO and how much it contributes to your NII.
I think just, I mean, our friend from JB is having a connection problem. But I would suggest to end this call, and then of course, we will be able to answer any of your questions as usual, either through me or through Bernardo. Okay? May I finalize?
Okay. I just would like here to highlight the strength of our business model, the evolution of our core income, the evolution of the NPEs that for the first time in many years is below 5%, and this together with a reduction in the cost of risk. This was not done at the expense of excessive write-offs. The evolution also of the intrinsic franchise and of the core earnings in Poland that make it possible to have Poland listed in the market at a price above book value, even considering the Swiss franc risk. Thank you very much, and we are here at your disposal for any further questions. Thank you. Bye-bye.