Good afternoon. This is Miguel Maya speaking. Welcome to BCP's earnings conference call. As you know, the pandemic rebounded strongly on the global economic activity along with 2020. Portuguese economy was obviously not an exception. The growth trend of previous years was suddenly inflected by a significant contraction of the economic activity. Albeit the large magnitude of the contraction in 2020, this time we are not facing a structural crisis. The demand did not vanish, but is pent up, as we saw on the third quarter, where there was a heavy take-up of the economic activity once the lockdown measures were loosened. The unprecedented dimension of public support schemes implemented by the government and the European authorities has been critical to mitigate the social impact of the crisis. The unemployment is still controlled, although almost all sectors were somehow affected, and some even completely frozen.
It is crucial to preserve the country's potential, supporting households and viable companies through the downturn, safeguarding their capabilities so that the economy could be able to benefit from the steep recovery that will come when the pandemic crisis is resolved. Each country must configure these support measures as to avoid the creation of imbalance in the public accounts that ultimately would lead to the degradation of the country's risk profile. Solutions confirmed as feasible in some countries are not suitable for all. In Portugal, for obvious reasons, we have to be very prudent dealing with the impacts in the public debt. Against a very challenging and unexpected backdrop, BCP was agile in adjusting priorities and business procedures, swiftly entering in a defensive mode early in the first quarter, clearly focused on protecting the balance sheet without compromising the quality of the service we provide to the customers.
In 2020, BCP stand out in the support provided to the economy. Building up on the quality of our franchise and the deep knowledge we have of corporate and SMEs, we almost doubled the bank's market share on the supports to companies through loan facilities backed by public guarantees, quickly providing EUR 2.3 billion in loans to companies. BCP was also very efficient in the legislative and non-legislative moratoria, swiftly implementing more than 102,000 moratoria to households. The higher proportion of moratoria in Portugal have been under the spotlight, being interpreted as a proxy for a credit risk default in the near future. We disagree with the oversimplification of such assumption. I'm not saying that we are not facing relevant challenge in terms of credit risk. Of course we are. I'm just saying that moratorias are not the problem, but they have been part of the solution.
Moratoria should be seen as a free option for clients in Portugal. They don't have to fulfill any strict criteria to access moratoria, which was a solution that did not have any cost for them. It is normal that a prudent client facing a big uncertainty like an unprecedented pandemic, requests moratoria for protection in order to spare cash and avoid additional debt. moratoria in Portugal were a substitute of intensive usage of other reimbursable support measures as loans with state guarantee, which also put additional stress on companies. Independently of the measures used to support the companies throughout the crisis, the key issue is to assess which companies will thrive, because they have viable business models, and which will not, and act accordingly, reinforcing impairments. That is how from the outset we prepared the organizations to deal with loans under moratoria.
We adjusted our credit risk management systems to detect and react to early signs of degradation on the risk profile of the customers, which is accurately reflected in our impairment model. Furthermore, we defined priorities and designed processes to preemptively engage with customers that show signs of financial distress, having predefined solutions and strategies to manage those situations. The resilience of our business model was tested during the stricter lockdown periods while we have assured business continuity and managed to keep the branches network fully operational. That's why companies and households recognize the quality of our solutions. BCP was selected by the companies as their main bank, and individual consumers chosen once again BCP as their preferred bank.
Moving to 2020 results, I start highlighting the net profit of EUR 183 million, a year-on-year decrease of 39.4%, influenced by the macroeconomic context and by the evolution in the provisions to face legal risks associated with FX in Poland. I want to be bold in underlying the quality of our franchise and the resilience of our business model. Although we have been operating under a very adverse scenario, we were agile in adapting to a new reality and managed to increase the pre-provision profits by 1.5%, which stood above EUR 1,086 million. Our assessment of the risks associated with economic framework and the litigation in Poland led to additional impairments and provisions of EUR 841 million. The capital position was preserved with total capital of 15.6% and Common Equity Tier 1 of 12.2%, both above the correspondent regulatory requirements.
Our loans to deposits ratio remains low, at 85%, and we have high liquidity levels well above regulatory requirements, having EUR 22.5 billion of assets eligible for ECB funding. Our commercial activity in 2020 was very intense in supporting the customers to deal with the impact of the pandemic, but without loosening in the rigorous and prudent management of the risks. The performing portfolio grew 7.9% in Portugal, an increase of EUR 2.6 billion that was driven by loans to companies, which were responsible for 92% of the increase, mainly due to an outstanding performance on the lines backed by the public guarantees, in which we reached a market share above 30%. Customer funds kept increasing steadily throughout the year in Portugal with an additional EUR 4.2 billion, which represents a growth of 7.4%. On a consolidated basis, the increase reached EUR 2.8 billion.
Our commercial intensity did not distract us from the determination we have consistently been showing in the improvements of the quality of the balance sheet. Despite the unfavorable conditions, we managed to keep significantly reducing NPEs. In 2020, NPEs in Portugal decreased EUR 883 million, of which EUR 338 million in the last quarter. I also highlight the improvements on the coverage levels. On a consolidated basis, the impairment coverage increased 5 percentile points, reaching 63%, and the total coverage stood at 113%. Looking at the customer base, we see that customers recognize the value of our digital channels. In Portugal, BCP stands out from the competition, clearly leading in all the digital dimensions assessed by the customers. This assessment was also reflected in the increase of 260,000 mobile customers in Portugal and 489,000 mobile customers at group level.
Our digital skills have been particularly valued by our customers in Portugal during the restrictions imposed by the pandemic. Customers are increasingly selecting the app as their preferred channel to interact with the bank. 89% of the digital interactions of customers are made through the app. This extensive usage of the app by the customers also reflects on the strong increase of mobile transactions and sales. In 2020, the sales and payments made through the app increased 68%, and the transfers increased 84%. Our strategy to invest in the digital transformation of the bank and prioritize the mobile approach is being very well welcomed by the customers. We have completely redesigned journeys and leveraged on the app capabilities to present solutions and products to clients, specifically designed to this platform.
Portuguese digital customers clearly selected BCP as the best digital bank, a distinction that is reflected in the most recognized market researches and in the assessment of our app by the clients in Google and the Apple stores. In 2020, we did not refrain in our commitment with innovation. We launched 15 releases of the app, upgrading its features and convenience. The mobile customers are doing more than 1.77 million logins daily on the app, which means that on average, each customer is using the app more than 30 times every month. Before giving the floor to my colleague, Miguel Bragança, I would like to emphasize that 2020 was a very challenging year during which our capacity to quickly adapt to a new context and the resilience of our retail franchise have been again tested.
The customer's preference in choosing BCP, our track record in improving the quality of the assets confirmed by the successful reduction of more than EUR 10 billion of NPEs in Portugal since 2013, and the evolution of our pre-provision profits reveal that our strategy and the work we have performed over the last years have made us a stronger bank. Now that we have increased visibility about the journey ahead of us, until the end of current semester, we will update the strategic plan, building up our ambition on the bank's evolution and on the evidence that our structural lines of action are correct and remain valid, and being fully committed to proceed with the actions, with all the relevant actions for BCP to continue to stand as a benchmark in terms of efficiency. Miguel, the floor is yours.
Okay. Thank you. Thank you very much, Miguel. We will continue with the presentation. As you have already probably seen, our income statement has evolution mentioned on page 14 with quite stable core income in spite of the huge difficulties, mainly in terms of the reduction of the interest rate in Poland and Mozambique. We were able to reduce costs more than the reduction in core income, showing positive jaws, so that in spite of all the difficulties. We are growing around 1% in terms of core earnings. The non-usual costs, mainly restructuring costs, behave better because as we have told in the past, we were less aggressive in terms of headcount reduction this year than in what we were expecting before. In terms of other income, there was here an evolution mainly linked to further contributions to contribution schemes, mainly in Poland.
Nevertheless, the operating net income, in spite of all, grew 1.5%, which made it possible to have also an increased level of provisions, both for credit and for legal risks, mainly for the Swiss franc loans in Poland, growing 55% while presenting, I would say, a decent net income number. In terms of the net interest income, as we see on page 15. We see a positive evolution in Portugal growing around 2.1%. This in spite of the important reduction of NPEs that reduced the net interest income by around EUR 18 million. In spite of the reduction of NPEs, and in spite of all the costs linked to the deposits at the European Central Bank due to excess cash, we were still able to grow 2.1%.
Of course, all these liquidity investment costs and some margin compression decreased the net interest margin, but nevertheless, the volumes more than compensated this. In the international operations, mainly in Poland, we saw a sharp decrease in NIM. As you know, the reference rates in Poland decreased in a very quick period by around 140 basis points. The NII in Poland, but also in Mozambique, grew and had here a decrease. Right now what we are seeing, we are already seeing some stability, sharp decrease, because of course the business model was adapted to it. In terms of fees and commissions, I would say, relatively positive news with stability in fees and commissions linked to more market-related fees, mainly asset management fees, custody fees, securities fees, as we have been quite successful in starting the transfer of balance sheet resources to off-balance sheet investments.
This compensated the decrease in more transactional fees such as credit card fees, that were, of course, affected by the lower travel expenses and purchase expenses due to the present crisis. The international operations also grew fees, mainly in Poland, in an effort to compensate the evolution of the NII. Other income. What we see is an increase in mandatory contributions, as you see mainly in Poland, but also somewhat in Portugal. The equity earnings went quite well. A part of it linked to a credit card company that we have in Portugal that had some special gains, but also the normal evolution of the management of the ALM portfolio also enabled us to grow the net trading income. Operating costs, a decrease of 4% in consolidated terms, of which 3% in Portugal and 5% in the international operations. This is a trend to continue.
We are deeply committed to reducing costs. In Poland, we were able, because the crisis was not so acute, to reduce the headcount year-on-year, almost 1,000 people. As to compensate more or less half of the impact of the NII. In Portugal, we decreased somewhat the people, but we were much more, I would say, focused in reducing all the other costs. This made it possible to decrease the cost by 4%, which as you see on page 19, still continues to make it possible for us to present a very good cost to core income, mainly when you compare it with other countries in Europe. Impairment and risk provisions. We have here an important increase in the impairment and provision charges. As we see, we are here having a cost of risk of 90 basis points.
As you may recall, some of you at least, at the beginning of the crisis, we commented that we were expecting a cost of risk for this year between 90 and 120 basis points. We have finished at 92 in Portugal and 91 in consolidated terms, which is a good number. I would say the credit risk is behaving somewhat better or at the most favorable part of the spectrum compared with what we expected. In terms of the other risks, we have here some important increase in the FX risk in Poland, as we have discussed in the past in these results presentation, there is very little evidence that support a very, how can I say, a very scientific methodology for these provisions. That part of it is effectively linked to where the system is converging to.
Effectively, some of the banks have increased the provision in this scope. We are more or less, I would say, in the middle of the range of what the system is doing. Right now, there will be probably some questions on this issue, so I'll reserve myself for the Q&A. It is difficult to come up with a very precise number on this issue because effectively, we almost don't have any cases. We have less than a handful of cases that have been decided in final terms by the Polish courts. Of course, this is something that we have to provide, and we have to be broadly aligned with the remaining of the system.
In terms of the remaining other provisions, a part of them have also to do with legal risks, and a part of it has also to do with some provision that we did for our stake in the Angolan bank due to the more challenging environment in Angola. Credit quality, I would say behaving very well. Our NPEs reduced by EUR 1 billion. As some of you may recall, in the beginning of the crisis, our stock of NPEs was around EUR 2.9 billion. March of last year, we were in Portugal with stock of NPEs of EUR 2.9 billion. We were here discussing how these NPEs evolve.
What I, at the time, told you is that our best expert judgment on this matter is that we would expect to have, at the end of the crisis, the same stock of NPEs that we were having in the beginning of the crisis. That was EUR 2.9 billion, because we were being quite successful in terms of reduction of the NPE and we have a stock that is being managed through the courts and so on. We were reducing our NPE stock around 30% a year. We would expect that the decrease in stock would compensate the inflows that we were having. Effectively, what is happening right now is that the reduction of the stock is more than compensating the inflows that we are having. Of course, a part of the inflows are still to come.
I would say that right now, our best expectation of NPEs is by the end of the crisis, I would say June of 2022, so within one year and one quarter, we would expect to have probably a level of NPEs closer to what we have today. Maybe with somewhat more, but not significant more than what we had at the beginning of the crisis. We expect to, at the end of the crisis, to be with a lower NPE level than at the beginning of the crisis. I will elaborate a little bit on that because things are going effectively better with the NPE loans ratio going to 6%. The NPE ratio, considering the EBA numbers already at 4.2% in Portugal. Business activity, very, very healthy.
I would say customer funds in Portugal growing 7.1% with an important increase also already in spite of some risk sensitivity of the clients to off-balance-sheet funds to investments. We are here seeing clearly a different trend in Portugal, and this trend is going to continue, which will be an important lever for the growth and commissions. In Poland, we were more, I would say, more focused on the P&L, exactly due to the NII evolution. We were very disciplined in terms of pricing, mainly the deposits in wholesale and in corporate, so that there was not an important increase in total deposits, albeit in terms of individual clients, the evolution was very positive. Loans to customers. Loans to customers, very healthy, with a 2.64 million growth in performing credit, most of it with government guarantee. It's very, very important.
We clearly had here a story of success, which clearly shows, as our CEO just commented, the capabilities of this bank, so that we were effectively able to grow the performing assets at a much higher rate than the decrease in non-performing. Of course, these performing assets with state guarantee have a lower spread because they have state guarantees than the unlikely to pay of the NPE. This explains a part of the margin compression. Right now we are focusing, as it should be, in the low-risk segment. In international operations, we did some write-offs mainly in Mozambique. These are clearly one-off. We increased the provision, especially in Q4, but this is clearly non-recurrent, to enable some write-offs, because in order to write a credit off, we have to impair it at 100%.
This explains to some extent the decrease in performing assets in the international operation. Capital and liquidity. As you see, we have here a 15.6% total capital ratio, which compares with the fully implemented requirement of 13.3%. This is only the requirement without the guidance. I will elaborate a little bit on it. The Common Equity Tier 1 ratio, we are at 12.2%, which compares with a requirement without the leeways that are now being given of 8.83%. A couple of points that I would like here to highlight. A very important point, during this period, we have decreased very materially the pension fund discount rate. We were able to maintain this Common Equity Tier 1 ratio, whereas we were reducing very substantially the pension fund rate as we will see.
This has a very important impact on the capital, so that effectively, we were able to grow ourselves out of this challenge without any major issue. As you see, only in this quarter, the reduction on the pension fund rate was responsible for around 30 basis points of capital decrease. It was very important to basically maintain this. Second point, stress tests, EBA, et cetera. I was well impressed, not that I was not expected, but I was well impressed to see some of the latest studies by the ECB showing the P2Rs and P2Gs of the system in average terms. What we can tell you is that, as we were expecting, we have a quite resilient business model.
In spite of the fact that we are not disclosing it as recommended, we have been able to have a lower P2G than the average of the system, which shows very clearly that our capital is less affected by the stress test scenario. Our expectation right now in terms of the EBA stress test is that it's a very tough scenario. We would be surprised, because this has not been our experience in the past, if the impact on it would not be much lower than the average impact on European banks, exactly because of our business model. The capital, page 27, is at adequate levels. Pension fund, as I was here commenting, we have here the reduction of 35 basis points since December, each 25 basis points, as you know from our notes to our accounts has an impact of around EUR 145 million.
Of course, a part of it is compensated because there is some ALM pension fund done by the increased funds profitability, but it is working quite well. Our liabilities are more than fully covered at 103%. The net loans to deposit is not an issue, at least from a liquidity standpoint. If anything, we have here an issue of increased assets in the European Central Bank deposits at negative rates. I'll pass it now to my colleague, Bernardo, regarding the operations in Portugal and abroad.
Okay, thank you very much. First of all, good afternoon, ladies and gentlemen. On page 31, starting with the Portuguese operation, net income decreased 7.2% on a very challenging year and stood at EUR 135 million compared with almost EUR 145 million in 2019. This performance was mainly driven by the increase of 27% on provisions. Considering the demanding environment in 2020, net operating revenues went up 0.5% and pre-provision profit more 4.2%. With what regards to costs, there was a reduction of 3.1% to EUR 650 million, explained by a decrease in staff costs and a more significant percentage decrease on other admin costs.
Non-recurrent costs decreased 21% year-on-year due to the lower salary compensation for temporary salary cuts and also by lower restructuring costs in 2020. On page 32, looking to NII in Portugal, it stood at the end of 2020 at EUR 805 million, meaning 2.1% above 2019.
Favorable impacts as the expansion of the credit portfolio supported by the COVID credit lines and the increase on mortgage loans, as well as the effect of the wholesale funding, which includes the TLTRO and the repricing of deposits, were more than enough to compensate the negative effects related with lower price on credit, lower yield on securities, the NPE reduction impact, and the excess of liquidity. As we comment on earlier earnings presentation, NII in Portugal has been showing a positive trend since the first quarter of 2020. NIM went down to 156 basis points, but it has been stable compared with the previous quarter that stood at 155 basis points.
This year-on-year reduction is explained by lower spreads related, as mentioned before, with the COVID credit lines. On page 33, regarding spreads on term deposits, back book spreads stood at -52 basis points compared with -56 basis points in 2019, and front book is still pricing below the current back book. Spreads on loan book were slightly compressed year-on-year from 274 basis points to 270 basis points to the COVID credit lines, but were stable compared with September 2020. That stood at 269 basis points. Moving to page 34, that presents the evolution of fees and commissions and other income. You can see that banking commissions decreased 4.2% in the year due to the COVID-19, with more significant impacts coming from cards and transfers, with a reduction of almost 11% that was not compensated by the increase on customer account-related fees explained by the performance on customer acquisition.
Market-related fees increased 27% as a result of the performance on securities operations and asset management, where we have seen a significant move of customer funds off balance sheet. All in all, in 2020, fees and commissions were pretty stable at a level higher than EUR 400 million. Looking to other sources of income altogether decreased 13%, mainly explained by lower gains on real estate, higher mandatory contributions due to the additional solidarity contribution on the banking sector. On the opposite side, there was a positive impact on equity accounting earnings that is related with the reversal of the liability adequacy test from the insurance company that was registered on the second quarter of 2020. Going to page 35 regarding costs, there was a reduction of 3.1% year-on-year, mainly driven by lower staff costs, -4%, and of -6.5% on admin costs.
In terms of employees, there was a reduction, as it was mentioned by Miguel, of 191 employees, where the significant part occurred in the fourth quarter of 2020 with a reduction of 139 employees. With regards to branches, there was a reduction of 27 branches, out of which 11 were closed on the fourth quarter. Moving to page 36, which refers to asset quality. Even on this challenging environment, BCP was able to reduce in 2020 almost EUR 900 million, meaning -27% year-over-year. NPEs at the end of the year stood at EUR 2.3 billion. On the last quarter, there was a reduction of EUR 338 million, supported mainly through sales, showing the appetite from buyers on the Portuguese market.
Cost of risk year-over-year due to the pandemic situation increased to 92 basis points and is within the range that we estimate and present to market on the first quarter earnings of 2020. Let's now move to page 37, which looks at the NPE coverage breakdown. As you can see, total coverage stood at 119%, 6 percentage points higher than the previous year. Coverage for individuals with high levels of real estate collaterals stood at 98%, and for companies at 127%. That compares with 119% in December 2019. As you can also see, on the top left chart, coverage by loan loss reserves stood at 63% for total NPEs. It was 58% in December 2019. On page 38, it shows the evolution of foreclosed assets with a decrease of EUR 169 million year-over-year, out of which EUR 120 million were registered in the Q4.
On restructuring funds, there was a decrease of EUR 96 million, meaning more than 10%. In terms of property sales, there was a strong slowdown in 2020 compared with 2019. The number of properties sold was almost 60% lower, representing less EUR 373 million of sales. As you can see, even with a small number of sales in 2020 compared with 2019, the sale value was above the book value. Moving to page 39, total customer funds grew 7.4% to EUR 61 billion. The growth of more than EUR 4 billion was strongly supported by the increase of individual funds, and is explained by growth on demand deposits and off balance sheet products. It is important to mention once again that on a quarterly basis, off balance sheet funds increased 4.5%, mainly explained by the higher level of subscriptions on mutual funds.
In terms of gross loans, there was an increase of 4.8%, supported by an increase of 9% in companies and the stabilization of the mortgage book. It's important to mention that on a quarterly basis, mortgage book increased due to the high level of new production, and similar to the fourth quarter of 2019. In 2020, performing loans increased 7.5%, EUR 2.6 billion, and the NPEs reduced EUR 900 million. Going to page 40, it is possible to see our strong support to companies on these challenging environments and the recognition by companies as the main bank. The performing credit to companies was responsible for 92% of the total performing loan growth. Performing credit to companies increased 16.4% year-on-year, allowing BCP to reach a market share of 19.3%, meaning 1.6 percentage point increase from 2019. On page 41, you have a picture of our support to companies and households.
Before we enter on that analysis, it's worth to mention that there are significant differences across European countries on the strategy to support the economy. As you can see on the left side, in Portugal, the government support, until now, was around 11% of the GDP. That compares with almost 20% in Spain and around 40% in Italy and Germany. When we look to moratoriums, the wave in Portugal is considerably higher than other countries because the criteria to access these instruments was much easier than in other countries, and it was possible to be accessed by customers that were not really on stressful situations. It was an additional support for the Portuguese economy.
In terms of credit loans, still on page 41 to companies, disbursements from BCP were around EUR 2.3 billion, allowing the bank to be siding with companies during the pandemic and increase its presence on this important segment. At the end of the year, total active moratoriums stood at EUR 8.6 billion, out of which EUR 4.1 billion is related to households, where mortgage loans represents 90% of the moratoriums to households, and EUR 4.9 billion is related with companies. It is also important to mention that at the end of the year, and considering the reduction of EUR 600 million of moratoriums since the inception of the regime, 93% of outstanding moratoriums are performing and 68% of loans with moratoriums are covered by mortgage, 47% by residential mortgage, and 21% by commercial mortgage.
Moving to page 42, the performance of expired moratoriums, the resilience of our business model, and the track record of managing NPEs allowed the bank to face potential effects of the pandemic. On the left side of the slide, we present the distribution of the loan portfolio in Portugal, where 78% is in Stage 1, 16% in Stage 2, due to the conservativeness of our models, and 6% at Stage 3. Looking now to the distribution of active moratoriums, which is a sub-segment of the top chart, you can see that we have the amounts under moratoriums not significantly different from the total loan portfolio distribution. Even with a small amount of expired moratoriums, you can see on the chart at the bottom left side that 85% are in Stage 1, 10% at Stage 2, and 4% at Stage 3.
The chart in the middle of the slide was shown on the first quarter of 2020. It is really important because it shows our capacity to generate high pre-provision profit. Even with the increase of provision, due to the update of our models, that brings the cost of risk to 92 basis points, we still have a considerably buffer to accommodate additional provisions if needed. It is also important to highlight our experience of managing NPEs over last years, where we reduce more than EUR 10 billion, meaning EUR 1.5 billion in average per year. Moving to page 44, with regards to results of international operations, you can see that there was a significant reduction of the contribution from international operations to net income.
This result was mostly impacted by lower contribution from Poland that booked significant provisions during the year for potential CHF litigation risks, and from Mozambique due to the devaluation of the local currency and additional provisions. Combined contributions from international operations stood at EUR 48.5 million, compared with EUR 143 million in 2019. Poland decreased 96% and Mozambique 32.8%. Moving to page 45, net income in Poland was impacted by several specific items that amounted more than EUR 150 million. That compares with EUR 81 million in 2019. The impacts reflects mainly the reinforcement of provisioning for legal risks related with the mortgage loan in CHF that were three times higher than in 2019 to EUR 152 million compared with EUR 51 million in 2019, as well as the increase of mandatory contributions.
Looking to the operation itself in Poland, net operating revenues increased 3.1%. It is important to mention the strong performance of new mortgage loan production over 2020. Operating costs increased slightly to EUR 393 million. You have to bear in mind that in 2020, Bank Millennium was still under a restructuring process related with the Euro Bank acquisition. CET1 ratios stood at 16.5% and total capital ratio almost at 20%. Both ratios well above the regulatory requirements. On page 46, we show the impact from Euro Bank integration. It is relevant to highlight that synergies in 2020 of EUR 37.6 million pre-tax more than compensates the integration costs of EUR 15 million, also pre-tax. During 2020, Bank Millennium set additional targets, as it was mentioned, and was able to reduce almost 1,000 employees and to close almost 130 branches. On page 47, some additional detailed information about Bank Millennium.
NII up 3.3%, even considering the strong interest rate cut of 140 basis points that affected immediately the loan book, and it will take a longer period to be reflected on deposits. NIMs stood at 261 basis points, and it was impacted by the lower production of cash loans due to the COVID-19. Fees and commissions increased 6.7%, and on the opposite side, other income was lower due to higher mandatory contributions that were more 20% compared with the previous year. Operating costs stable year-on-year, and the increase on staff costs is mainly related with Euro Bank acquisition. Moving to page 48, related with asset quality, NPL ratio stable year-on-year and below 2.5% registered in September 2020.
Cost of risk decreased from previous quarter, from 92 basis points to 83 basis points, still 50 basis points higher than 2019 due to COVID-19 environment and the acquisition of Euro Bank with more cash loans. Coverage ratio by loan loss reserves at 122%, meaning an increase of 15 percentage points compared with the previous year. On page 49, looking to volumes, customer funds were broadly stable, it was possible to see a recovery of off-balance sheet funds during 2020 and to a higher level than in December 2019, after a strong reduction on the first half of the year. In terms of loans to customers, gross books stood at EUR 16.8 billion, more 6.7%, it is important to highlight again the new production of mortgage loans reached in 2020, allowing Bank Millennium to achieve a market share on new production of 12.2%. That compares with 7.3% in 2019.
On page 50, regarding the FX mortgage portfolio, there was a continued reduction of the portfolio, around 8% year-on-year. FX mortgage loans represent now 17% of the total loan book. At the same time, Bank Millennium made significant additional provisions for the legal risk, as mentioned, increasing the coverage to 6.7%. This coverage means total provisions for legal risks divided by the outstanding FX mortgage portfolio. The flow of lawsuits was similar to in the previous quarter. Turning to page 51, with regards to Mozambique, net income was lower than in 2019, driven by provisions by the normalization of interest rates and depreciation of local currency and lower gains on securities. Net operating revenues decreased 7.2%. Operating costs increased 4.3%. Capital ratios stood well above 40%. Moving to page 52, NII and NIM in Mozambique decreased due to the continuing normalization of interest rates.
Commissions were lower than in 2019 due to the pandemic situation, and the other income was lower because in 2019 it was booked some gains related with security sales that amounted almost EUR 5 million. Moving to page 53, NPL ratio decreased to 12.5%. Cost of risk due to specific write-offs increased to 503 basis points, and coverage by loan loss reserves stood at 59%, reflecting the write-off of loans on the fourth quarter 2020. Regarding volumes, you can see on page 54 that customer funds grew 17.7% and loans decreased 4.4%, reflecting our conservative approach under the challenging environment of the country. 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, we have been presenting as a sign of commitment with you these main indicators of the strategic plan. As you know, this strategic plan was supposed to reach the steady state by 2021, originally. When the COVID crisis started, we basically maintained our objectives in terms of our steady state goal, but we are, of course, calibrating the moment in which we will get to a steady state depending on the COVID crisis. Our view right now is that to the best of our knowledge, we should get to a steady state probably one year and a half later than what we were initially expecting. That is basically the term of the COVID crisis. In terms of franchise growth, we are clearly over-performing. We were supposed to get to the 6 million by 2021. We are already at 5.7 million. We are clearly over-performing.
In terms of the digitalization and converting customers to mobile customers, we are also clearly over-performing. This has been very important levers of our activity. In terms of the evolution of the NPE stock and what would be the cost of risk without the COVID crisis, as you see, we were expecting to be by EUR 3 billion by 2021. We are, in spite of the COVID crisis, with EUR 3.3 billion. This would be clearly achieved. The Common Equity Tier 1 and loan-to-deposit are more, I would say, restrictions to our shareholder maximization than variables to maximize it per se. Very clearly, we are above what we think is the level of capital that we should have for our very resilient business model. In terms of loans-to-deposit, if anything, we are having excess cash. What is happening?
Of course, due to the present interest rate environment, in all our operations, in Portugal, but to a large extent in Poland and Mozambique, and to some, I would say, intended postponement of the reduction of headcount, we are somewhat behind the plan or the original plan in terms of cost to income. We do think that this cost to income number is attainable. The fact that we are somewhere behind the curve in terms of the cost to income, and the fact that we are having important charges for credit risk due to the COVID crisis and for legal risk due to the legal risk in Poland, means that our ROE is below what we would have liked to have at this point in time.
As we have been commenting in the past, we have committed to you that during the first half of the year, we will come up with a new plan and with new metrics to the market. This is being discussed at the appropriate governance forum of the bank. What I can tell you at the moment is that the direction in terms of more and more mobile, more and more digital is the same. The main levers will be linked to how to convert all of this into more and more customer loyalty, more and more customer delight, but also more and more efficiency, more and more cost discipline. This is something that we count to present to you in the first half of this year. Thank you very much. I open now the floor to Q&A.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad. Our first question is from Maksym Mishyn from JB Capital. Please go ahead.
Hello, good afternoon. Thank you for the presentation and taking our questions. I hope you are all well. A couple of questions from my side. The first one is on TLTROs. What are your plans for the upcoming TLTRO III auctions? Do you plan to increase the size of the funding you currently have with the ECB? What impact do you expect from the extension of TLTRO III and increase in its size? The second question is on the equity accounted results in Portugal. What was the reason for the quarter on quarter increase? Was it the credit card business? Can we consider this as something recurrent? The last question is on corporate restructuring funds. The quarter on quarter reduction was driven by asset disposals or some additional impairments that you had to make during the period.
Do you think you may need to book some more impairments going forward? Thank you.
Thank you very much for your questions. In terms of the TLTRO, we do have excess cash, so that if we finance ourselves, say at minus 1%, our margin is not the minus 1%, it's only the difference between - 1% and - 50 basis points, if you want. It's only 50 basis points. If we get more, it could be something around EUR 500 million, give or take. These times 50 basis points is EUR 2.5 million a year. It's money. We may go for it. We have not decided yet. It is not something that will change the income statement of the bank. In terms of the equity accounting, there are here two sides to this story. In the previous quarter, the equity accounting had some one-offs that were particularly negative.
In this quarter, we do not only have these negative numbers that we had in the last quarter, but we also have a positive one that is linked to an extraordinary gain in one of our participations, that is Unicre, that is a company that has all the acquiring business. This is extraordinary gain because they sold their head office. I would say that probably two or three million are extraordinary. The remaining is not extraordinary. The reduction in restructuring funds is effectively linked to a company that was sold by one of the restructuring funds, that is a gas distribution company in Portugal. It was a very successful turnaround, one of the several of the restructuring funds. As you know, the restructuring funds were created exactly to enable the banks to have a structure to turn companies around.
This was clearly a company that was turned around and that even had a capital gain. The capital gain does not show in our statements because it was already there to the mark to market of the participation. Effectively now this was sold, and this explains the evolution of the sale and then the redemption of the units basically explains it. Okay?
Thank you.
Our next question is from Ignacio Ulargui from Exane BNP. Please go ahead.
Hi, good afternoon all. Thanks for taking my questions and for the presentation. I just have three questions. One is, if you could give us a bit of better color on what do you expect for NII in Portugal in 2021, whether you are factoring in the accrual of the TLTRO III because you expect loan growth to happen or not, just to get that color, not the extra amount, but just the new benchmark target. Second question, Miguel, is on the KNF proposal. I know there are plenty of uncertainties, but could you tell us what you don't like or what you like from the proposal? A final question on the NPEs.
When do you think we should get sort of full picture of the moratorias expiring, it is September 2021 or there could be any window where we could start to see the performance of NPEs aligned with moratoria expiring? Thanks.
Thank you very much for your questions, Ignacio. Always very straight to the point. In terms of NPEs, starting with the last ones, and in terms of the moratoria. As I commented, in the beginning of the crisis, we were expecting to end the crisis more or less at the same level of NPEs that we started the crisis. So as to, so to say, to have here a stalling in our very sharp NPE reduction that we had in the beginning. Right now, what I'm expecting is the NPEs to be broadly constant to what we have right now. As I have commented in the past, because our NPE files are becoming more and more granular, we will have some volatility on a quarter-by-quarter basis because the very small mortgage cases that we would model almost statistically are not there anymore because we have reduced these.
We have typically larger files. When a larger sale or a larger file comes through, we have a very good quarter. When we don't have a large file being sold, we may have a different quarter. We will have some volatility around the NPEs numbers, but we feel very confident that our knowhow and our technology to reduce the NPEs will continue to bear fruits. In terms of the moratoria, a couple of numbers that I think are important. How are the moratoria then? You have typically short-term contracts and longer term contracts, okay?
If you have a short-term contract that was supposed to become due in the beginning of the period of the moratoria, and if the customer asks for a moratoria, what happens is that the principal that was supposed to become due at a certain date becomes due at the end of the moratoria. If it is a long-term contract that was not supposed to become due at this moment, if, let's say, a 10-year contract or a 20-year mortgage, what happens is that instead of having a 20-year mortgage, the customer at the end of the moratoria will have a 21-year mortgage. Or instead of having a 10-year leasing, the customer at the end of the moratoria will have an 11-year leasing, just for sake of example.
I think that it is very clear to assume that at least for longer-term contracts, the moratoria, even from a pure mechanistic standpoint, will not create a special problem. It's not because you have a 20-year mortgage, mainly with these low interest rates that we have right now, that this will create a problem. Okay. I think this is it. We are not expecting a cliff event at the end of the moratoria. The moratoria, just for sake of example, a part of them, around EUR 600 million of the broadly EUR 8.6 billion, will expire in March. The ones that expire in March are mostly unsecured personal loans that are long-term, five-year loans, typically four- to five-year loans. They will not become immediately due, but of course, the customer will have to start paying the installments after March. Okay.
Most of the moratoria right now will end if the customers do not ask for a further extension under some circumstances that they may get further extensions, if they have not used the nine months, will end in September. Of these that will end in September, I would say, of the corporate loans-- From the personal loans, almost all of them, more than 90% are mortgages, because the consumer loans will expire in March. The remaining that will expire in September are mortgages, we are not expecting any type of special news. From the corporate loans, only around EUR 700 million are short-term loans below one year. Everything above EUR 700 million has more than one year. What does this mean? That the remaining part will basically be converted, let's say, a 10-year loan will be converted to an 11-year loan.
From a pure, I would say, financial stress standpoint, we are not expecting anything particularly worrying after September. On top of this, of course, we are not waiting for September to see whether the customer pays or does not pay. We are doing an in-depth analysis of the financial capacity of the clients. Of course, if we realize based on the year-end accounts that the customer has a debt that is not sustainable, we will not wait for September. We will probably restructure it before. If it is a restructuring to solve a financial issue, we will mark the customer as an unlikely to pay, as it should be. If the customers are unlikely to pay and become UTPs, they will not suddenly become a UTP in September.
We will recognize, we will try to solve the intrinsic issue of the customer, and we will mark the customer as an unlikely to pay before September, because that's the way we should be trying to solve the issue, but recognizing the issues in anticipation. That's why I'm saying that in spite of the very good performance that we have in NPE reduction, that we are not expecting to have a further NPE reduction going forward until June of last year. A part of the normal reduction that we would be having will be compensated by the fact that we will mark some of these clients as NPEs, not because they necessarily will become past due, but because some of them will have a debt that will become a non-sustainable debt. We will have to restructure and we have to mark them as UTPs.
I'm not expecting a lot of customers to become past due. I'm expecting some customers or some loans to become unlikely to pay, and I'm expecting that with our know-how and with our knowledge, that we'll come up with a solution, a part of them with losses to the bank, of course, but with a solution that tries to anticipate this and minimizes the losses to the banks. Okay. We are confident that this process is a controlled process, and that our NPEs will not grow at least materially during this period. The types of analysis that we have done from our moratoria point clearly to an inflow that is around the single digit that could become NPE. That's a high single digit that could become NPE. That it would be more than compensated by the normal recovery that we have in other circumstances. Okay. The KNF.
We speak a lot of the KNF. I think it's important, because the Swiss franc issue is an important issue. It's a very old issue, as we all know. The KNF, that, as you know, is the supervisor in Poland of the banks, has made a proposal to the banks whereby, basically it says, "Look, banks, I think it would be a good idea if you offer to the clients the possibility of repaying their loans as if they from the beginning had a zloty loan, so that effectively you would assume all the depreciation of the zloty vis-à-vis the Swiss franc." Basically, that's, please offer this to the clients. Be nice, offer this to the clients, and in exchange, probably the customers will accept to pay an interest rate in zlotys and not to have another, more complicated solution than this one.
This is basically what the KNF say. We welcome very much the situation that the Polish authorities are concerned with the issue and try to develop a systemic solution for this issue. We welcome very much this issue. Okay. This is the first issue. It's important to have a counterparty. It's important to have the Polish authorities concerned with what is a systemic problem, because this has to have a systemic solution. Okay. This is the first issue, that so we welcome this proposal in this sense very much because for some time we were not seeing such type of proactivity. This solution as it stands right now, has the benefit of being a starting point, but we don't view it as an endpoint.
It is something to be worked upon and to be improved so that the impact on the system is not so large, so that the solution is clearly a final solution, so that there are not execution risks. We have to have. This is a starting point, but not the endpoint. This is the second issue, I would say. Third issue. The KNF is one agent among several agents. Very recently, the Chairman of the National Bank of Poland, that is the prudential authority responsible for financial systemic risk in Poland, has come up with a suggestion basically saying that it is absolutely clear that, if there is some type of conversion, that the banks should receive an interest rate in zloty. And he even said that what would be fair is for the banks to give back the FX spread, but no more than that.
This was a statement that he said, I think, around three weeks ago that you can see in the normal net media areas. On top of this, I think it's very important. There are several cases still being discussed at the European Court of Justice. You knew that for many years since 2009 and 2019, the Polish courts have been deciding in favor of the banks, more than 90% in favor of the banks. Suddenly there was a decision from the European Court of Justice that somehow empowered the courts to go against the banks so that they have, since then, been much more aggressive towards the banks than what they were before, where they were giving 90% of the cases, reason to the bank.
Right now, there is a pendulum effect, and there are now new decisions being decided by the European Court of Justice, and we welcome very much one decision that is expected to come in the next two or three months. That is a decision on a GE Electric Bank named BPH in Poland that will address two questions that for us are very, very important. It will ask five questions, among which two are very important for us. The first question that is very important for us is whether, if a part of the contract is deemed abusive, such as the FX spread, and the remaining part is not abusive, whether one can correct only the FX spread, using an FX rate without spread or not.
This is a very important question because if the European Court of Justice agrees with this will change totally the rules of the game. Another important question is the following. As we all know, these Swiss franc loans have been regulated and even encouraged by the Polish authorities. In 2019, I think, I'll have to check exactly the year. I'm sorry, 2009, not 2019, 2009, there was even a law that was supposed to be the remedy for the Swiss franc loans spread issue. That is named the Anti-Spread law. The Polish authorities have come up with a special law exactly to remedy the issue of the fact that the banks were charging FX spreads to the clients that could be deemed as abusive and came up with a special law exactly to remedy this.
One of the questions in this BPH case is exactly, did the Anti-Spread Act remedy the Swiss franc issue or not? If the decision from the European Court of Justice is that it remedy the decision, I would say the game is over for the Swiss franc [capital]. I think we are in the middle of a process that is a long process. BCP has ceased to originate Swiss franc loans in 2008. We are in 2021. There have been good moments. There have been bad moments. The KNF solution is a possible starting point for a negotiation. We welcome a solution that, a possibility to have a systemic issue. Of course, the systemic issue has to come up with a value tag or a price tag that is bearable for us.
On top of this, I will also here comment on an issue that's important now that we're speaking about the Swiss francs, that is, in principle, on March 25th, the Supreme Court of Poland will issue a series of decisions, or at least it was convoked to meet and maybe issue a series of decisions regarding the Swiss franc portfolio. The decisions, the way the questions are asked, there are all types of opinions about it, whether the question I ask in a way so as to allow a solution that is favorable to the bank or a solution that is unfavorable to the bank. What is very important, I will have here to say is the following. They are not deciding whether the clauses are abusive or not abusive.
On the contrary, the chairwoman of the Supreme Court has said and has formally stated that in her personal opinion. You don't have one-size-fits-all decision, because to assess the abusiveness or not of the situation, one has to look at the specific contract and at the specific sales process. Okay. They are deciding what could be the consequences in case the courts decide on the abusiveness. I think it's important. Of course, we will have to see it. I don't have any special information on how Polish judges will decide. We wait calmly for the decision, with the confidence that we have had a good sales process in the past, and what we have done was totally of the knowledge of the authorities and was encouraged by the authorities and within the legal framework of Poland. Okay.
Yeah.
The NII in Portugal, I would say we are growing steadily our NII, I would say around 1% a quarter, give or take. This is the type of trend that we will like to continue to see. The levers that we have are good credit growth and probably some more transfer from excess liquidity to investments by the clients. Let's see how the markets evolve, because of course, for the clients to invest, it's important that the markets continue to behave relatively well and so on. The main driver will be some growth in credit and the reduction of excess liquidity. [audio distortion] .
Our next question for today is from the line of Sofie Peterzens from JP Morgan. Please go ahead. Your line's open.
Yeah. Hi, here is Sofie from JP Morgan. I had a question on the cost of risk outlook. You've been very clear on [audio distortion] how do you think about NPEs and moratoria going forward, how should we think about the actual cost of risk? Is it fair to assume it will be around 90 to 120 basis points also in 2021? How should we think about it? A very similar question on the litigation risk in Poland. It's very clear that there is a lot of uncertainties, how should we think about the potential future provisions in Poland? Is it fair to assume that they will remain at the level we saw in 2020, should they come down materially? My final question would be, do you have any views on charging your clients for negative deposits?
That's something that we are starting to see more in Europe. What's your view on negative interest rates for clients? Thank you.
Thank you very much for your question, Sofie. Starting with the last one, presently, we have some restrictions, not probably legal restrictions, but regulatory restrictions from the Banco de Portugal in terms of charging negative interest rates to non-financial clients. We charge it to financial clients, the pension funds, insurance companies, other banks and so on, but not to NFCs and so on. This is a legal restriction that we are having. This is something that we are encouraging the Banco de Portugal to change. We would like the Banco de Portugal to change it. Right now, what we are doing is being very disciplined on this. On anything that we can charge, we do charge. Everything that we cannot, we don't, because we like to abide to what the regulators say. Let's see whether the regulators change it or not.
We would like them to change because it's an issue of level playing field. The litigation risk. The litigation risk in Poland is particularly difficult to model because there are not data points. As I commented in the beginning, we have less than a handful of cases, less than five cases that are decided in final terms. To decide provisions of hundreds of millions based on four or five data points, it's very difficult, and it's very difficult for me to give you a comfort on this. What I can tell you is the following. Typically what happens in such situations of high uncertainty is that the banks and the auditors look at each other. Not very sophisticated, but it's basically very often what happens in periods of high uncertainty, people tend to model their behavior after what happens in the market.
We are doing the same as the others are doing. We expect to be more or less in line with the market. Let's see what the market is doing. We hope that the market does not anticipate here any special losses because they do not have to be anticipated. We think the level of provisions that we have right now is adequate to the situation that we have right now in face of such a wide spectrum of possible outcomes. Effectively, if this risk were a smaller risk, probably what we would do, what would be at least probably theoretically more correct, because it is very difficult to quantify, is to have this risk not quantified, but disclosed in the notes to the accounts because it is so difficult to quantify. That's probably what would make sense.
We will look at what the market is going to do, and we will try to not to be an outlier. We cannot say much more than that. In terms of cost of risk, cost of risk is different because cost of risk is our business, and we like to think of ourselves as being able to measure risks well, to originate risks well, to know exactly what will happen with the risks, and so on. Right now, we would maintain our expectations of 90 to 120 basis points. 90 if we are closer to the base case of the Banco de Portugal, and for each one percentage point less of GDP growth, probably we would have more 10 basis points of risk. More or less, that's what our models tell us. This is how more or less we will behave.
We feel reasonably confident about it. Okay?
Thank you.
Your next question for today is from Carlos Peixoto from CaixaBank. Please go ahead.
Yes. Hi, good afternoon. Hope you're all doing well. My first question would actually be related with what was being discussed right now, cost of risk. I was wondering whether Well, you mentioned already that the 10 basis points sensitivity and the fluctuations to GDP movements. My question is whether you expect to have some relevant impacts from the update of model inputs or anything of that nature during the first Q, given the fact that there has been a stricter lockdown than perhaps it was initially expected in earlier macro assumptions updates and now in the first Q? Second question would actually be related with Mozambique. I was wondering whether you could shed some light on what were the drivers for the evolution of NII, and particularly for provisions in Mozambique this quarter, as provisions had a bit of an increase there.
Finally, on the Stage 2 loans in Portugal, I noticed that it's 15.7% of total loan book. If I'm not mistaken, that in the last reported data, which I believe was for the group as a whole, but the Stage 2 loans were around 13% of the overall loan book. The increase here has been driven by this assessment that you mentioned on loans in moratoria, or what has been the main drivers here for this evolution in Stage 2? Thank you very much.
Carlos, thank you very much for your question. Starting with the model, we have already adjusted to the new type of definitions of default. We have already adjusted to what should be adjusted. Of course, as you know, according to the new accounting rules, our models of expected loss reflect the macro outcome that we assume. Just for the avoidance of doubt, what we assume as our central scenario is the latest central scenario of the Banco de Portugal, which we assume with a 60% probability, and we have a downside scenario with a 30% probability that is roughly three percentage points lower, that this is effectively the difference between the 90 and the 120 basis points. This is basically where we are more or less in terms of the model. These are already reflected in the situation.
In terms of Mozambique, there are two issues. During last year, we had an important decrease of interest rates in Mozambique. Okay. This affected a lot our income there because our business model in Mozambique is a quite simple business model. It's a very transactional bank with a quite small credit portfolio. Basically, our business is to capture deposits to ensure a soft and good quality transactionality adapted to the country. We are leaders in terms of payments by WhatsApp, payments by SMS, et cetera. We invest this money to a large extent at the Central Bank. Our business model is having deposits, transactionality, and investing in the Central Bank. Of course, this is a model that is very sensitive to interest rates, not least because we do not have long-term securities to hedge our NII. Last year, the interest rates came down.
The good news is that this year, the interest rates are going up. We expect here to have good news in terms of NII in Mozambique. In terms of cost of credit, as I commented, our credit portfolio is very small in Mozambique, with some concentration in state-owned enterprises loans. Of course, when there is one case, this affects in proportional terms particularly well because the portfolio is very small. What happened is that we provided for and then wrote off a certain exposure. This was a very specific exposure. This had an impact in terms of our cost of risk in Q4. It's not our recurring cost of risk, not least because we don't have a very large portfolio. It was clearly a one-off. We hear, Carlos, I do not see exactly the source of the Stage 2.
Our Stage 2 have been, up to now, quite stable at a high level, because we are conservative in terms of how we mark the customers in Stage 2. When you compare, for example, Stage 2 with the Stage 2 of the Iberian banks, when you do a benchmarking, you see that we have a high level of Stage 2 because we are conservative there. We are very stable at 16, 15. It has been quite stable at these levels. There's not anything special in this issue.
Our next question for today is from Gabor Kemeny, from Autonomous Research. Please go ahead.
Hello. I have another question on the Polish FX mortgages, please. Millennium did provide some estimates about the potential cost of this KNF proposal. I think it was up to PLN 5.1 billion, which would be EUR 1.1 billion. Can you give us a sense of what would be the capital impact of this conversion on BCP, on the CET1 ratio and the total capital ratio? I understand this is not your preferred option. It would just be useful to get a sense of the potential impact. The other question is, I understand that the parliament, the Portuguese parliament, blocked the transfer of budget funds from the resolution. What is the latest on this, please? What do you think is the likelihood that other Portuguese banks would have to make up for a shortfall? Thank you.
Starting with the last one. As far as I understand, there's not really a blockage from the money from the state budget to the resolution fund. What is being said is that the Portuguese government or the Portuguese parliament, better said, wants to have a further audit to check whether all the transactions that Lone Star has done of selling non-performing loans and the real estate loans and so on to third parties were really arm's length, and were not transactions with related parties at the end of the day.
Yes. They want to make sure that, I'm sorry, not Lone Star, that Novo Banco has not done anything with related parties at off-market prices because the amount is so large that before sending another check, they want to have absolute assurance out of this. Our view is that most probably what will happen is that this audit will happen, and then if the resolution fund needs the money, the money will come afterwards from the parliament. It's not because of one or two months of further audit that everything will be jeopardized. I would not worry too much about it. It's a lot of noise, but an audit does not take so much time to do. If anything, it may take a little bit longer, but my best guess is that at the end of the day, everybody will be reasonable. The audit will appear.
If there is something that is not correct, it will be corrected, and so on. In terms of the Polish, of this solution. It depends a lot on what is the level of acceptance that you assume for the clients, because I do not expect that this level of acceptance will be 100%. Of course, any type of provision will have to be based on the level of acceptance. If the level of acceptance is 100%, and if we are close to the EUR 4.1 million, and if we cannot profit from the tax shield of it because, let's say, everything becomes tax loss carry forward. At moment zero, there's not a benefit from capital purposes. The impact would be around 100 basis points, 100 to 110 basis points for the EUR 4.1 billion. Okay?
Thank you. 100 to 120, you said?
110 for the EUR 4.1 billion. Yes.
Understood. Thank you.
For the 100% acceptance and for no tax shield, which is, I think, is a very conservative assumption. Okay?
That's all clear. Thank you. Would the impact be similar on your total capital ratio?
Yes.
Okay. Thank you.
Okay. Thank you.
Thank you. Our next question is from Mario Ropero from Bestinver Securities. Please go ahead.
Hi, good afternoon. My first question is on customer spreads in Portugal. You show an average spread with the average three-month Euribor of 43 basis points, which is 10 basis points higher than what it is today. Is it fair to think that then customer spread should decline by another 10 basis points, more or less, in 2021? The second question is, I know that you will provide plenty of details in the strategic presentation, but could you give us some color on the mix between revenues and cost measures that you plan to undertake in order to bring down the 49%, 47% cost-to-income ratio to the target of 40%? Thank you.
Starting with the last question. We do not have to reinvent the wheel. There have already been some banks that are in, I would say, geographies that are in a more advanced digitalization stage than the Portuguese geography. They have made the way, adapting to the customer needs of trying to delight the customer through digital and to recompose their staff with more experts on digital and much less experts on more servicing operational areas. I think this is clearly the way forward. We have to adapt our business model to the client preferences. Without wanting here to give precise numbers, because we will do them when we have everything approved and discussed at the right governance forum.
Portugal and BCP will follow a similar path to the path that was followed in other countries that are on a more advanced stage in the digitalization of the customer base. This will be basically through this cost cutting. Another important element of the plan is, of course, everything that has to do with investments, with insurance, with non-balance sheet products. Right now, the balance sheet products are not as profitable as they used to be in the past. This will also be an important factor. In terms of the customer spread reduction, I would separate here a couple of issues. We are not expecting the front book of the corporate loans and of the consumer loans to decrease anymore.
We think that the type of production level that we have right now are the type of production level that we will probably be having in the future. This is not the dynamics in terms of production that we are expecting. At least for the same product, if you speak about corporates, and if you think about consumer loans, if anything, there will be some increase in the spread to compensate the risk environment in which we are living. We are, however, seeing, because there has been some flight to quality, if you want. We are, however, seeing some margin compression on the mortgage book of the best clients, because in these situations of higher risk, banks typically tend to focus on the lower risk segments.
In this case, the size of the mortgage margin production on the total mortgage stock is so low that I would not expect this to materially affect a lot our client spread. I would expect our mean to be broadly constant. The main factor here, more than the client spread and so on, is whether we are able to have less excess cash. A factor that is hampering our NII is the excess deposits that we have. As I commented to Sofie, we cannot charge for deposits. I don't know whether we would like to charge in the mass market and in the affluent segment, because deposits are the starting of the relationship.
Of course, the key factor here, and we believe that sooner or later, we will be able to be more and more successful on this area, is whether the risk appetite of the clients is consistent to more and more investments and more and more insurance products.
Thank you.
Thank you.
As a reminder, ladies and gentlemen, it's star one if you have a question. The next is from Hugo Cruz, from KBW. Please go ahead.
Hi. Thank you. You already answered a lot of my questions. Just two final ones. First, on capital, do you have any guidance on particular headwinds or tailwinds for 2021, mainly regulatory? Second, on trading, any guidance there for Portugal will be helpful, particularly in light of the recent increase in bond spreads. I was wondering if that could have any impact, positive or negative, in your trading line. Thank you.
Starting here for capital. Right now, we are not seeing any special headwinds. Of course, there is always some negotiation in terms of the models, of the add-ons with the regulators and vice versa. There is always a give and take where we want to make our models more efficient. The regulators want to make our models more conservative. In some quarters, there may be an evolution in one sense, in another sense. I would say over the year, I am not expecting anything special in terms of this area. What I would expect is that the evolution of the capital will be basically the net income and the normal risk-weighted assets evolution. In terms of trading, we do not like to see ourselves as doing trading in spite of the fact that we have some trading gains.
What we have is an ALM portfolio that typically what happens is that when our risk appetite increases, we tend to have longer, or when we think that the market interest rates will not grow, so to say, we tend to have a longer portfolio. When our view is that there could be an increase in interest rates, we tend to have a shorter ALM portfolio. We are not on the market every day buying and selling bonds. No, it's much more structural in terms of what is the type of hedge for our balance sheet that we want, and we tend to rotate it this way. We are not expecting in terms of these bonds any special tailwind. It has more to do with the ALM portfolio than anything else.
All right. Thank you.
Our next question is from Noemi Peruch from Mediobanca. Please go ahead.
Good afternoon, thank you for taking my questions. I have three quick ones. The first one is on cost of risk. If you could indicate the provision you took in 2020 related to COVID, the macro deterioration in the future. My second one is on moratoria. What was the default rate you saw on the expired moratoria? I see that 4% of the expired ones have been classified under Stage 3. Is this 4% a good proxy for the effective default rate? My last one is on loans. There are a few more billions that are to be freed up and be granted as state guaranteed loans in Portugal in 2021. How do you see the loan growth there evolving? Thank you.
Okay. In terms of the impact of the macroeconomic scenarios on our provisions, as you know, according to IFRS 9, when the provision is based on scenarios, the revision of the scenarios related to the GDP were around EUR 40 million-EUR 50 million. EUR 40 million-EUR 50 million of our provisions were linked to the review of the macroeconomic scenario. The second issue that you ask is whether the 4% is a good proxy. There is, I would say, a positive selection on these clients because these were the clients that to some extent chose to end the moratoria. On the other hand, some of these clients were already marked as unlikely to pay. It's not that these 4% really originated from this end of the moratoria.
I think it's very difficult right now to tell you what will be the effect exactly at the end of the moratoria, because as I told you in the beginning, we do not expect to have a cliff effect at the end of the moratoria. We will not wait for September to decide whether a customer is unlikely to pay or not. We will see their year-end numbers, we will see their March numbers, we will see their June numbers, and then based on this, we will decide whether they are unlikely to pay and consequently an NPE or not. We are not expecting a cliff event except if we do not do our jobs right. Okay. If you want a view of what is our view of the NPE inflows, the total NPE inflows, the view that I gave was the following.
We were reducing our stock in the absence of the COVID by 30% a year. Right now, what we are saying is that instead of reducing 30%, we remain stable. By difference, we will get to what is the gross value of NPE that could be somehow linked to the present situation, be it moratoria or not.
Thank you. My third question was on loan growth.
In terms of loans, I'm sorry, I did not answer. The loan growth, we will continue to focus on state-guaranteed loans because we think that in the present circumstances, to have state-guaranteed loans is something that is very positive. We would expect our loan growth to be between 3% - 4% this year. Let's see exactly what happens and what is also the demand of the loans by the clients. Okay?
Thank you.
Thank you.
Our final question is a follow-up from Carlos Peixoto from CaixaBank. Please go ahead.
Hi again. Sorry, just a quick one. Basically, on costs. I've seen this year and the previous years, you have booked some restructuring charges. I was wondering what expectations you have for 2021, both in terms of the underlying cost performance and also whether we should expect some restructuring charges, namely, possibly amidst the business plan that you were referring to before. Thank you very much.
The plan that we have today, as of today, is a trend in the continuation of what we had in the last years. Okay. As I commented, we will try to re-discuss this plan and reappreciate our strategic plan. With the input from the full board, with representative of all the shareholders, independent shareholders, we will be reviewing the plan where we will see how aggressive we should be in terms of cost cutting. As of today, the official plan that I have that I can communicate with you is a trend in line with what we have had this year. We will try to do better, and then we'll come back before half of the year. Okay.
There are no further questions.
Okay. I would like really to appreciate all your effort in trying to follow us and to be here, this vehicle of relationship with us and the market and the investors and so on. We realize that we are not an easy equity story to analyze. We do think that we are fully committed to generating shareholder value, to performing well, to having a very solid balance sheet, and to having a very resilient business model that we hope will translate more and more into more value for our shareholders. Thank you very much.