Earnings Call: Q4 2018

Feb 22, 2019

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Millennium BCP 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today on Friday 22nd February 2019. I would now like to hand the conference over to your Vice Chairman and CEO, Mr. Miguel Maier. Please go ahead, sir. Good afternoon. Miguel Maia speaking. I welcome you all to BCP NOL earnings conference call. I'm going to present the earnings highlights and then my colleague Miguel Borghence will follow providing additional information and detail. Before beginning the earnings presentation, I would like to make a brief introduction regarding the 2018 background and circumstances. It was a year of instability and volatility in the financial markets, reflecting investors' concerns about the outcome of several major well known events and their impact on the economic growth. We are facing a slowdown in global economic growth with a more unpredictable outlook looking forward. The financial sector in Portugal is operating under a liquidity surplus framework, which has caused additional pressure on spreads, while the interest rates remain at historical low levels, increasing the pressure on banks' net interest income. In addition, the money laundering scandals in banks of major European tendering have put compliance under the spotlight of bank boards and supervisors, requiring reinforced investments in infrastructures and government models. Banks have been increasing targets of cyber attacks demanding higher control and protection over their information systems, while being also under pressure to provide increased access to customers and third parties in an open banking environment. In Portugal, the government kept consolidating the public accounts and the countries registered good performance in terms of GDP growth, unemployment rate and control of public debt. We believe that despite the fact that we are going to have legislative elections this year, these mindset and these priorities won't change in 2019. All sovereign ratings in Portugal were upgraded to investment grade in the Q3 of 2018, followed by the improvement of BCP ratings on the Q4. In 2018, BCP recurring staff costs increased mainly because this was the first full year of salary cut reversal. Although we have had to make investments in IT and also in BCP second lines of defense, I'm talking about risk and compliance, I want to stress that cost reduction still remains a top priority and that we are firmly committed to achieve a cost to income ratio around 40% by the end of 2021. I would also like to emphasize that the relevant part of our digitalization journey will have an important impact in efficiency. In May, the bank shareholders elected new governing bodies, reducing the size of both the Board and the Executive Committee. We have a very effective Board and a more robust government framework. The balance sheet quality has been improving. And more importantly, at the same time, customers have improved their recognition of BCP value proposals. They awarded BCP with the main customer's choice prizes in 2018 2019 and Household as the best corporate bank in Port Col. As you know, BCP had a remarkable performance on the EBA stress tests, obtaining a better result than the average of the 48 European banks tested directly by which will strengthen Millennial Bank's market position, providing an opportunity for relevant value creation. This acquisition is on track, and we expect to obtain all the required authorizations within the next few months. BCP has deployed a new strategic plan that spans until 2021 and will lead the bank's transformation towards mobile and digital, enabling us to achieve a superior growth, relevant customer reductions and a better return levels. Entering into the presentation, Slide 3. Entering now, I would like to emphasize last year's major performance achievements. We improved in profitability, reaching net earnings of more than EUR 301,000,000, growing 61% from 2017. We have reinforced the capital position, achieving a common equity Tier 1 ratio of 12% and an overall capital ratio of 14.5%, which includes the EUR 400,000,000 additional Tier 1 issues in January. Both capital ratios are well above the correspondence rep requirements of 9.6% and 13.1%, providing us with a buffer of more than EUR 557,000,000 in total capital. Considering the 2018 profitability level and the bank's current capital position well above the SREP requirements, the Executive committee has proposed the payment of a dividend corresponding to 10% payout to be approved by the Board in April and then submitted to the next shareholders general assembly. Slide 4, BCP has continued to consistently improve the assets quality, being strongly committed to the reduction of the stock of NPEs. Last year, the NPEs decreased €2,100,000,000 ending the year with the NPE consolidated volume of €5,500,000,000 This reduction was essentially performed in Portugal, where we reduced €2,000,000,000 in NPEs, ending the year with €4,800,000,000 of NPE stock. I must underline though that more than 40% of these NPE stock are loans that kept paying interest regularly and are not in arrears. We achieved A and P ratio including securities and off balance sheet according to where the concept of 7.6%, which is very, very relevant for us. Simultaneously, we have strongly reinforced the NPE impairment coverage, increasing almost 10 percentage points and reaching 52% coverage. The total coverage, considering the loans collaterals, rose to 109%. In Slide 5, I would like to highlight of our franchise allows the business volumes to increase by almost €4,000,000,000 reaching 100 and 25,000,000,000 This increase comes essentially from the rise of EUR 3,700,000,000 in customer funds. Although the overall increase in the loans to customers was just EUR 100,000,000, this figure is deducted by the strong NPE reduction of more than EUR 2,000,000,000. In fact, the performing loans have increased more than EUR 2,000,000,000. Millennial BCP has also succeeded in attracting new customers and expanding the customer base. In 2018, the number of active customers increased by 350,000 overall, having grown by 130,000 in Portugal. Slide 6. We achieved net earnings of EUR 115,000,000 in Portugal. When compared to the previous year, net earnings of €39,000,000 represented a step increase of almost 200%. Regarding our international presence, we also had a sound increase of 28% in net earnings, having reached almost €187,000,000 in 2018, with excellent results both in Poland and Mozambique. I will now give the And As you may see in Slide 9, our core income increased by 2.4% in spite of the persistent low interest rate environment. And what you see also is that we have a growth in the recurring costs of around 3.3%. That is largely explained by the fact that the salaries that were cut had this year their full impact of that represents around €7,500,000 We also had here some nonrecurring costs. Effectively, we have used our core income this year to some extent reduce further the NPEs and present you a faster normalization of the NPE stock of the bank than the one that we were already envisioning. And at the same time, preparing the bank for the future with the digitalization, with reduction in staff costs and with all the progress and the improvement in processes that also imply such non usual items. You see a progressive normalization of the impairment and provisions, albeit at the high level. So if you compare our impairment and provisions with the one of our competitors, you clearly see that this is, to some extent, also explained by the acceleration in terms of the NPE reduction that at least over the short term increases the impairments and also has an impact in terms of the income. Effectively, in the when you compare the last quarter with the quarter before, we have around EUR 20,000,000 more provisions than what we have to a large extent because of the acceleration of NPEs. The same fact also explains mainly because we some sales of NPEs, the decrease in the trading gains because we had a loss of around €27,000,000 in terms of the reduction of NPE. So these two impacts these two effects explain almost €50,000,000 of impact when you compare 1 quarter with the other. And also what you see is that we have accelerated the decrease in headcount, and this explains the EUR 20,000,000 additional. Effectively, what we are here able to show is a progress growth in terms of our profit before tax that increases 75%, as you see. And this coped together with, I would say, an over clear overachievement in terms of the NPE reduction. The net interest income, as you may see in Slide 10, still very resilient. We have here several impacts. I would say the wholesale world was relatively constant. We have a decrease in our wholesale costs, but also a decrease in our wholesale margin of securities. And then basically, this time, we had a benefit from the decrease in the cost of deposits that was reasonably compensated by the decrease in margins and in the average stock of credit. So that is basically what explains the constancy of our margin in Portugal. In terms of fees and commissions, a growth of 4.3% in Portugal. In consolidated terms, we see very clearly a growth of 3.3% in terms of banking fees. The market related fees did not evolve well this year neither for us nor for some of our competitors because of the situation that you've seen in the market or all the world of asset management that you know well has not performed particularly well. In terms of other income, what you see is a slight decrease when you compare with the former year when you adjust it for credit sales. The credit sales were basically linked to the NPE reduction. This year, the credit sales were responsible for around the EUR 50,000,000 loss, which around half of it was last year what was last quarter, I'm sorry. So this clearly is a development that is linked to the NPE reduction. You see also in this other income a slight increase of €10,000,000 linked to mandatory contributions that have to do basically in Portugal with the European Resolution Fund, with the banking sector tax and with the resolution the domestic resolution fund. The costs in terms of recurrent increased 3.3%, to a large extent explained by the normalization of the salary levels in Portugal. And also, you have to consider when you analyze our cost structure, all the nonrecurrent costs that we are in which we are investing to reduce the headcount of, I would say, the old bank, more the old economy. And in the meantime, trying to hire some people that are more focused on the new model of the bank. When you compare ourselves with our competitors in Page 14, you clearly see that our development in terms of difference visavisour cost to core income and our business model, we see that we clearly have here a buffer and overachievement when we compare ourselves with the competition. We have comparing our cost to core income, we have a 30 percentage point difference right now when you compare with the average of the European system. The cost of risk is still high, so showing room for a decrease. As you know, our target is to normalize the bank by 2021 to progressively go to 50 basis points. This year, we were able to go from cost of risk of 122 basis points last year to 92 basis points this year. And this is exactly the trend that we want to see going forward, still very high when you compare with our competitors. The credit quality, as our CEO was commenting, shows a very positive development with an increase in total coverage from 103% to 109%. The coverage by loan loss reserves at 52%. And what you see the different The ratio including securities and off balance sheet exposure at 7.6%. And the more traditional ratio that only includes credit, it's 10.9% coming from 15% last year. Looking at the business activity in Page 18, you see a very healthy development in terms of customer funds that shows the client confidence in our bank, mainly when you take a look and see that our growth particularly high in demand deposits and recurrence, which shows the relationship and the customer loyalty that we have. We have seen these developments, both in Portugal and abroad, Portugal growing 4.6% in the international operations, 6.8%. The only point that I would like to highlight that is also room for improvement in the future is that this year was not a year of growth of the off balance sheet business, of the investment business. And you know well what happened to the markets in the last half of the year mainly. So this is clearly an area where we want to see some growth once the markets start to improve. In terms of loans to customers, we see a stability, but this stability is a tale of 2 ends, if you want to see. So the NPE is reducing EUR 2,100,000,000 and the performing portfolio growing EUR 2,200,000,000. EUR 2,200,000,000 in a portfolio of EUR 51,000,000,000 is very, very, very material. You see that this means that in Portugal, we have reduced the stock because the reduction of NPEs in Portugal was higher than the growth in Portugal. But what you see is that the performing assets growth is picking up when you compare with the former years. The net loan to deposit ratio keeping on improvement improving, which is clearly a sign that we may grow more in credit and that we may grow more in investments and of balance sheet funds. And in terms of capital, as it was already commented, a very healthy position. So our SREP requirement total SREP requirement ratio is 9.6%. That compares very well with the pro form a ratio of 12%. Our total requirement is 13.1%. That compares well with the 14.5% already including the 81% that we have presented to you. In terms of guidance, as you know, the indication that we have from the supervisor is not to disclose it. But what we can comment to you is that it has been sharply reduced as a result of our stress test. That was very favorable as my colleague Miguel already commented. We have successfully issued 81, as some of you know, some of you invested in our 81 issue. It was a very quick transaction than over 2 days with a very, very diversified investor base. So that allows us to have this buffer above the minimum requirements that I have just presented. The issue is trading well. I would say it's trading close to par, slightly above par, which is exactly where we want it to be, showing that we on one hand, we have presented a fair deal to investors. On the other hand, we have not left money on the table. In terms of leverage ratio, we compare very well with the other countries, and this is because our RWA density is much higher, to a certain extent, should be linked to the degree we for the investment horizon. In terms of our investment horizon, we have 17 years in terms of the duration of our liabilities. We cannot look it on a year by year basis. Still, in spite of this very challenging year in terms of the markets, our pension funds was profitable, representing a positive return. And the actuarial differences remain stable. Now I'll pass it to my colleague, Rico Imbere to be presenting Portugal. So on Page 27, net income here in Portugal of €115,000,000 an increase from last year driven by lower impairment and provisions. On the Page 28, NII, as already referred, relatively stable year on year. The evolution is driven by the combination of the decrease on the cost of both retail and wholesale funding. But on the other hand, still lower average volumes, lower contribution from securities and a slight decrease on the average spread on loans. Quarter on quarter, a slight decrease due to a less positive effect from the recovery of overdue interest. On next page and regarding spreads on time deposits, on the back book, the spread is at 56 basis points, an improvement of 10 basis points from last year. And regarding the front book, the negative spread is 45 basis points. So 12 basis points less than back book. Regarding loans, the average spread is stable as well as regarding NIM at 1.8%. Commissions up by 4% and banking commissions up by 5%. Regarding other income, the decrease is mainly explained by the negative impact of NPE sales and as well by higher mandatory contributions as already referred. Regarding costs, as you remember in 2017, we had a one off gain in costs related with the agreement with the union regarding the retirement age. And taking into consideration this effect together with the restructuring costs of both years, operating costs increased 2.1%, very much related with the impact of the reversal of salary cuts. Regarding now NPEs, since 2013 and up to now, we reduced EUR 8,000,000,000 on the stock and increased 27 percentage points the cash coverage. These two elements together led net NPE to move from €9,800,000,000 in 2013 to €2,400,000,000 now. This year, the decrease is EUR 2,000,000,000 year on year through a combination of EUR 779,000,000 of net exits, EUR 445,000,000 EUR 448,000,000 of write offs and EUR 730,000,000 of sales. Regarding quarter on quarter, the performance was again very positive with a decrease of EUR 750,000,000 with a contribution from sales of EUR 322,000,000. Cost of risk in Portugal at 105 basis points, down from 140 basis points last year. Regarding the coverage, total coverage above 100% for both individuals and companies and for both NPE categories. The coverage by provisions at 50%, but higher for loans to companies and in particular for the 90 days past due segment. Regarding foreclosed assets, as well a decrease of 18% from last year in spite of a large amount of entries, we increased sales by more than 50 percent, and we continue to register profits on those sales. And we registered as well a decrease of 1.5% on restructuring funds now to EUR 1,000,000,000 Regarding volumes, customer funds up by 4 point 6% and loans with a decrease of 2.1%. And this, as already referred, is a combination of a 24 percent a 29% decrease in NPE and a 3.7% increase in the performing book. On Page 37, you see that the increase on the performing book is explained by the increase of the 3 segments. And the quarter on quarter the performing book increase as well of around EUR 300,000,000 Moving now to the international operations and the contribution is at €187,000,000 an increase of 28%, driven by increased contribution from all geographies. Poland, the results are known for quite some time. The net income at EUR 178,000,000, an increase of 12% due mainly to the increase of NII. Return on equity at 9.6% and regarding percent or 26.1 percent pro form a with Tier 2 issue this January already. Net interest income up by 8.1% due to higher volumes and commissions and other income up by 2%. Costs increased 5.4% and cost to income relatively stable at 46.5 percent. Improved as well the NPL ratio now at 2.5% with increased coverage to 133 percent. Cost of risk at 48 basis points, a decrease from 54 basis points last year. Now regarding volumes, customer funds up by 12% with an important increase in demand deposits of 28%. And regarding loans, the increase of 11% reflect a decrease of 3% in FX mortgage and an increase of 18% of other loans. Now regarding Mozambique, the net income up by 11% with a return on equity of 22 percent. Income grew 8%, slightly above the increase in costs. And regarding capital, the total ratio is at 39%. NII up by almost 6%, mainly due to the increased contribution from securities portfolio, but as well from lower deposit costs. Commissions and other income up by 14% and operating costs grew 7.5% and cost to income stable at 38%. Stock of NPLs and NPEs down from last year. Cost of risk at the high level of 4.31 basis points and a relatively stable coverage by cash at 69%. Regarding volumes, deposits up by 11% and loans down by 17%. And this, as it happened in previous quarters, reflects conservative approach under the current challenging environment. Just looking now to the KPIs, the main KPIs this year versus the previous one, good performance in terms of customer growth, some deterioration on the cost to income ratio, but mainly due to the reversal of salary cuts and the sales of NPEs, improved profitability with profitability with return on equity now at 5.2%, improved capital and liquidity position and improved asset quality with NPE now total NPE at €5,500,000,000 and with a lower cost of risk. So let's move now to the Q and A. Thank you, ladies and gentlemen. Your first question comes from the line of Ignacio Ulargui from Deutsche Bank. Please go ahead and ask your question. Hi. Good afternoon, gentlemen. Just have two questions for you. One is, if you could give us some more color regarding the cost of risk outlook evolution for 2019. You have said the path to was below 50 basis points by 2021. How do we see that in 2019? And in terms of loan growth, what should we expect in terms of loan growth for 2019? Whether you think the bank is better placed to gain market share or to accelerate growth? And whether the competition it's being tough or not from other players such as BPI or Santander? Thanks. Thank you very much Ignacio for your questions. In terms of cost of risk, what we have disclosed is that by 2021, we want to normalize the bank and we want to get to 50 basis points by 2021. We are not I mean, we are not disclosing intermediates targets, but what we can tell you is that our expectation is to have a linear path towards this cost of risk, keeping in mind that our I recurring through the cycle cost of risk once we cease to have this very accelerated path of NPE reduction should be around the 50 basis points. Everything that we have above 50 basis points is exactly what we have to pay to a certain extent to accelerate the NPE reduction. But you can assume a linear path. In terms of loan growth, we expect in Portugal to have a loan growth that is low single digits. Right now, what we are seeing is that in terms of production, the reduction of I mean, we are already producing around in terms of the total bank, around EUR 2,000,000,000 as you've seen in terms of goods of good loans, actually in terms of difference in stock of the performing loans, around EUR 2,000,000,000. It's a positive sign. It is starting to improve. So we are targeting low single digits. But just to be clear, I mean loan growth by itself is not a target in itself for us. So we always try to adapt this loan growth to exactly the situation that we see in the market. The spreads are compressing somewhat on a client by client basis and on a segment by segment basis, as you see. But what we are seeing is that going forward, we are increasing slightly the percentage portfolio in terms of the SME portfolio and consumer credit portfolio that have a higher spread than our average portfolio. So we expect to have a mix effect, so to say, that somewhat compensates, so to say, the loan compression. So that I would say that at least for next year, we expect the NIM to be broadly constant. And that's it. Thanks. Thanks very much. Thank you. Your next question comes from the line of Carlos Pazzotto from Caixabank BPI. Please go ahead and ask your question. Carlos, your line is open. Sorry, are you listening to me now? Hello? Yes, yes, we are Sorry, sorry, apologies. The phone was muted. So as I was saying, a couple of questions. The first one would be on the NPEs sales impact on NII, which I guess can be broken down in 2 aspects. As a result of NPE reduction that we experienced during this quarter or even during 2018, do you expect that to have an impact in NII through lower interest on parts of these loans that were still paying or accruing interest? On the unrelated question, what was the impact in the Q4 of the lower recoveries of overdue interests that you mentioned at some point in the presentation? And then on a separate question, but also related with NVEs. I was wondering basically you mentioned an underlying cost of risk of 50 basis points for the bank on a steady state. My question would be, do you have some sort of sensitivity on the impact that, let's say, each €500,000,000 of NPE reduction has in your cost of risk? So depending on the pace of NPE reduction, I guess, we could experience different cost of risks throughout this time frame. So I was wondering if you could give us some sensitivity on this just so we can work out our numbers. Thank you. Okay. Thank you very much. Effectively, what we can tell you is that the following. In terms of the NPEs, as you know, we have 2 components, the ones that are already in default and the ones that are unlikely to pay. So in terms of the ones that are in default, of course, if we sell a loan that is in default, the opportunity cost in terms of NII is 0 because we are not accruing anything of loans that are in default, okay? So where we do have an impact is when we sell NPEs that are not in default, that are provided for. And to some extent, they are accruing interest. In general, I would say, the average spread that we have for loans that are unlikely to pay for corporates, which is the largest part, is around 3.3%, 3.3% to 3.5%. So that's the impact. So we have to separate the 2 impacts, the ones that are unlikely to pay and the ones that are in default. And looking at the ones that are likely to pay, this should be more or less the impact. In terms of the impact of cost of risk of the NPE acceleration, it is very complicated to get you. I don't know the number by heart, but what I can tell you is the following. Over the next in the past years, I would say, if we take a look at what is the cost of risk of our performing portfolio vis a vis the cost of risk of our non performing portfolio, I would say. Our performing portfolio the portfolio that is performing in the beginning of the year and becomes non performing during the year is around 40 basis points. We would expect for our nonperforming portfolio to have a marginal impact that would bridge the gap between the 40 basis points and the 50 basis points that we think that is the amount that we would have on a steady state. So I would say the amount that we effectively are assuming to accelerate all the NPEs is the difference that we have seen in the last years where we on average have reduced around EUR 2,000,000,000 is the difference between these 50 basis points that is our steady state and the amount that we have presented in the last year. So I don't have the number by heart, but it's easy to do it. So it's basically the amount in the last 2 or 3 years that we have had was basically linked to an acceleration in terms of the NPE reduction. Part of it was some deterioration in terms of collateral, but you can assume that this is a good approximation. Your next question comes from the line of Gabor Kemani from Autonomous Research. Hello. I have a couple of questions, please. One is on the NPE reduction where you had an impressive performance in 2018, and it seems that you have room to proceed more quickly than the EUR 1,000,000,000 you have been you have agreed with the ECB. So I guess going forward, if the market for, let's say, NPE sales remains benign, would you consider continuing to reduce your NPEs more quickly than the €1,000,000,000 per year? And then the second question is, would you be able to give us a sense about what you expect in terms of your MREL requirements? What sort of senior non preferred issuance would you expect? And the rough time frame would be helpful as well? Okay. Thank you very much for your questions. 1st, effectively, in our last presentation to the ECB, we have presented and to the market, we have presented an average reduction of around €1,000,000,000 per year. And effectively, we are overachieving this value at a cost, but at a cost that we think that is clearly in the interest of shareholders. To be fair, we have just closed the year end accounts. We are analyzing exactly our options and our performance that was to some extent also better than the one that we were expecting. And we will prepare a new plan of NPE reduction until March. So I expect that in the March accounts to give you a little bit more guidance in terms of where we are heading to. But I agree that we may have room to reduce more than we have than the EUR 1,000,000,000 per year. But we will come back to this in our next section of the March accounts. In terms of the MREL requirements, right now in terms of the numbers we have, our GAAP is around EUR 1,400,000,000 that we have to fill until June 2022. So we have a lot of time. €1,400,000,000 is not something that is particularly relevant or difficult for a bank of our size. We will we are not in a hurry. We are speaking here about June 2022. So we will be very, very, I would say, opportunistic in terms of seeing what are the right opportunities to go to the market to make sure that we issue in conditions that we see reflect our evolution and our intrinsic credit risk. And that's what I can say at the moment. Okay. That's useful. And just a small question on the tax rate. Your effective tax rate has been a bit lumpy in the last few quarters. What shall we expect for 2019 roughly? I would suggest to use of course, the tax rate is a little bit complex in Portugal because effectively, the impairments that you'd deduce from taxes are not the accounting impairments, but impairments according to a scenario of I'm sorry, to calendar methodology. So I would expect to have a tax rate for Portugal aligned with the one that we had this year. Understood. Thank you. Thank you. Your next question comes from the line of Lee Street from Citi. Please go ahead and ask question. Hello, good afternoon. Thank you for taking my question. I've got 4, hopefully, quite quick ones. And firstly, just any comment on plans to achieve any more Tier 2 subordinated debt? Secondly, can you just remind me in terms of what you said about TRIM or IFRS 16 impact? Thirdly, you mentioned the agreed sort of average €1,000,000,000 NPE reduction with the ECB. But are you getting any pressure or request to actually increase your coverage levels from the ECB? And just finally, in relation to that last point on MREL, you talked about a €1,400,000,000 gap. Just what is that relative to? What numbers does the €1,400,000,000 get you to? And are you relying on your existing preferred senior for that? That'd be my 4 questions. Thank you. So I'm sorry. So in terms of the of subordinated debt, I think the subordinated debt has to be seen in the context of our MREL requirements because one of the way to fill the MREL gap is the subordinated debt. Exactly the mix between subordinated debt and senior non preferred is something that we will decide in terms of the relative spreads of 1 and another. So basically, that's what we're seeing. So we if we see that the average cost of funding, so to say, benefits from having more subordinated debt, so that this reflects positively in the senior non preferred. Probably, we may issue subordinated debt sooner, but this is a decision that we will take depending on market circumstances. What I can tell you is that we have until June 2022 to fill this gap, and we will fill it as we see that the market reflects our intrinsic value, so to say. In terms of total impact of IFRS 16, it is if you take a look at the final numbers, it is negligible in our numbers in terms of P and L. It is totally negligible in terms of our numbers. In terms of the increase of the requirements of I'm sorry, in terms of the increasing of the requirements of the supervisor, I would say that one of the benefits that we have is that we have built the capital of credibility with the supervisor by showing our NPE reduction performance. And this is effectively what has enabled us also to keep our autonomy in terms of reducing these NPEs and in terms of deciding when and how to reduce these NPEs. Of course, there is always a negotiation. I will not hide you that for the supervisor, it's always better to have less NPEs. But I would but I think that the type of targets that we have been presenting to the supervisor and mainly the fact that we have always overachieved them has given us a capital of credibility with which we feel comfortable. In terms of the MREL requirement, it is we are a multiple point of entry bank. So the type of risk weighted assets that apply to our MREL requirement is not our total risk weighted assets, but is risk weighted assets also applicable to our resolution universal to our resolution scope, which is broadly Portugal and some of the entities. The ratio that we have that applies to this EUR 30,000,000,000 of risk weighted assets is around 26 percent. Right now, these changes as we have different ratios also in terms of capital, and this is what gets us to the value of difference that we have to feel of the €1,400,000,000 Okay. Okay. Thank you very much for your comments. Those questions. Thank you. Thank you. Your final question comes from the line of Benjie Sanford from Jefferies. Please go ahead and ask your question. Yes. Hi, good afternoon, everyone. Just a couple of quick questions from me. First of all, in terms of the NPL reduction, I mean, obviously, sales have been a relatively important part of that. I'm just wondering if you could give a sense of the average ticket size over the past year in terms of those NPL sales and whether that's predominantly domestic or international buyers? And as part of that, just going forward, do you have any appetite or would you consider a larger scale NPL deal in order to accelerate again the NPL reduction that you've done? The second question, just briefly, what is the average yield on the Portuguese bond portfolio, please? And the final question is just a follow-up on the last question. Is there any guidance on the impact of TRIM in terms of capital going forward? Thanks very much. Okay. In terms of our NPL reduction, typically, what we have been doing, I would say and this costs us more in terms of personal effort, we have been doing relatively smaller more relatively smaller sized transactions so that we tailor the transaction to the specific investors that want them. There are some investors that prefer unsecured loans, some that prefer secured loans, some that prefer a very specific name where they want to invest, some that prefer project finance. So our typical ticket size would be around €100,000,000 to €150,000,000 And up to now, we what we've seen is that this is the type of approach that has been maximizing shareholder value, okay? In terms of a larger scale transaction, up until now, what we have seen is that we gain value from the segmentation. So by doing a larger scale, we actually would lose value for you. So this is probably not something that based on the numbers that we have now, we would do. But of course, it depends on the numbers. We don't have any type of prejudice against a large scale transaction. What we want is to defend the interest of our investor base. In terms of the average yield of our Portuguese bonds, as you know, we have a lot of treasury bills, and the part of this is also linked to our very high success in terms of customer funds. So we have been growing a lot of customer funds, and this is based on genuine customer retail customer business, and we don't want to I mean, to push these customers away from the bank. And of course, on the margin, this is invested in treasury bills. So the yield that we have been getting on the total Portuguese government debt portfolio is around 0.6%, including the treasury bills. And in terms of the TRIM Okay. Okay. I will pass you to our CRO that will get you Yes. Regarding TRIM, the corporate, the low default portfolios are still running. We don't have any still no feedback from the supervisor, from this section team. We did also the high default, the retail trim at the end of last year, and all the effects are already incorporated into the account. So we don't expect any further impact from trim right now. Thank you. There have been further questions entered. Your next question comes from the line of Gabor Kemani from Autonomous Research. Please go ahead and ask your question. Hi. Just a quick follow-up from me on EMRA. You mentioned that this EUR 1,400,000,000 was based on the requirement you estimate for the Portuguese Resolution Group. Do you expect any issuance requirements in any of your foreign businesses, like Poland or elsewhere? I will not comment here on as you know, in terms of the our African subsidiaries, we don't expect, of course, because it's not applicable. In terms of Poland, as it is a separate listed entity and so on, I will not comment on it here. I think it's Poland that should comment on it. In any case, you see what is the capital ratio of Poland. It is a capital ratio in excess of 20%. So it's a very, very high ratio. Yes, sure. Okay. Thanks. Thank you. Your next question comes from the line of Carlos Peixoto from CaixaBank BPI. Please go ahead and ask your question. Hello again. Just a couple of additional questions. The first one would be on IFRS 16. I'm not sure if you already discussed this or if that was the case, apologies for that. But basically, do you have any should we expect any impacts for BCP? Is that neglectable? Just to have some sense here. And then and again, sorry if I might miss this, but could you give us some guidance on how you expect NII, particularly in Portugal, to evolve during 2019? Thank you very much. Okay. In terms of IFRS 16, you probably were not listening. I had already commented that we expect in terms of P and L a marginal but very, very marginal impact. So practically irrelevant, the impact of IFRS 16 in terms of P and L. In terms of the evolution of the margin, exactly for the reasons that I was commenting, I was commenting that we will grow volumes low single digits and that we would maintain the NIM. So this means that our margin will grow low single digit basically. This is our best expectation. Thank you. Just to get it clear on the IFRS 16, will there not be any impact on capital? So you mentioned a neglectable impact on the P and L and on capital, there isn't any impact just to because other peers of yours have been guiding towards some small impact. So just to have it clear. The impact as you know, in terms of because the IFRS 16 may imply or may imply that some risk weighted assets some risk weighted assets increase because you recognize some assets on your balance sheet that were not there before. This is relatively small for us. There will be an impact, but I would say it's a single digit impact in terms of basis points. So it's also very small. Okay. Thank you. Thank you. Your next question comes from the line of Noemi Paruch from Mediobanca. Please go ahead and ask your question. Good afternoon. Two questions from my side. The first one is on cost. And how do you see your personnel cost evolving for 2,000,000 in 2019? And the second one is a follow-up on the ECB and the NPE coverage. Have you received any recommendation from the ECB regarding increasing NPE coverage along with your reserve requirement? And if so, could you please share with us the recommended time frame? Thank you very much. Okay. In terms of the cost evolution, when we presented evolution, when we presented our 2021 plan to you, to the market, we clearly said that we want to digitalize the bank and want to make the bank much more mobile so that we hit a cost to income of 40% by 2021, and we are absolutely committed to that. Of course, this has a little bit of a J type curve because we have to invest in the next years in digitalization, in hiring people that are more expensive and so on to get the benefit later on. So what we can tell you is that without this impact, our costs in the next for 2019 would be broadly constant or even coming slightly down. With this impact, we are anticipating that the costs the nonrecurrent cost increase will broadly compensate, I would say, the income increase so that we are trying to invest in the next year the positive of the income in terms of nonrecurrent costs or if you want, in terms of investment to help digitize the bank. So this is these are broadly the numbers. And in terms of backstop provisions, some of the banks have disclosed to the market exactly what were the backstop provisions that were handed to them by the supervisor. Other banks have not. We have not formally disclosed this to the market. What we can say to you is that we are more or less on the average of what has been disclosed to the market mainly by the Italian banks, okay? Thank you. Thank you. Your next question comes from the line of Jose Abada from Goldman Sachs. Please go ahead and ask your question. Yes. Hello. Good afternoon. Thank you very much for the presentation. I have two questions. First question is capital, is on the stress test. You mentioned at the beginning that you had a remarkable result in the stress test. Yet you haven't reported actually the stress Corigotir 1 ratio in the stress test would be useful for us to have that. You know that Vice President, Degindos, from the ECB, he mentioned that banks with an stress correlated 1 below 9% should actually be thinking about increasing capital levels. So I think it would be useful to have to know whether actually your stress cojotron is above or below this 9% threshold. The second question is on M and A. I mean, if you could actually tell us how are you thinking in terms of actually capital allocation throughout the different geographies where you operate? Whether, I mean, we should expect some inorganic growth in Poland or in Portugal and whether you would also be open. Actually, we see that across the border in Spain, we see a number of potential deals underway over the last few days, particularly today, whether you could actually be thinking about participating in something along those lines? And if I may, my last question is on Mozambique, if you could actually maybe update us trends and the situation there over the last quarter, it would be useful. Thank you very much. Okay. In terms of first somebody is not in mute. So if everybody could put themselves in mute, probably it would be useful because there is some noise. 1st, in terms of participating in nonorganic deals, right now, this is not in our plan. So as you know, we have disclosed to the market the acquisition of a bank in Poland, Eurobank, the former bank of Societe Generale, that we think fits very well in our strategy of growth in terms of unsecured personal loans. We think this puts us exactly where we want to be. There are not any, I would say, any obvious targets either in Poland also. So right now, the strategy that we are presenting to the Mozambique, what we can tell you is that the country is still in a challenging environment. It's slowly moving out of the situation in which it was having some, I would say, some disagreements with the IMF, the International Finance Committee, to a more gradual scenario. We are not there yet, but we see very, very positive signs. And we are there for the long term. And at this point in time, we are in a mode of low risk and of keeping optionality for the future, while at the same time making sure that our capital base is strong and our business model is strong and that we have a good ROE. In terms of capital needs, just to tell you in terms of stress and capital needs, that's to tell you that we have disclosed to the market that we want to have a dividend payout of 10%. Dividend payout of 10% is not a large dividend payout, but it's a signal that we don't think we have capital needs. So because we would not tell the market that we intend to pay a 10% dividend if we thought that the ECB would not allow it or would ask for capital needs for us. The impact of the stress test was is around 300 basis points. So if you see, we are at 12 percent in any case, so it would be around 9%. So things match in any case. Thank you. Your next question comes from the line of Ignacio Ulargui from Deutsche Bank. Please go ahead and ask your question. Hi. Good afternoon, again. Just one question on the deposit costs and the shift that we have seen in terms of time deposits from time deposits to demand deposits and how much you have incentivized that? If I recall that correctly, in Portugal in towards the second half, third quarter, you just decided to accelerate reducing the deposit costs. Do you think there is a scope to reduce that further? Or we have seen all and the current level of deposit cost is the right one that we have to have for the for 2019? Thank you. Just right now, if you look at our mix of time deposits versus demand deposits, I think that we already are more or less where we want to be. We are not incentivizing a lot, so to say, transfer from time deposits to demand deposits. But sometimes, the customers, they see at their opportunity cost of having a time deposit, and they naturally think that for 10 basis points or 11 basis points, they prefer to have the deposits at 0 and having a total availability of the funds. In any case, in terms of the deposit evolution, the difference between the front book and the back book is a 2 digit number, so slightly above 10 basis points. So there is still some benefit there. And it's exactly this benefit that we expect that within the debt NII to allow us to have a small growth in the NII because what the positive impacts for next year in terms of NII will be the credit volume growth to some extent, as we are saying. We expect somehow to have here a margin compression on a segment by segment basis, but the positive mix effect on the credit and then a positive impact of the deposits. The sum of all these impacts will allow us, in spite of this very low interest rate environment, to keep on increasing the margin in Portugal. I've spoken a lot about Portugal and less about Poland. It's becoming more and more important, as you know. So Poland has presented to the market a plan. This plan points to a growth of top line over the next years around 10% a year. It's very, very important. And the growth of the bottom line around 15% a year. So Poland will become and is becoming in terms of our P and L more and more important and I don't think that we have to forget it. Thank you. I would now like to hand the conference back to Mr. Miguel Braganza. Please go ahead, sir. Okay. This is a very important year because it's a year of progressive normalization of the bank. As you said as you are seeing, we have given a very clear indication to the market that we feel comfortable with our capital position by starting to pay a dividend. It's small, but it's a signal that we don't we think we don't need more capital. So I think this is very important. It is a year where this progressive improvement of the bank was reflected in a very high reduction of the NPEs in the same token or by the same token as it was done in the last years. And it is also a year where we are starting to present a reasonable ROE in the past to the 10% that we want to get it. So we are clearly now in a new mode, a mode of review of the business model of the bank to get to a much more digital and mobile bank. This is something that is implying some costs over the short term, but that will assure our that over the long term, we have a very healthy business model, getting to the ROE of 10% and the cost income of 40%. Thank you very much.