Good day, and thank you for standing by. Welcome to the Millennium BCP Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please advise that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Miguel Maya. Please go ahead.
Good afternoon. This is Miguel Maya speaking. Welcome to the BCP Earnings Conference Call. As usual, I will highlight the main aspects of our performance in 2024, and then Miguel Bragança and Bernardo Roquette will provide more details. Last year proved to be challenging on multiple levels, with a global context marked by conflicts and geopolitical tensions. The economy in our core markets shown different performance. Both in Portugal and Poland recorded significant growth levels, standing out from the main European economies, having also low unemployment levels and controlled inflation. In the Polish market, the FX loans litigation continued to impact the banking activity. Both countries continue to present prospects for sustained growth. On the other hand, the economy in Mozambique was affected by the relevant reduction in activity in the last quarter in the context of tensions that erupted during the transition of the presidency.
We are confident that the Mozambican people will create conditions that foster a stable institutional framework and promote economic development and social cohesion. In this context, our consolidated net income in 2024 exceeded EUR 906 million, representing a year-on-year growth of 5.9%, supported by robust commercial activity that generated a core operating profit of EUR 2.3 billion in a competitive environment with increased pressure on the net interest income in Portugal due to the increase in the cost of deposits. Our commercial activity, combined with robust balance sheets, strong operative efficiency, and benefiting from the normalization of the cost of risk, continues to support a firm growth trajectory of net income in Portugal, which exceeded EUR 686 million, having increased by 8.5% year-on-year.
In Poland, despite still being significantly affected by the charges with FX legal risks amounting to EUR 750 million and costs of EUR 26 million with the credit holidays, Bank Millennium recorded a net income of EUR 167 million, a year-on-year growth of 25%, confirming the bank's ability to simultaneously deal with legacy risks and expand the business activity. In Mozambique, Millennium bim's net income was EUR 48.5 million, a year-on-year decrease of 54%, largely due to the complex context in the last quarter that I previously mentioned, which led to the downgrade of the public debt rating with the consequent constitution of provisions. It is also worth noting that the results in 2023 had benefited from a significant recovery of impairments obtained from a specific client.
We have a very good and solid operation in Mozambique, a reference bank in the market, very resilient and with high operational efficiency, and based on a low-risk business model, well positioned to grow with the opportunities associated with the normalization of economic activity and the development of structural projects. In an extremely competitive environment in the various markets in which we operate, customer funds grew by 8% at the consolidated level, reaching EUR 102.9 billion, which is a clear indicator of the quality of our business models. At the same time, we continued the trajectory of improving asset quality, having made reductions of EUR 127 million in NPE and EUR 52 million in foreclosed assets. The NPE ratio was reduced to 3.2%, with NPE coverage by total impairments exceeding 80% and rising to 120% if real estate collateral is considered.
A rigorous balance sheet risk management has led us to maintain a controlled risk cost consistently below 50 basis points. The profitability achieved is reflected in high levels of organic capital generation with a solid capital position, CET1 ratio of 16.3%, and Total Capital Ratio at 20.6%, representing an increase of 89 basis points and 72 basis points respectively, with these ratios already considering a share buyback of EUR 200 million and a payout of 50%. In the previous quarter, when we presented the strategic priorities for the next cycle, we announced that one of the core dimensions would be delivering more value to shareholders with a share buyback program that would complement the dividend payout up to 75%, subject to the restrictions mentioned in the plan.
In this sense, we submitted a request to the supervisor to execute initial share buyback amounting to EUR 200 million, which was authorized, so we will soon start the program. Our vitality and growth potential are well demonstrated by our ability to sustainably expand the customer base. We have almost reached the mark of 7 million customers, of which 2.7 in Portugal. But the growth rate is even more noticeable at the level of mobile customers, which increased by 10% year-on-year and already reached about 5 million, of which 1.7 in Portugal. Mobile customers do represent 71% of our customer base, 63% in Portugal, an important indicator of our digital capabilities and the bank's readiness to meet customer expectations, who continue to distinguish us as the preferred bank of all and the main bank for companies in Portugal.
The strong focus on innovation centered on customer needs translates into increasing levels of usage and sales through the mobile channels. Last year, customers made 20% more transactions through the app, with significant increases in transfers and payments. The priority we give to investment in innovation is reflected in an increase of digital interactions and increased relevance of digital channels in sales. Sales through the app increased by 32% year-on-year, with a particular emphasis on the increase in savings solutions, which increased by 37%, and cards, which increased by 24%. Because 2024 was the year in which the previous strategic plan was formally concluded, which was fully achieved more than a year in advance, before handing over to Miguel Bragança, it is worth recalling the evolution of BCP's share throughout the plan.
In 2021, at the beginning of the plan, we were still dealing with the economic impact of the restrictions and uncertainties resulting from the pandemic, exacerbated in Poland by the risks associated with the FX loans. During the pandemic period, BCP's stock depreciated by 26%, broadly in line with the Spanish and Italian counterparts. This was followed by a period of increased instability, especially in the Polish market, where credit holidays were added to greater provision efforts for FX loans, which triggered the activation of the recovery plan at Bank Millennium in 2022. The successful implementation of this recovery plan in Poland, along with the intense commercial activity and continuous improvement in balance sheet quality in Portugal, contributed to a significant strengthening of the balance sheet and profitability generation, which allowed the reinforcement of capital to levels comfortably above requirements achieved exclusively through organic measures.
We entered a period of normalization of the activity of the bank, with profitability levels reflected in the improvement of the risk profile and stock performance. 2023 was thus a year of transition in which support improved the profitability, especially in the Portuguese operation. We anticipated the achievement of the goals we had committed for 2024. We gained investment-grade rating from all the main rating agencies, and BCP's stock stood out in the European sector, appreciating by more than 87% and widely surpassing the index appreciation that year, which was 20.3%. We concluded 2024 with a profitable business model, a benchmark in terms of operational efficiency, a robust balance sheet prepared to face the future with confidence and with an ambitious strategic plan in place.
As a result of the bank's trajectory, we obtained new rating upgrades, and BCP's stock appreciated by 69% in 2024, again outperforming the European index sector, which appreciated by 26%. We are starting a new stage in the bank's life. We are confident that once again we will be successful. Miguel, hand it over to you to proceed with the presentation.
Thank you very much, Miguel. As usual, I will frame here the presentation in terms of the evolution of the bank. As you see in page 10, the net interest income of the bank evolved 0.2%, with some margin compression due to the interest rate developments in several geographies, but still presenting a net interest margin above 3%. As you may see, in Portugal, there was a margin compression from 2.6% to 2.2%, still a very interesting margin compression for a European market, which explained to a large extent the decrease in our NII in the high single-digit area, as we had anticipated in the beginning of the year. We always said that based on our projections, our NII in Portugal would reduce in the high single-digit area, and that's what has occurred.
In the international operations, the margin increased by almost 10% in spite of some margin compression, also due to the high level of interest rates in the several geographies in which we are present. In terms of fees and commissions, a very positive evolution, both in Portugal and international operations, with the fees in Portugal growing in the mid-single-digit area, 5%, as we had anticipated also in the beginning of the year, and international operations at a level of 4.2%. These fees have evolved positively both in terms of market-rated fees and commissions, which are particularly more difficult in situations in which the term deposits give a very positive yield, and in terms of banking fees and commissions.
In terms of other income, here we had an extraordinary gain last year, as you may recall, to some extent due to a capital management deal in terms of the sale of Millennium Financial Services, which was our insurance brokerage unit to a strategic partner. The fact that we had this capital gain last year explains to a large extent the decrease that we are having this year. Also, the regulatory contributions, mainly in Poland, in which we somehow benefited from the fact that we were under a specific circumstance that gave us an exemption in terms of some contributions, also explains the additional costs that we have this year in the process of normalization of the bank. I'm sorry. In terms of operating costs, we grew in the international operations at a very high level at 16.2%, to a large extent explained by the salary dynamics in Poland.
As you may know, the job market in Poland is very hot, with consecutive years of double-digit increases in terms of minimum wage. In spite of that, there is almost no unemployment in Poland, so the economy is performing very well, but there are these side effects, and in Portugal, we also have a high increase in terms of the costs, mainly in the last quarter, to a large extent explained by the overachievement of the budget. As you know, the guidance that we have given beforehand was that 2024 would be aligned with 2023.
The fact that the performance was significantly higher than was anticipated in a context of many years of low variable remuneration and clearly below par total remuneration in some areas of the bank made it possible to us to converge with the market in terms of variable remuneration and bonuses, which explains also the increase in the last part of the year. Still, and I have to stress this, the bank in Portugal is presenting a cost-to-income of 34% over the year, still more efficient than what we are anticipating across the curve, as normal. As we all know that we are analyzing banks for a long time, these types of cost-to-incomes are clearly benchmarked in Europe, mainly across the cycle. Cost of risk. We are clearly benefiting from what we have done in the past in terms of cleaning up of the balance sheet and reduction of NPEs.
This year was an exceptional year because we had a special recovery that affected the cost of risk of the year in Portugal at a decrease from 54 to 31 basis points. We feel very confident that with the type of balance sheet that we have today for the foreseeable quarters, except in the context of, I would say, a very stressed scenario, that we will be able to have a consistent cost of risk in the next quarters below 40 basis points in Portugal.
In terms of the international operations, there was also a positive evolution with a presentation of 33 basis points of cost of risk, to some extent also because there is also some benefit in terms of cost of risk of the fact that we are providing for the Swiss franc mortgages that, of course, if we provide as operational risk, we do not provide as normal credit risk, so to say. There is here a continued decrease of NPEs. Right now, in terms of the hard NPEs, so to say, the really non-performing loans that are already 90 days past due at group level, we are at 1.4%. So we are being able to maintain levels below 1.5% already for more than two years in a row. In terms of the NPE ratio at 3.2%, and including off-balance sheet risks and securities, we are already below 2%.
This is exactly what gives us confidence in terms of the possibility to maintain a much lower cost of risk in the next quarter, much more aligned with what we are seeing in our competitors than what we had in the previous quarters. In terms of business activity, very importantly, the bank shows strong signs of development of the franchise, strong signs of growth in terms of funds. In terms of customer funds, a growth of 8% in terms of total customer funds. In terms of on-balance sheet customer funds, also almost 8%, 7.7%, and this is both in Portugal and international operations, a very good performance because in Portugal, we are speaking about 6% total customer funds and on-balance sheet funds broadly, and international operations growing around 13% in terms of customer funds.
Customer funds have been a very positive development of our franchise and a very important lever for the profitability of the bank, given the margin that was possible to obtain in this business. On the other hand, in terms of loan portfolio, we are stable. We are not growing yet at the pace at which we would like to grow. This is, to some extent, also linked to less growth, mainly in the corporate area in Portugal, general corporate growth, and also because of the price discipline that we inject in all our decisions, where we always compare credit with our cost of funding and with the alternative of investing either in the ECB or in European sovereign government debt.
We have been able to invest the funds obtained through the high customer funds growth that we are presenting at very attractive rates in terms of the sovereign portfolio and in terms of the ECB, sometimes at better risk-return opportunities as in credit business. In terms of capital and liquidity, here comparing with the benchmark and with what was the market anticipating, we are able here to present a CET1 ratio of 16.3%, already adjusted for the share buyback that represents around 50 basis points. Adjusting for the share buyback, this value would be 16.8%, which is clearly above the projections of most analysts. This has, I mean, many reasons. One is the profitability that was higher. The other that is not so good was that the credit growth that was somehow lower than what we were expecting. There are these two sides of the coin.
Looking forward, as you know, we have presented a plan that in October of last year, a strategic plan that clearly states that we want to converge to a value of capital above 13.5, so with a buffer above 13.5. Most of this growth, or most of the way we want to converge to this value, as presented in the plan, is through a much higher distribution to the shareholders, a distribution of up to 75% of the net income to shareholders with a 50% payout plus a 25% plus up to 25% share buyback, which we are already starting, so to say. But this plan has also an important element that is a high growth of credit and a high growth of risk-weighted assets that, of course, will make the bank larger and structurally more profitable over time.
This higher growth will be of RWAs and credit will be some more back-ended, as we are seeing it. So it is normal that the capital ratio will evolve more positively, so to say, in the first quarters than in the quarters in which our RWA growth and our credit growth will be larger. An important point here that I would like to stress is that we have been doing since the last quarter several simulations in terms of the CRR3. It is clear, as I have already stated several times, that in terms of the credit RWAs, we do not expect any material impacts. On the other hand, in terms of the operational risk RWAs, there are still some doubts because there are still some clarifications to be obtained.
However, in terms of our best estimate as of today, mainly due to the Swiss franc risk costs in Poland, we are expecting an impact of around 50 basis points at consolidated level, which over time, as you know, this is a moving average of three years, over time will mostly fade away because as the provisions for Swiss franc decrease, also this charge will also decrease. So in the time frame of our strategic plan, we do not think that this will be especially relevant. As you know, here in page 21, a very comfortable leverage ratio, also because of the type of models that we have that are quite conservative in terms of capital.
As we've seen now with the implementation of CRR3, that really points out that we have no impact from the input floor and from the output floor and so on, and with quite high RWA density that is a testimony to the conservativeness of our capital models. MREL requirement clearly above the MREL. So as you said, the MREL plus CBR at 29.17 as a requirement and at 34.4 as real value. In terms of the LRE, almost twice the value also. So nothing to worry about in this. In terms of the pension fund, still with the coverage above 100%, which means that we still have here a buffer before any type of impact on the pension fund affects our capital. This year, contrary to last year, the fund profitability has not been particularly positive, mainly because of some parts of the equity part.
On the other hand, so it was not possible to match totally the evolution of the liabilities. On the other hand, with the salary pressure that we've had, the evolution of the pension fund assumptions in terms of salary have also taken their toll in terms of the growth of the liabilities. In any case, no material impact in terms of equity this year. Liquidity ratios, very, very comfortable, as you see here, 342% LCR and 181% net stable funding ratio, with a very comfortable liquidity excess at the ECB, more than EUR 30 billion of eligible assets, clearly above the non-guaranteed deposits and so on, so a very comfortable situation. I'll pass now the floor here to Bernardo.
Thank you, Miguel. Good afternoon, ladies and gentlemen. I will start, as usual, on page 26, and it's regarding Portugal.
As you can see, net income amounted to EUR 786 million in 2024. That corresponds to an increase of 8.5% compared with last year. For this favorable evolution, I mean, there are several effects, although I should highlight the reduction of credit impairments and other provisions verified last year that provided significant contribution for results. On page 27, net interest income totaled EUR 1,335 million, 9% below what was recorded in 2023. And as Miguel explained, there were several effects, although we were aligned with the guidance that we provided. This evolution of NII reflects the increase in deposit costs, partially offset by higher income from both customer loans portfolio and the securities portfolio. And the increase in costs associated with deposits portfolio is related also with the evolution of interest rates, as well as, to a lesser extent, the increase in the average balance of remunerated deposits compared with 2023.
NII was also impacted by the two issues of senior preferred debt that we issued last year of an amount of EUR 500 million each. Moving to page 28, net commissions totaled EUR 588 million at the end of 2024, corresponding to a growth of 5% compared to the EUR 560 million recorded in 2023. Commissions related to banking business, which totaled EUR 491 million at the end of last year, and commissions related to markets totaled almost EUR 100 million on the same period, evolved favorably from last year, which increases 4.2% and 9.5%, respectively. The performance of commissions related to the banking business in the activity in Portugal was driven by the growth of commissions from the bank insurance, mainly due to the update of distribution fees.
Trading results evolved from EUR 14 million in 2023 to EUR 9.1 million at the end of 2024, and equity accounted earnings from EUR 59 million to almost EUR 54 million. The net operating income registered a significant improvement, evolving from negative EUR 65 million in 2023 to around negative EUR 25 million in 2024. This evolution was driven by the reduction in costs related with mandatory contributions and gains recognized with the disposal of real estate assets. Going to page 29, operating costs totaled EUR 673 million in 2024, which is 9% higher than the EUR 616 million recorded in 2023. Evolution of operating costs in the Portuguese activity reflects the increase of 10% in staff costs and in other admin costs, and the main reasons were already detailed by Miguel and includes several effects, as it was mentioned.
Number of branches were stable year on year, and there was a slight reduction in terms of employees compared with 2023. Moving to page 30, which refers to asset quality and has, as it was highlighted before, there was again a sizable reduction of NPs. NPs reduced more than 12% compared with last year, meaning more than EUR 104 million, out of which we reduced EUR 72 million in the last quarter, clearly showing that the bank is still committed with the NP reduction. NPs, as of December 2024, stood below EUR 1 billion compared with more than EUR 1.1 billion one year ago. I have to also remind you that a large part of the NPs are unlikely to pay and not 90 days past due. Cost of risks stood at 31 basis points.
As this was also mentioned by Miguel, without the impact of some reversal impairments registered in the second quarter of this year, it would have stood at 43 basis points, which compares with 54 basis points one year ago. Now let's move to page 31, which looks at the NP coverage breakdown. As you can see, total coverage of NPs stood well below 100%, in fact at 138%. NP coverage by loan loss reserves at 90%. If you look at for individuals, total coverage that have higher levels of real estate collateral stood at 100% and for companies at 134%. On page 32, which shows the evolution of foreclosed assets and corporate restructuring funds, there was a reduction over last year. Net value of foreclosed assets stood below EUR 50 million.
That compares with almost EUR 100 million one year ago, meaning a reduction of more than 51% or a decrease of more than EUR 52 million. Regarding property sales, there was a significant reduction in the number of transactions compared with 2023, which was somehow expected due to the reduction of real estate assets in BCP balance sheets. Regarding corporate restructuring funds, exposure at the end of December stood at EUR 344 million. That compares with EUR 365 million at the end of December 2023. Now moving to page 33, total customer funds reached EUR 70.5 billion on December 2024, up from almost EUR 67 billion at the end of the previous year, driven mainly by the increase in deposits. On-balance-sheet funds rose EUR 55.5 billion, reflecting higher savings levels among households and companies. Off-balance-sheet funds increased by EUR 780 million, totaling EUR 15 million at the end of December last year.
Here, the growth of assets under management partially were offset by the decline in insurance products. Gross loan books stood at EUR 38 billion, a slight decrease of 0.7% from the previous year. This reduction reflects a decrease in non-performing exposures and mainly loans to companies. However, mortgage book increased by 4% to EUR 19.5 billion. Personal loans grew 9%, reaching EUR 2.5 billion, while corporate credit decreased by 7% to EUR 16.3 billion, mostly due to the repayment of COVID loans. Going to page 34, it is possible to see new loans origination by each segment and the recognition of BCP as the main bank for Portuguese companies. Performing loans in Portugal went down just 0.3% from last year. Loans to individuals grew 4.6% and loans to companies due to the interest rate environment. As I mentioned before, early repayments of COVID loans went down 6.5% compared with December last year.
Now, regarding international operations on page 36, net profit in 2024 to EUR 120 million, 8.6% less than the EUR 131 million from the previous year. This reflects the reduction of the contribution from Millennium in Mozambique that offset the improved results from Bank Millennium in Poland. Bank Millennium net profit was EUR 167 million, showing a significant growth of 25% from the previous year. While Millennium in Mozambique recorded a net profit of EUR 48.5 million at the end of 2024, that represents a decrease of almost 54% recorded one year ago. As it was mentioned already, Millennium performance in Mozambique was heavily affected by the country's financial situation, particularly with the downgrade of the sovereign debt ratings, leading to an increase in financial asset impairments.
Moving to page 37, which refers to Bank Millennium. I think that the first message that must be highlighted is the formal exit of Bank Millennium from the recovery plan in June, and regarding results, net income continued to be impacted by costs related with CHF mortgage loans. And if we exclude these specific effects, net income grew EUR 48 million, or 7%, compared with the same period of last year. Net operating revenues down almost 11%, explained by the one-off effect related with the sale of 80% of Millennium Financial Services registered in 2023. Operating costs went up 13%, mainly influenced by the strong wage inflation that is still registered in Poland, and CET1 and total capital improved significantly and stood comfortably above the minimum requirements of 8.1% and 12.2%. On page 38, some detailed information about Bank Millennium.
NII without credit holidays impact increased 7.2% to more than EUR 1.3 billion. That compares with EUR 1.2 billion one year ago. NIM stood at 4.36%. That compares with 4.6% in 2023. Fees and commissions were broadly stable. Other income, which also includes results booked on the trading line, that were heavily impacted by the positive contribution arising from the sale of 80% of Millennium Financial Services. On the opposite side, in 2024, by the strong increase in mandatory contributions. Total costs, excluding mandatory contributions, went up 13% and were influenced by the increase of around 15% in terms of staff costs. Mandatory contributions went up EUR 54 million. It should be noticed that Bank Millennium, by exiting the recovery plan, started to pay the banking tax in June of 2024. Moving to page 39, related with asset quality. Cost of risk stood at 40 basis points.
Non-performing loans and 90 days past due stood at 2.2%, and coverage by loan loss reserves of non-performing loans stood at 149%. On page 40, customer funds in Bank Millennium grew 11% year on year. Off-balance sheet funds grew more than 35% and total deposits 9% compared with December 2023. In terms of loans to customers, gross books stood at EUR 18.1 billion. That's EUR 312 million above December 2023. Loans to individuals grew almost 1% and loans to companies grew more than 5%. On page 41, still on this topic regarding the FX mortgage portfolio, it's worth mentioning the continued reduction of the CHF mortgage portfolio, which reduced 26% since December 2023 and by 9% from the end of the third quarter of 2024. CHF loan book at the end of 2024 represented only 1.5% of the loan portfolio compared to 3.6% one year ago.
Cumulative provisions for legal risk amounted to EUR 1.8 billion, representing more than 120% of the total mortgage loan portfolio in CHF. Reduction over last year was driven by natural redemptions and amicable settlements with clients, and I should also highlight that on the fourth quarter 2024, the amicable settlements were above the number of new claims that flow into courts. Costs associated with amicable settlements in the fourth quarter reached EUR 41 million, and new court claims continued to decrease on a quarterly basis after the peak registered on the second half of 2023. Turning to page 42, which now regards Millennium bim. Show performance in Mozambique, as I mentioned before, was heavily affected by the country's financial situation, particularly with a downgrade of the sovereign debt ratings, leading to a significant increase in financial asset impairments.
Compared with the previous year, net profit, which included a positive impact from a partial reversal. It's also important to highlight. The subsidiary faced higher operational costs and operating revenues were relatively stable. Also, it should be mentioned that capital stood at 37.5%. Moving to page 43, NII in Mozambique was broadly stable and NIM stood at almost 8%. That compares with around 8.5% in 2023. Costs went up 4% and cost to income stood at 50%. Page 44, regarding asset quality, non-performing loans 90 days past due stood at 3.8%. Coverage stood at 110% and cost of risk at 38 basis points. That compares with the third quarter of last year with 48 basis points.
Now, the last slide regarding volumes on page 45, you can see that customer funds registered an increase of more than 7% and loans to customers a slight increase of less than 2%, meaning that the increase on loans to individuals of 21% was more than enough to compensate the decrease of loans to companies that amounted around EUR 32 million. And now, let me thank you for your attention. And before we move to Q&A, I'll return to Miguel for some final comments.
Thank you very much. As you see, these are the values that we represented in our last presentation of the strategic plan in October of last year. We are very satisfied that our strategic plan was well received.
It's always a balance of different objectives in terms of distribution, short-term versus long-term, value creation, the amount, how to distribute, the amount they distribute in dividends versus the amount that is distributed in share buybacks. As you probably have seen, the share price appreciated around 40% since the plan was announced, whereas the Euro Stoxx 600 banks have appreciated less than 30%. So I take it was well received and that the execution is also being well appraised by the market. We are, of course, on track for achieving these values, and now I will open the floor to Q&A.
Thank you. As a reminder to ask a question, you will need to press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. We will now take our first question. Please stand by.
The first question comes from Maksym Mishyn from JB Capital . Please go ahead. Your line is now open.
Hi. Good afternoon. Thank you very much for the presentation and taking our questions. I have three, all of them on Portugal. The first one is on loan book. How much headwinds remain for state-guaranteed lines in your corporate loan book in Portugal? And what kind of growth should we think of after these loans amortize fully? And what are your expectations for 2025, particularly? The second question is on net interest margin. It has improved in Portugal quarter on quarter. Do you think the NIM could have reached its lowest point in the fourth quarter? And what are your expectations for 2025? The last question is on other provisions.
Any chance you could walk us through on what happened in the quarter in Portugal and shed some light on your expectations for 2025? Thank you.
Thank you very much for your questions. First, as you know, in terms of our strategic plan, we have quite ambitious values in terms of loan book growth in Portugal. We are speaking about loan books in terms of cumulative average growth rates on average between 2024 and 2028 of around 5%, give or take. I'm speaking about. What we do think is that it's taking somewhat longer to occur because of the feel of the market, of the amount of the uncertainties. So to say, in terms of the European economy, the investment is not picking up as fast as was expected some quarters ago with the geopolitical uncertainties at the end of the day.
So we still maintain, so to say, in terms of cumulative annual growth rate, the 5% for the strategic period. I would say that it will be somewhat backward-ended, so to say, in terms of 2025, it will probably in the low single-digit areas. Later on, it will be on the high single-digit areas. First, the NIM and the NAI and so on. I mean, as the interest rate goes to more, I would say, more normalized levels, and we are expecting the interest rate, the Euribor rates then to land at levels around 2%, maybe a little bit below that. What is to be expected is that the NIM in Portugal will also become normal and will also converge to what is happening in other countries also.
The NIM that we have seen in the last years, I would say, has benefited from a level of interest rates and an inertia in terms of the way the interest rates on the asset side and on the liability side have performed. That is not, I would say, totally a steady state, so to say. I would expect the NIM over time to go to mainly as interest rates go to levels of 2% to go down. Having said that about the NIM, in terms of guidance for the NII, what we are expecting for 2025 is the NII to be broadly flattish to some extent because of the hedges that we have in our book.
However, as this is explained by, I would say, our hedges, and as our hedges are not micro hedges, so they are hedges of non-maturity deposits that reprice at some months and not at others, there may be some volatility in terms of the NII. However, this does not mean that for 2025, so we feel quite confident that it will be broadly flattish when we take the full year comparing with 2024. Then as the credit picks up, 2026, 2027, 2028, we expect the NII to grow in the low single-digit area aligned with or consistent with some margin compression, but with the 5% credit growth on the other hand. In terms of the other provisions, this was a special year also because a part of these other provisions are linked also to the impairments.
So, to say, we have in the other provisions, for instance, the provisions for real estate and for off-balance sheet credit items, so to say, guarantees and so on. And sometimes, I would say, an event occurs in a guarantee or there may be a depreciation in a real estate asset that was foreclosed, that there's some substitution effect between these and the impairment line. So this year, as you've seen, we clearly outperformed in terms of the impairment line. So the credit impairment has clearly been much better than, I mean, we all anticipated, that 32 basis points. A part of it was with an extraordinary recovery, but also a part of it has to do with some substitution effect with these other provisions. Going forward, as we expect this line to drop materially.
So going forward, as I had anticipated here for Portugal, we are expecting in the next quarters, except if there is some type of, I would say, disruption in Europe, which is not our base case, for the cost of risk to even be below 40 basis points. And we are expecting a significant drop in terms of the other impairments. And I think I have commented this. I would say the COVID lines, I would not emphasize too much the COVID lines in this context because as time goes by, I mean, we had, I would say, a market share that was above our national market share in terms of COVID. Now, as these lines become more normalized, I would say we will expect to grow more or less aligned with the market if the market prices loans, I would say, economically well.
Basically, we are not being framed by this. The issue here is whether the, how can I say it, whether the supply and demand and whether our competitors, so to say, are willing to spend value in terms of obtaining market share, which we are not. The issue here is more an issue of, at the end of the day, of what makes sense for us from a risk-return perspective. Because for us, I mean, investing in, at the end of the day, in sovereign debt or putting the money at the ECB is always an alternative. We don't want to invest in a credit just because it is a credit. We have always to compare the additional risk that is incorporated in the credit with the additional return that we obtain from this credit.
Sometimes it is more in the interest of the bank and its shareholders to invest in a deposit in the ECB or in sovereign debt. So we don't have any prejudice in this context.
Thank you very much.
Okay.
Thank you. We will now take our next question. Please stand by, and the next question comes from Ignacio Ulargui from BNP Paribas Exane. Please go ahead. Your line is now open.
Thanks very much for the presentation and for taking my questions. I have two questions, if I may, and one clarification. If I just look to the cost performance of the bank in 2024, in the last quarter, there has been a bit of an increase in Portugal. Just wanted to get a bit of your thoughts, Miguel, how do you see cost will perform going forward in Portugal and Poland? The second question is on the capital front.
You have flagged around 50 basis points capital impact from Basel IV. That takes us to be at 15.8%. It seems to be a very comfortable level, still well above the level that you are targeting as a minimum level in the plan. Should we expect any kind of incremental usage of the capital in form of distributions or efficiency plans? How should we think about this around EUR 1 billion of excess capital that you could have, give or take, currently? And a clarification on the Polish business, you have flagged that you have had contributions increasing since June. Should we take the 2024 kind of contributions level and double it up, or there is some seasonality in it? Thank you.
Okay. Starting with the last, I mean, in terms of the contributions in Poland, as you know, we only exited the plan in half of the year.
So it is not totally, I would say, the last quarters are already in steady state because these are quarterly contributions, but the full year is not in steady state because basically when we were in the capital protection plan, we did not have some of the contributions. We did not have to pay bank tax. Okay. In terms of the other two points, in terms of costs, we are, I would say, we had a convergence in the last of the year in terms of variable compensation with our competitors in the market. Going forward, we do not expect in Portugal the same type of cost increases that we had in this year. So going forward, what we expect is a cost increase broadly aligned, I would say, low to mid-single digits going forward. So that's what we are expecting going forward.
In terms of the comfortable capital level, as you know, Ignacio, we have presented a plan to the market where we said that that was, I would say, a balance between different objectives where we said that we would be delivering, I would say, a 15% dividend yield plus equity appreciation. So the sum of the book value per share plus dividend yield would be around 15%, where we said that we would have an ROE above 13.5%, and where we said that we would have a capital ratio above 13.5%. And in order to achieve this, we wanted to develop the bank, and we would like to distribute up to 75% of the net income, whereas at the same time, growing RWA so as to protect and develop the franchise of the bank. This is the plan that we are implementing. Okay?
This is the plan that we are implementing. Of course, if within one year, one year and a half, what we see is that we are not able to generate value by growing RWAs in the way that we intend to grow, growing business and consequently RWAs. Of course, we have to come back to the market and review our plan. But this is not what we have right now. What we have right now is a plan. We are committed in implementing the plan, and the plan is what it is. Let's see whether we can implement this plan. Of course, if the reality changes, we will have to change the plan, and we hope that we will be able to grow the business so as to find value-generating opportunities for the usage of this capital.
If we are not possible, if it is not possible for whatever reason, probably we'll have to recalibrate what we had to do in the past. But let's see. We just presented the plan in October, so we are trying to implement it.
Ok ay? Thank you very much.
Thank you. We will now take our next question. Please stand by. And the next question comes from Noemi Peruch from Mediobanca. Please go ahead. Your line is now open.
Good afternoon. I would like to ask three questions. So the first one is on cost in Portugal. They were up 14% Q1Q, and I was wondering if you could single out any one-off component that will not recur in 2025, if any. And then the second one is on capital evolution.
If you could go through the positive capital components in Q4 other than written earnings and if DTA played a role here. The last one is on your common equity target, just to understand how tangible that is. So I was wondering if indeed close to 13.5% is a level that you see yourself reaching if M&A or capital deployment in general is compelling enough, or would you prefer to run with a much higher capital ratio at any given time? Thank you.
Okay. Starting with your last point. So as you comment, I mean, we take our communications and our commitments to the market seriously. What we said to the market is that we have a plan. We want to reach by 2028 a value of somewhat above 13.5%. When we say that's above 13.5%, it does not mean 300 basis points above 13.5%.
It's somewhat above 13.5% to allow for some buffer, and we would get there by distributing 75% of the earnings and increasing the RWAs, and that's, at this time, what we are trying to do. If at any point in time we think that for whatever reason, more risk in Europe, let's say, for whatever reason, that we should materially change our targets in terms of ROE, in terms of capital, in terms of distribution, we would previously come back to the market, but right now, and present it, what is our new view, but right now, this is our view.
This is what we want to do, and we feel comfortable that for our business model, a capital ratio somewhat above 13.5 by the end of the plan is appropriate based on the risks that we see in front of us, based on the strength of our business model, and so on. In terms of costs, what I can tell you is the following. The main part of the costs was salaries. Okay? And what I can tell you is that the increase in the base salary that we have negotiated with the unions was 3.25%. The increase in salaries together with promotions, so let's say with the more recurrent baseline of the salaries, was around 3.7%. This is for the full year because a part of the negotiation was. And in 2025, we have already negotiated 2.5% in terms of increasing salaries.
So this is the minimum increase in salaries that we will have. The remaining part was mostly explained by, I would say, direct or indirect, I would say, variable remuneration. This variable remuneration, I would not classify it as non-recurrent because if people are able to deliver more, there are commercial incentives. If people sell more, in our case, for instance, we were able to sell much more in terms of deposits, in terms of customer funds, and so on. I would say it's fair and it's motivational, of course, to have more variable remuneration, and we were somewhat below our competitors in terms of variable remuneration. So I would not expect, so to say, looking forward, that this baseline would change.
What I would expect is now that we have converged to the market in terms of variable remuneration, that we would, provided we perform well, of course, that we would grow, as I was commenting, in this low- to mid-single-digit area based off the salaries going forward. Okay?
Thank you.
In terms of capital, last quarter, it's quite easy to explain, so in September, we had 16.5%. So the normal P&L, including the tax elements that were not particularly relevant, by the way, this quarter improved the capital ratio in 60 basis points. The RWA inflation, so to say, decreased the capital ratio in around 20 basis points, and the share buyback is also 50 basis points. So 50 plus 50 minus 50 minus 20 gives the decrease of 20 basis points. So these are the broad numbers.
Okay. Thank you.
We will now go to our next question. Please stand by. The next question comes from the line of Pamela Zuluaga from Morgan Stanley. Please go ahead. Your line is now open.
Hello. Good afternoon. Thank you very much, and thank you for the presentation. I have a few follow-ups. On NII, do you think you have some room to cut deposit remuneration in Portugal enough to offset the delay in volume growth? On costs also in Portugal, what exactly is driving the up to mid-single digit increase in costs that you were talking about? And finally, on capital, I'm sorry, just to make sure that I understand correctly, you're saying that the excess capital for the back-ended growth in loans that you mentioned before, you're saving it. So if everything goes according to the plan, therefore there's really limited optionality beyond the current targets?
Or are you also saving a buffer for any inorganic growth options? Thank you.
So to say, in terms of deposits, I mean, there is always some trade-off between short-term and long-term, between acquiring customers and acquiring market share and short-term profitability. So I cannot tell you that there's not a headroom there. There's always a headroom there. There's always calibrations that you may do in terms of the commercial strategy. Right now, we are being very disciplined in terms of cost of deposits. And when I say that I expect next year the NII to be broadly flattish, I'm already including in the NII some pass-through of the decrease of the market interest rate. Because as you know, when the market interest rate goes down, the betas of deposits are typically below one. There's always some margin compression that it's partially hedged, so to say.
We already are incorporating this in our plan when we say that our NII will be broadly flattish. Okay? I think this is the plan. We purposely have a plan in which we are not distributing the excess capital all at once. We are distributing the excess capital as time goes by by growing RWAs, so to say. This means that until 2028, we'll have some excess capital, as you know, because the RWAs will take time to grow. This excess capital that we have during this time, of course, allows for some optionality. But as we commented, this optionality also is a very prudent optionality, and it's an optionality that is, so to say, goes down, decreases as time goes by. Because that's why we are not distributing the excess capital all at once, so to say.
Having said that, this optionality may be used for many things, not necessarily for the speculation about a takeover of another bank. So optionality is there. Strategic options are there. We always said that we want organic growth. But of course, we have to keep in mind that, of course, it's always good to have the possibility of having some options, especially in a period of more uncertainty and volatility where opportunities may exist. But our base case is exactly this one that we have presented to you. The cost in Portugal, I think I have already commented the mid-single digit. I mean, it is normal if we have with the unions already closed an agreement of 2.5%. Okay? If there are always some promotions there. So when I speak about mid-single digit, I mean, it goes without saying that this is more or less where we stand.
So it's a natural product of the 2.5% of growth with the unions, together with some promotions and some changes. Also, there will be some reductions in headcount, some natural reduction in headcount. But typically, what we are seeing in the last years is that the type of profile that we need for a digital sophisticated bank also needs to hire people that are much more valuable and much more expensive, so to say. So that typically, at least over the short term, there is not a large benefit from this digitalization of the bank because the people that we need to hire typically have higher salaries than the people that leave the bank. So it's a salary increase that explains this evolution of the costs.
Thank you.
Thank you. We will now go to our next question. Please stand by.
The next question comes from the line of Francisco Riquel from Alantra. Please go ahead, gentlemen. It's now open.
Yes. Hello. Thank you. So my first question is about deposits in Portugal. I see the mix change out of time deposits in Q4. So I wonder how do you see the mix evolving during 2025? And also on the deposit costs in Portugal, where are we in Q4, and where do you see the deposit costs landing by the end of 2025? And then wanted also to ask about fees. They came out a bit stronger than what I was expecting. I see the jump is mainly explained by market-related fees. So I wonder if you have booked any year-end performance or success fee, and if you can comment and give guidance for fees growth in 2025. And just lastly, a clarification.
The 50 basis points impact from CRR3, Basel IV, is it a day-one impact in 2025, or will it be over a longer time horizon? Thank you.
Impact of operational risk. It is expected to occur in the first quarter of the year but as time goes by, this will be a very important part of it because this is related to the Swiss franc mortgage risk will fade. So it is a day-one impact that will fade. Please also keep in mind that in the meantime, we will also accrue capital, and we are a very strong capital-generating unit, so to say. And this is, as I'm commenting, a quite conservative scenario.
I would not say it's the worst-case case, but it's a scenario in which we consider not, I would say, the cash costs and the realized costs of the Swiss franc mortgage risk as operational events, but where we consider the full provision as operational events because this would change a lot depending on how we do interpret it. Of course, we would like to have had already the clarification from the EBA RTS. Unfortunately, they are not there yet, so this is something that is there, but will then fade away within the period of the plan. In terms of what we are seeing in terms of deposits, as interest rates go down, you see the reverse trend that we had in the past in terms of the composition between term deposits and demand deposits.
So it is normal that we come back to a level of mix that we had for the present level of interest rates that we had in the past. Because, of course, the opportunity cost, the demand deposits in Portugal are non-remunerated. What we see right now is that we have here in 2024, we have 48% of term deposits and 52% of demand deposits. For instance, in end of 2023, we had 45%. In end of 2022, we had 37%. So there is some headroom, of course, to have here a mixed change between term deposits and demand deposits because, I mean, to gain 1% or to gain 0.5%, people rather leave the money in the demand deposit account. So exactly the speed at which it will converge, I mean, it is difficult to say, but it is what it is.
In terms of the total cost of deposits by the end of the year, it is already around 80 basis points. As time goes by, we expect it's difficult to anticipate exactly the speed, but to have a beta of around 50%. So the additional decreases in interest rate will, I'm sorry, will have a beta of 50% on the term deposit rate that is broadly half of the portfolio. So effectively, this will mean a beta of 25% when you consider term deposits plus demand deposits. Okay? Please. I can answer that question on fees. I would not point anything special out. I mean, there is always some normal business volatility. I would not highlight any special issue here. There's some seasonality sometimes in terms of fees.
As time goes by also, I think it's important. Some customers that used to have deposits on a period of higher interest rates, they move to funds or to bank-issuance products in a lower interest rate scenario. So as this goes by, we expect also the fees to pick up, but somehow at the expense of the margin. And the guidance that we are giving here for this year is mid-single digit, which we feel comfortable with.
Thank you.
Thank you. We will now take our next question. Please stand by. And the next question comes from Álvaro Fernández from UBS. Please go ahead, gentlemen. It's now open.
Yeah. Good afternoon, and thanks for taking my questions. I have two. First, on Novo Banco, what's your current interest in the asset and what could trigger a potential merger with them?
Second, the ALCO portfolio is up 2% Q&Q and 29% year-on-year. What is your ALCO strategy going forward, and what do you consider to be an adequate or normalized size? Related to this, your latest NII sensitivity to lower rates, both in Portugal and Poland? Thanks.
In terms of NII sensitivity, I will start with this one. It is very, very low. In Portugal, it is based on the models right now, I would say closer to EUR 30 million-EUR 40 million for 100% decrease. It is quite low. In Poland, I don't have the number here with me, but it is also very, very low. Of course, this is based on theoretical models.
Then there is the issue of the competition in the market and exactly how the term deposit prices evolve in a scenario of decreasing interest rates, which, I mean, is not only dependent on models. It's impossible to predict totally because it depends on actions by competitors. But all in all, I would say quite low sensitivity. In terms of the ALCO portfolio, as I was commenting, I mean, the ALCO portfolio is more a consequence than an objective. So we want to develop our commercial franchise and to continue to develop our commercial franchise. We clearly grew our on-balance sheet customer funds above the average of the market. We were certainly top two in terms of growth of on-balance sheet customer funds. For sure, top two.
And we think it's very important because we have an interesting margin, and it's very important to develop our business, to continue to grow. Growth is fundamental for value creation and for our strategy. And then what do we do with the funds? That's the question. And we compare, so to say, investing in credit, in any specific credit, with investing in European sovereign debt. And when the alternative of credit is better, we invest more in a specific credit. If it is better to invest the money that we have obtained through our customer business in sovereign debt, we invest in sovereign debt. So it is not. We don't have, I would say, a target or we don't get wholesale funding or repos to invest in sovereign debt. No, the investment in sovereign debt is a consequence of our commercial strategy and of our franchise.
We do not have a target, and we do not think it is unbalanced. What is important is that the portfolio is a reasonable portfolio, is a low-risk portfolio, is a diversified portfolio, and this we feel very comfortable with it. By the way, there is not a special concentration even in the portfolio of Republic of Portugal. It is a general, I would say, diversified portfolio. Okay? In terms of Novo Banco, what we have said is very clear. We have presented a strategy to you. Our strategy is based on value creation. We genuinely think that we can generate this value by developing our business organically and by distributing, I would say, the value generated by the several stakeholders and also, of course, by the investors with a distribution of 75% of the earnings. So up to 75% of the earnings. This is our strategy.
In the meantime, of course, opportunities may arise. If an opportunity arises and we see that it clearly generates more value for our shareholders than our previous strategy, we have to reanalyze our strategy. But as of today, and of course, we would compare the value generating of this strategy with the strategy that we have presented to you and that I would like to stress was well received. As I would like to stress, we have presented a strategy to the market, and the share price since then increased 40%, whereas the market grew less than 30%. So we feel very comfortable for our strategy. It would have to be a very, very, very compelling story to make us change our strategy. I cannot say never again because one person cannot say never, but it would have to be really very, very compelling.
We would have to feel very secure that this would be very value generating for the different stakeholders.
Thank you. We will now go to our next question. Please stand by, and the next question comes from Carlos Peixoto from CaixaBank BPI. Please go ahead, gentlemen.
Yes. Hi, good afternoon. A few questions from my side as well, quick ones, I think, so the first one would be on Mozambique. So I see you have an equity value of your unit there is less than 6% of the overall tangible book value of the bank. But I was wondering if there is any other type of exposure, be it loans granted or deposits that might still be in Mozambique, just to have an overall overview on the exposure to that geography, then the second question would be actually on deposits growth.
You mentioned a bit already on the cost and on the mixed evolution, but I was wondering what type of growth you see in deposits, both in Portugal and also in Poland for 2025. And the final question would actually just be a bit of a more generic one, which is looking into the guidance that you gave us and so on. Do you think that in 2025 you can reach the roughly EUR 900 million net profit that took place in 2024, or is that a figure unlikely to be surpassed in the short run? Thank you very much.
Just to comment, in terms of Mozambique, we have as a general philosophy in terms of the equity participations that we have to have our risk limited to the equity that we have invested in the country. So this is true for Poland. This is true for Mozambique.
So the risk that we have is the equity that we have there. In terms of the evolution of our net profit, I mean, it's always difficult. It's always difficult to commit in periods of so much uncertainty, mainly in periods of so much uncertainty in which we are right now. Okay? It's always difficult to commit. But if you ask me whether we think it is unreasonable to have in 2025 a P&L that is aligned with the P&L of 2024, I would say it is not unreasonable. It is certainly that I would expect to be very, very reasonable to achieve, of course. I mean, we all know the world in which we are living right now and the uncertainty that we are living right now.
In the absence, I would say, of black swans, of additional black swans, I would say it's not unreasonable to expect for 2025 a value aligned in consolidated terms aligned with 2024. In terms of what we expect for deposits, we expect in Portugal a low to mid single-digit increase in terms of deposits, probably closer to the mid-single-digit increase in terms of deposits. Of course, it depends on the savings evolution in the country and so on, and a mid-single-digit evolution in Poland. So that's what we are expecting. So that would give us probably values around mid-single-digit evolutions at group level.
Thank you. We will now go to our next question. Please stand by. The next question comes from the line of Sofie Peterzens from J.P. Morgan. Please go ahead. Your line is now open.
Thank you. Hi. This is Sofie from J.P. Morgan.
So just going back to Mozambique, on page 51 in the presentation, I can see that you have a bond portfolio of 643 million. In Mozambique, you took around 39 million of provisions this quarter. Could you just talk about the kind of additional provisions that we could potentially expect from Mozambique in 2025 and maybe beyond that? If there is anything you can say. Then the second question would be on the pension fund. I can see that discount rate is now roughly 3.5%. Could you just give the sensitivity for kind of a 25 basis point cut in the discount rate, and how do you think about the capital impact from this?
And then the last question, I know you have talked a lot about kind of M&A, but maybe if you could just share your thoughts on cross-border M&A, and do you think BCP could potentially be a target for another bank? And yeah, if you could maybe just talk about how you think about the banking union and cross-border M&A more broadly. Thank you.
Mozambique, first. I would like to stress that our business in Mozambique is a business where we have very little credit. What we have is basically customer deposits that we then invest either in deposits at the central bank or in government debt in local currency. I think it's very important. The bank in Mozambique has no Mozambican government debt in foreign currency.
That typically is the area that is more difficult to manage for countries that are facing or that may face more financial stress. So everything is in local currency in a country that has its own central bank. So I think it's important. As you know, as time goes by, the risk of restructuring, of debt restructuring in foreign currency or in local currency is totally different, so to say, because typically in foreign currency, banks do a restructuring because they need to when they don't have any foreign currency left. In local currency, they actually only do it when they want to because they can always, I mean, they have local currency by definition, and very often, of course, each case is a case. Countries have to balance the benefits of some type of restructuring with the impact that this could have in the financial sector.
Because if they restructure and then have to capitalize the banks because of the restructuring, this creates then, I would say, it's not necessarily very value accretive for a government that does it. So we take a lot of comfort from the fact that it is in local currency. Having said that, we have a model that bases the provisions on the rating of the country. So as the country loses rating notches or as the rating deteriorates, we have to create additional provisions. What we are seeing in Mozambique, I mean, is that the country lost two notches in terms of rating, if I'm not mistaken. So this had an impact in our model, and we had to adjust this.
If the country loses additional notches based on the methodology, not necessarily because we expect the country to restructure or to default, we will have then also to change it. However, we do think that this is totally manageable in the context of the consolidated balance sheet of the bank and in terms of the, I mean, the risk model that we have, so we are not speaking of anything that is, I mean, excessive, so to say, and in any case, the bank in Mozambique has enough equity to cope with all these issues. It has a capital ratio in excess of 30%, so we don't see a problem there.
In terms of the discount rate, for each 25 basis points changes in the discount rate, there is broadly around EUR 100 million impact in terms of the liabilities, but there is also an impact, a positive impact in terms of the assets because a large part of the pension fund is invested in fixed rates sovereign bonds exactly to counterbalance this. So I would expect between 50% and 75% of this impact to be then counterbalanced on the asset side, okay, depending on the positioning of the market. In terms of being a target in terms of money, we are in the market. We do not choose our shareholders. Our shareholders choose us.
So what we have here to do is we have to generate value, and we have to prove that the best thing for, I mean, that they are in good hands and that we are able to generate a lot of value for them. If somebody makes an offer because this person thinks that it's able to generate much more value than I would say this management team is able to do, it's up for the shareholders to decide, but we are very agnostic there. We are very professional. Our job is to be managers. Our job is to generate value for the different stakeholders and for the shareholders that elect us. And that's what we are concentrated in. We do not lose one minute of our time or of sleep thinking about who may be willing to acquire BCP.
It's something for the shareholders to care about, not necessarily for ourselves. What we have to be absolutely relentlessly focused on is on generating value. That's very clear. Thank you.
Thank you. In the interest of time, if you can all kindly limit yourself to two questions to give an opportunity to the other participants to ask their questions. Thank you. We are now going to proceed with our next question. The questions come from the line of Miro Natario from Jefferies. Please ask your question. Your line is open.
Good afternoon. Thank you for taking my questions. I have two quick ones, please. In part, you had a very low effective tax rate in Portugal, which I believe is due to stronger DTA utilization. Could you tell us what you expect in terms of the effective tax rate in Portugal going forward?
And then secondly, how should we think about the cadence for buybacks going forward? Because you're guiding for a 25% payout in buybacks per year, but is this going to be mainly a full-year thing announcement, or depending on when you finish the EUR 200 million buyback that you just announced, you might be able to announce a new buyback throughout the year? Thank you.
Okay. First, in terms of buyback in principle, as you know, there are some regulations in terms of making sure that the buybacks do not influence unduly the market price. So these buybacks have to take time, have to be executed over some months so as not to unduly influence the market price.
Because of this, we do not, I mean, in principle, our objective is to have one program a year that then will extend, of course, for some time in principle, so that this is at least the base case. We have just gotten the authorization from the ECB. We are still speaking with the different investment banks and brokers to see what the exact alternative is. We expect over the next weeks to start implementing this, but we are in the negotiation phase, so to say, with the investment banks. In terms of the tax rate, I would love to check this because it's important. I mean, we decreased our capital. We decreased 10% our DTA. So during the year, if you take a look at the full year, I think it's important. We decreased 10% of the DTAs.
We cannot look at the, I would say, at the tax rate on a quarter-by-quarter basis because this is influenced by what is deductible in any specific quarter. So there may be some volatility on a quarter-by-quarter basis because the amount of costs that are not deductible or are deductible become more relevant on a quarter-by-quarter basis. So there is always some volatility going there. Having said that and looking forward, I do think that we will be able to have in Portugal an average tax rate below 30%. So clearly, below 30%, we think it is possible given the structure of our P&L. By the way, I just wanted to check this because there is, going back to the SVB, there is here a difference between the first SVB and the SVBs to come, so to say.
We are approving now in the next shareholders' meeting our shareholder distribution strategy while formally approving the up to 25% SVB. And so the next SVBs that we will have, not the first one, will be done according to a policy already approved at the AGM foreseen by the ECB, of course, and where we deduct already the 75% during the year as time goes by. Okay? So it is almost sure that absent that we are not delivering on the plan, that the value in principle will be close to it, except if we are not delivering on the plan. Second issue, this first one was, so to say, a kind of one-off because we had not this in our policy. So we had to subject a special authorization. That's why. Because we were not deducting the 25%, as you know, from our capital ratios before.
It was a special authorization that typically takes more time because basically it is to show, to distribute a part of the earnings that we were not deducting from our capital. When we presented the authorization, we presented a value that we expected to be around 25% of the estimated earnings, but it had some degree of buffer just to make sure that we would not be going above the 25% on one hand. On the other hand, I mean, the last quarter turned out to be better than what we were in terms of P&L initially expecting. That's why the EUR 200 million is not exactly the 25% of the earnings. I think it's important just to clarify. We wanted to be prudent because it was the first one.
We are now going to proceed with our next question.
The questions come from the line of Hugo Cruz from KBW. Please ask your question.
Hi, thanks for the time. I just have one more question. It's around the M&A. Some banks have been quite clear with their M&A criteria to do acquisitions. I'm thinking specifically UniCredit. I was wondering if you have certain internal criteria as well to assess any target around, for example, EPS accretion or return on investment or impact on dividends. Is there any criteria like that that you could disclose? Thank you.
I mean, our criterion is very simple. At the end of the day, it has to be more accretive for our shareholders than the current plan that we have that is based on organic value creation plus the share buyback.
So we would have to compare the accretion of any acquisition and the capital impacts of any acquisition and the value accretion of any acquisition, the accretion in terms of earnings and in terms of value with the one that we have in our plan. So we have to compare it with the share buyback, with the earnings that we have and so on. And we have to be very comfortable that this is in the best interest of shareholders, considering also the opportunity costs and the execution risks. Because there are opportunity costs, of course. Let me just give you an example. If one does an acquisition, there's always some market share churn. If one does an acquisition, I mean, there is always some time that you lose in terms of development of systems and digitalization to incorporate systems. So there are opportunity costs.
So we have to consider this and to be very, very comfortable that it's in the best interest of our shareholders. So this is the ACES test.
Very good. Thank you.
Thank you. We are now going to proceed with our next question. The questions come from the line of Luis Pratas from Autonomous Research. Please ask your question.
Good afternoon. Thank you for taking my questions. I have two quick follow-ups, please. The first one is on Mozambique. Could you please confirm if we should expect a new impairment in Q1 as there was another downgrade by S&P, if I'm not mistaken, a week ago? If yes, is the size similar to the one in Q4? And my second question is on organic growth in Portugal. Shall we expect positive growth in Portugal for 2025? Thank you.
So can you repeat the last question?
On positive, it's basically if you expect positive growth in Portugal for 2025, if basically revenue growth should be higher than the cost growth that you guided the low- to mid-single-digit.
I understand. So first, positive growth, no, we are not expecting positive growth, but we are expecting a resilient P&L. Let me comment a little bit on this. So we are expecting that over the year, the NII will be flattish and commissions will go mid-single-digit. So if costs also go mid-single-digit, I mean, if the NII is flattish, I mean, the growth are not necessarily not positive.
However, we expect to benefit materially from the cleanup and from the improvement in the strength of our balance sheet so that we expect that in terms of impairments, provisions, other provisions, and so on, to have a positive evolution so that net income can be quite resilient, I would say. In terms of Mozambique, as I commented to you, there is a model based on the impairment of the country. On the rating of the country, I mean, it's not up to now. We are commenting on the last year's results, so it's not up to now to give any information on Q1 results. What I can tell you is that the recent impairment or the recent downgrade of Mozambique will not have a material impact. We have some impact, but does not have a material impact in terms of the impairments at group level.
I would like you to recall that we only have two-thirds of the bank, and the impact of this additional downgrade is quite small, but I don't want here to give any special information concerning Q1.
Thank you very much.
We have no further questions at this time. I will now hand back to Mr. Miguel Bragança for closing remarks. Thank you.
Okay. I really would like to thank this analyst community that is following us. We were very satisfied in presenting these results that clearly show that we are aligned with the execution of our plan, and we expect to continue to deliver on it and at least to be reflected in the evolution of our share price going forward. Please count on our full commitment in doing our best. Thank you very much.
This concludes today's conference call. Thank you all for participating.
You may now disconnect your lines. Thank you.