Thank you for standing by. Welcome to the Millennium bcp nine month 2025 earnings conference call and webcast. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Miguel Maya. Please go ahead.
Good afternoon, Miguel Maya speaking. Welcome to bcp earnings conference call. As usual, I will mention the highlights of our performance and then Miguel de Bragança and Bernardo de Collaço will follow providing additional detail. Recent times have been marked by high levels of volatility and instability that haven't faded away. The social and economic shockwaves in the markets where we operate, coming from geopolitical conflicts and tensions, demand increased resilience and agility from our side. Our performance in the first nine months of this year confirms the quality and capability of our business model to overcome adversities while expanding the franchise and generating increased profitability. Consolidated net income reached EUR 776 million, a year on year increase of 8.7%, driven by a solid operational performance that supported the core operating profit of EUR 1.8 billion and ROE of 14.6%.
In Portugal, net income went up 8%, having reached almost EUR 655 million, supported by a robust business model and a leading position in multiple business fronts. The net income of International operations increased 19.8%, driven by Poland where despite the costs with the legal risk still being a significant burden, Bank Millennium's net income went up 56% to EUR 202 million, also confirming that it has a high quality franchise and a profitable business model. The costs in Poland associated with FX mortgage loan portfolio amounted to EUR 280 million, 31% below the costs over the same period last year, which give us confidence and is a good indicator that the risk is controlled, has been properly managed and will not compromise the ambitions we have set for the Polish market on the strategic plan.
The economy in Mozambique has been facing a challenging situation dealing with the effects of the slowdown in activity following the social unrest. After the outcome of last year's elections, the political situation stabilized which led to a progressive normalization of the activity and regaining of confidence from international investors. More recently, reflected in the last week announcement of the intention to redeploy important energy projects, we have had a long standing operation in Mozambique, celebrating this year 30 years of local presence in the country during which we have developed a resilient and prudent business model, having gained in depth knowledge and expertise to successfully navigate the various stages of the economic cycle. In this challenging context, the net income in Mozambique amounted to EUR 25.4 million, a year-on-year decrease of 59%, driven by impairments and provisions mostly related to the downgrade of sovereign debt rating.
Despite this additional charge of impairments, the profit before impairments and provisions was aligned with last year's level, supported by our strong commercial franchise. At the consolidated level, the ability of our business model to organically generate capital is clearly reflected in the group's strong capital position. Despite significant business growth and the fact that we are only incorporating 25% of the profit generated in line with the approved dividend policy, we have been able to maintain very rigorous capital ratios. We see CET1 ratio of 15.9% and total capital of 19.9%. Operating in an increasingly competitive landscape, the quality of our retail banking business model led to an increase of almost 9% in customer funds, which stood at EUR 109.5 billion, and to an increase of nearly 5% in loans to customers, which reached EUR 61.5 billion.
This performance in customer loans was driven by our intense commercial activity in Portugal, where performing loans went up 8%. Having increased significantly both in loans to individuals and to companies, we keep the trajectory of improvement of the balance sheet quality, continuing to reduce non-performing exposures. Over the past 12 months, NPEs decreased by EUR 332 million, recovery funds by EUR 71 million, and foreclosed assets by EUR 19 million. The NPE ratio is now at 2.6% with a total cash coverage of approximately 87%, which stands at 123% when including real estate collateral. Our rigorous management of balance sheet risks enables us to further improve the cost of risk to 31 basis points, a figure well anchored below the threshold of 50 basis points that we consider reasonable for our business model over the cycle.
At the group level, the customer base expanded more than 4% in the last 12 months, exceeding 7.2 million, of which almost 2.9 million in Portugal. Most notably, mobile customers grew 9% during the same period, accounting for 74% of the group's customer base, 66% in Portugal, revealing the success of our digital transformation journey. Customer recognition of our digital capabilities is also reflected in the use they make of the app. On the first nine months, the number of transactions carried out by the customers through the app increased 14%, including a significant growth in the number of accounts opened in the same period. The number of sales through the mobile app increased 15% with emphasis on sales of personal loans and investment funds.
The priority we give at the investment we make and the investments we make to develop mobile solutions with a clear focus on customer-centric innovation and permanent improvement means that our app continues to lead the rankings and deserve top reviews on the most relevant platforms. In summary, I would say that the first nine months of the year have once again demonstrated that the strategic plan we approved enables the bank to continue evolving at a stronger pace, even in an environment that has proven more unpredictable and as challenging as we had anticipated. I would also highlight the acceleration of lending in Portugal, already in line with our expectations, both individuals and corporate segments. Our international operations present distinct challenges, but overall are converging toward the level of profitability establishing the strategic plan.
Although we are investing significantly to enhance our commercial capabilities and operational resilience in digital, operational efficiency remains and will continue to be a priority for the group. We are therefore confident in our ability to continue quarter after quarter to successfully implement the strategic plan. Miguel, the floor is yours.
Thank you very much, ladies and gentlemen. Going now to page eight. As you see, in consolidated terms, we are presenting a core income growing 3% in spite of the general reduction of the interest rate environments in several geographies in which we are, and I would highlight here particularly the growth of commissions of 4%. In terms of operating costs, a growth of 9% to a large extent conditioned by the evolution of the salary inflation in Poland. This means that in spite of the reduction of interest rates, we were able to maintain our core operating profit relatively constant at a high level due to some other income, trading gains, recoveries of taxes. We are able to present a profit before impairment of position and provisions growing 3%.
Due to the improvement in the risk profile of the bank, mainly in terms of credit risk and legal risk, we were able to reduce the impairments by 14%, which means that at the end of the day we were able to present the growth of profit before income tax of 14%. As you see, in terms of some key metrics, we are able to present consequently a return on tangible equity above 15%, a growth of book value per share plus dividend per share based on the performing numbers of shares that are outstanding of 17%, one, seven, and a growth of EPS of around 11.5%. This clearly shows the ability that the bank has to generate shareholder value even in a scenario of decreasing interest rates.
In terms of general level of profitability in the bank, in page 11 you see that the growth of 2.6% in terms of our NII is mainly explained by the growth in the international operations of almost 6%, presenting still a very high NIM, but also by a very prudent, I would say, management of the NII in Portugal that was able to remain broadly flat in spite of the reduction of interest rates. As I have guided since mid of last year, we were expect, in spite of the reduction of interest rates, to have a broadly constant NII this year. This is exactly what is happening, as you may say, if you adjust for the account. This is already the sixth quarter in a row in which our NII is steadily improving in Portugal in spite of the reduction of interest rates.
These broadly flat NII, together with the increase of fees and commissions of 6% in Portugal, will make it possible for us to show some growth in terms of the core income in Portugal. By core income I mean NII plus fees and commissions. This increase of 6.3% in Portugal is explained by both market fees and by more transactional related fees in terms of the international operation. More challenges in terms of fees to a large extent also due to the situation in Mozambique in terms of other operating income. Some important evolution, as you see here. There are here two different tales of the same story.
The mandatory contributions in Portugal this year, when you compare with last year, are significantly lower because there was a recovery of a contribution declared unconstitutional, of which we have already recovered year to date around EUR 18 million, of which EUR 12 million in Q3. This made it possible for the mandatory contributions to go down from EUR 40 million to EUR 20 million in Portugal. On the other hand, in the international operations, what you have is with the new situation of the bank in Poland that ceased to benefit from an extraordinary reduction in the bank tax. This normality has implied that the bank tax in Poland increased by around EUR 60 million. These differences, together with a better net trading income due to some transactions that have occurred, some of them not totally recurrent, have made it possible to really grow from - EUR 24.1 million to EUR 29.5 million in consolidated terms.
In terms of operating costs, I would here like to highlight the level at which we are. In consolidated terms, we are with a cost-to-income of 37%, which is a very healthy cost-to-income. In European terms, as we all know, in Portugal our cost-to-income is 34%. With this type of cost-to-incomes, the cost pressures are higher. We have been able still to maintain this level of cost-to-income. The level of cost has increased 7.4% in Portugal and 6.4% in terms of salaries and employee compensation. I would here like to highlight that more than 50% of this growth has to do with incentives and variable compensation. It is flexible, but it has also to do with the sharing of the good performance of the bank with all the contributors to it, starting with less skilled workers to the most skilled workers.
International operations, as we know, the labor market in Poland is quite hot. This has to do with the general growth of productivity in the Polish market. As you may know, Poland has been year after year one of the countries in Europe with the strongest growth in salaries and also in productivity. This affects the whole economy. Of course, our bank, that is a challenger bank that is growing even more, as Miguel Maya has commented. Our cost of risk really proving the resilience and the acuteness of our credit concession policy. The cost of risk reducing from 38 basis points to 31 basis points. As I had anticipated also for Portugal, we were expecting cost of risk in this new normal from between 30 basis points and 40 basis points. In this new environment that we are now seeing, it is a more benign environment.
Up until now, closer to 30 as we are seeing than to 40. In terms of the international operations, there was also a positive evolution of the cost of risk. This has also to do with some credit sales that have generated a price that was higher than the net book value of the loans. In spite of the low level of NPEs, as you see in Portugal, we are already at EUR 800 million, which is a very low level for the size of our balance sheet and the quite low level of the NPE ratio. Considering only loans, 1.9% and 1.4% if you consider all the exposures that contribute to the EBA ratio. We have been able to continue to reduce the stock of NPEs in Portugal, and we have done so year on year by EUR 224 million.
In the international operations also, as you see, the level of NPEs is higher to a large extent because our business in Poland has a higher concentration in cash flows, which are very profitable. When you compare the spread with the cost of risk, they are very profitable but generate a stock of NPEs that is somewhat higher in terms of business activity. I think this is really the good news. I would say we are growing in terms of customer funds 8.6%, and this has been dispersed throughout the group, with a growth of 6.3% in Portugal with a strong contribution also of off-balance sheet funds and a 13.8% contribution abroad. I would like to highlight also that just in Poland, the funds, so the off-balance sheet funds, have grown almost 40% for all, which positions the bank particularly well for a scenario of reduced interest rates.
In terms of loan portfolio, the change has even been more dramatic to the positive. As we have been telling you already from some quarters, we want to inflect, so to say, a little bit or reposition the focus of the bank more towards the SME and the corporate market, both in Portugal and in Poland, and this has occurred. We are growing 5% in terms of loan portfolio, but more than the total loan portfolio. What here I would like to highlight is that in Portugal the corporate loan growth in terms of year on year, year on year the corporate loan growth has been 6%. If you take a look at it, year to date has been 9%. The corporate loan growth in Portugal has been 9% and quarter on quarter 2.6%.
This explains, so to say, the growth in terms of exposure, the growth in terms of credit. An even more impressive change here has been what has happened in Poland. In Poland, the year on year growth of our corporate loan portfolio has been 12%. Not only the year on year has been 12%, but the year to date has also been 12%. 12% year to date in terms of corporate loan growth I would say is a very positive sign of how right we were to design this strategy, mainly coupled with the low level of cost of risk that we are seeing. Of course, this then has an impact in terms of capital that I will comment then in a couple of slides. As you see here in Slide 21, our capital ratio is still very comfortable at 15.9%, clearly above what we were expecting.
What is our minimum ratio as you see here, and all the requirements of CRR 3. As you know, for last year our P2R has been 2.5%. For next year it will be 2.25%. We are clearly above the regulatory minimum. What we have seen in this quarter, this quarter the ratio has decreased around 30 basis points from 16.2% to 15.9%. We have here three very important contributors, so to say. A first contributor, so to say, is a more technical contributor of 15 basis points. That happens each time that our bank in Poland is able to recognize the accumulated profit as part of its common equity. This increases the size of the non-eligible minority interests.
Each time the K&F accepts that we incorporate our ratio for capital purposes, this somehow decreases our consolidated ratio, so to say, by this automatic function of decreasing our minority, our non-eligible minority interest. This is a technical issue. It's an intra-month or an intra-year issue that we have been seeing over the last quarter. Somehow the ratio in the last quarter has benefited from this. The fact that we had this for consolidated terms but not for local terms, the ratio in this quarter has annulled this effect. This effect has been 15 basis points, which explains to a large extent the decrease. There are two very positive effects on a quarter on quarter. The growth of the corporate loan book in Poland is responsible for a 10 basis points decrease.
This is a healthy consumption of our capital and, by the way, totally aligned with what we had presented in terms of our strategy. The growth of our exposure, both credit and committed lines in Portugal, explains another 10 basis points. The sum of these three effects is 35 basis points. This is partly compensated by the accumulated earnings in consolidated terms, of which we are recognizing 25% because, as you know, our distribution policy is to distribute up to 75% in dividends and share buybacks. The leverage ratio is still very healthy in page 22. The Morale Requirements are clearly fulfilled with ample comfort. The liquidity position is also evolving very well due to the strength of our franchise and the ability to originate and to increase our deposit base. Now I will pass the floor to Bernardo commenting Portugal and International operations.
Okay, thank you very much and good afternoon, ladies and gentlemen. I'm starting as usual on page 26 with Portugal, where net income in the first nine months of 2025 reached EUR 654 million, which is an 8% increase compared with the same period of the previous year. The favorable performance of net income activity in Portugal was influenced by the resilience of net operating revenues considering the context of a significantly lower interest rate environment and by the reduction of other impairments and provisions. On page 27, net interest income stood at EUR 995 million in the first nine months of 2025. This is just less than 1% below what was recorded in the first nine months of the previous year. Let me also highlight that on a quarterly basis, NII in Portugal went up almost 1%.
This has been broadly stable, the stability of NII on a quarterly basis over the last six quarters. This evolution that we are seeing on NII in Portugal allows us to reinforce what we have been commenting about, the resilience of our NII in Portugal regarding year-on-year evolution. As presented in the graph below, NII decrease reflects the lower income generated by the loan portfolio that was partially offset by the increase of the performing loan book, by the reduction of interest paid on deposits, lower wholesale costs, and the positive contribution from securities. NIM stood at 2.10% at the end of September 2025, which is just 14 basis points lower than the level reported in September 2024 where interest rates were much higher.
Just to highlight that the average six-month Euribor until September 2024 was at 371 basis points and that compares with that average until September 2025 of just 223 basis points. Moving to page 28, commissions reached EUR 465 million in the first nine months of 2025. That's an increase of 6.3% compared with the amount recorded in the first nine months of 2024. Banking fees went up 5.6%, supported by higher bancassurance fees and by commissions related with loans and guarantees. I think here it's also important to highlight that fees from accounts are also growing as our client base is increasing. Market-related fees went up 10% supported by the positive evolution on securities and asset management related fees. Trading results went down from slightly more than EUR 28 million in 2024 to around EUR 11 million.
This decrease is mainly related with the reduction of some NPE sales that we had in 2024. Equity counted earnings was broadly stable year on year at the level of around EUR 40 million. Other net operating income registered an improvement year on year, evolving from -EUR 27 million to just EUR 9.6 million in the first nine months of 2025. This is mainly due to lower mandatory contributions that were booked this year compared with the previous one. As Miguel explained, this is related with some recoveries that we have on the additional Solidarity tax that was deemed unconstitutional. Going to page 29, operating costs amounted to almost EUR 518 million, which is a 7.4% increase compared with the same period of last year.
This evolution, as Miguel stated in the Portuguese operations, reflects mainly an increase of 6.4% in staff costs and also an increase of 7.8% in admin costs, despite the hiring of new employees with specific skills, namely for digital and also for internal control areas. The number of employees in the activity in Portugal shows a small decrease year on year, but it has been stable quarter on quarter. Moving to page 30, which refers to asset quality. As highlighted before, there was a reduction of NPEs, significant reduction year on year. NPE reduction since September 2024 in Portugal was above 23%, meaning a decrease of more than EUR 240 million since September 2024. As of September 2025, it should be also highlighted that 53% of the NPEs in Portugal are UTPs, namely unlikely to pay and not 90 days past due.
Cost of risk stood at 33 basis points in September 2025. That compares with the same level registered in September 2024. The level is similar to one year ago. In the second quarter of 2024 there was a significant impact in the cost of risk driven by a sizable reversal. Excluding this effect, cost of risk would have stood at 49 basis points in the first nine months of 2024. This is the level that should be taken for comparison purpose when you look to the cost of risk of 33 basis points in the first nine months of 2025. On page 31, which presents the NPE coverage breakdown. As you can see, the level of coverage is still quite high and it stood at 145%. The NPE coverage by loan loss reserves at 95%.
Here I think it's also important to highlight that the company's total coverage is at a very high level, so at the level of more than 140%. On page 32, which shows the evolution of foreclosed assets and corporate restructuring funds, net value of foreclosed assets stood at EUR 38 million. This compares with EUR 57 million one year ago, meaning a reduction of 33% year on year. Regarding property sales, there was a decrease in the number of transactions. This is due to the fact that there are less properties in the portfolio. There was a significant reduction over last years. To what regards corporate restructuring funds, the exposure at the end of September was somehow not so sizable, but it stood at EUR 319 million. That compares with EUR 391 million one year ago. Now moving to page 33, total customer funds reached EUR 74 billion.
That means an increase of 6.3% compared with September 2024. On-balance sheet funds stood at EUR 57.6 billion, and this reflects an increase of 5.1% year on year, or if you want more than EUR 2.6 billion in absolute terms. Off-balance sheet funds went up 10%, meaning an increase of EUR 1.6 billion compared with the same period of last year. This somehow reflects also the demand from our clients for some alternatives in terms of their savings. Gross loan book stood at EUR 42.6 billion, and this is an increase, as Miguel clearly mentioned, of 7.2% from previous year. This increase reflects the strong performance of loans to individuals, where mortgages registered an increase of 10%. Regarding companies, I think once again it should be highlighted the strong increase in corporate lending, where the corporate gross loan book increased by 4.7% year on year.
If we look to the year-to-date evolution, there was a significant decrease in the gross loan book of 8% since the beginning of the year. Going to page 34, where we present the evolution of the performing loan book by segment, and before going into details, I would like also to highlight, as I usually do, which is something important, the recognition of bcp as a main bank for Portuguese companies. Just looking at the performing loan book in Portugal, it went up 8% compared with 2024, meaning an increase of more than EUR 3 billion. Loans to individuals grew almost 10% year on year, with a relevant contribution from mortgages that increased 10%. Performing loans to companies increased 6% year on year. As I said before, we are continuing to see positive evolution on a quarterly basis.
Once again, year to date, the company's performing loan book increased more than 9%. Now moving to international operations and on page 36, the contribution from international operations over the first nine months of 2025. Sorry, after deducting minorities reached EUR 121 million, that's 12.4% more than in the first nine months of last year. This evolution reflects the reduction of the contribution from Millennium bim in Mozambique that partially offset the improvement from Bank Millennium in Poland. Bank Millennium net profit stood at EUR 202 million in the first nine months of 2025, growing 56.4% from previous year. While bim in Mozambique recorded a net profit of EUR 25 million at the end of September this year, which is significantly lower than the amount recorded a year before. As you know, Millennium bim performance was offset by the increase in other impairments and provisions associated with local sovereign debt.
Moving to page 37, which refers to Bank Millennium, net income went up more than 56%. As you know, profitability continues to be impacted by costs related with CHF mortgage loans, despite the strong reduction of global costs related with this topic. As you might know, they were already above 30% if we compare year on year. If we exclude this effect, net income in Poland was broadly aligned with last year. Net operating revenues went up almost 8% despite the strong decrease on the reference rate over 2025. Operating costs including mandatory contributions went up 14.5%. If we exclude those contributions, total costs have increased 11%. CET1 and total capital at 14.4% and 16% respectively and well above minimum requirements of 8.3% and 11.8% respectively. In Q3, as Miguel mentioned, Bank Millennium got the authorization from the supervisor to include the first half earnings on their capital ratios.
On page 38, some detailed information about Bank Millennium and despite the increase on interest rates, net interest income went up EUR 32 million compared. It went up EUR 32 million compared with the first nine months of 2024. NIM stood at 4.1%. That compares with 4.35% in September in the first nine months of 2024. Here once again it's important to highlight that the National Bank of Poland cut interest rates by 100 basis points since October last year and this month there was an additional cut of 25 basis points, bringing the reference rate from 5.75% to 4.5% in a very short period of time. Fees and commissions went down 2% and this reduction is mostly related with bancassurance commissions that, as you have seen from Bank Millennium presentation, are already recovering from previous quarters.
Costs went up 14% and were highly impacted by mandatory contributions that went up EUR 51.5 million compared with the first nine months of last year. Now moving to page 40 related with asset quality in Poland, the quality of the loan portfolio remains solid. Cost of risk stood at 32 basis points over total loans in the first nine months of the year. This quarter there was no sales of NPLs, and as you know, in the second quarter 2025, cost of risk in the Polish subsidiary was impacted by a sale of NPLs, non-performing loans more than 90 days past due, to 2.2%, and coverage by loan loss reserves of non-performing loans to that 146. On page 41, customer funds at Bank Millennium grew more than 14% year on year. That means more than EUR 4 billion in this period.
This evolution was supported by both retail and corporate deposits that grew at double digits. Investment products grew more than 30%, and now in terms of loans, gross books to that EUR 18 billion and slightly below September 2024. This evolution is due, I mean, to the fast amortization or reduction of the CHF mortgage portfolio and also to some contraction of the Zloty mortgage portfolio due to a lower origination from previous periods. It should be also highlighted that new origination in mortgage loans in Zlotys in Q3 was higher than previous quarters, and this will support the portfolio. On companies, there was a strong evolution, and the corporate loan book grew 12% year on year and 6.5% quarter on quarter. Bank Millennium expects this trend to continue, and this will contribute to the gradual change in the mix of the loan portfolio in Poland.
On page 41, regarding FX mortgage portfolio, you continue to see a fast downward trend of the outstanding portfolio. Year on year, Bank Millennium had a decrease of 34% of the portfolio, and currently the FX mortgage gross exposure after deduction of the allocated risk provisions represents less than 1% of the total gross loan portfolio. Provisions against legal risks were lower in the third quarter versus previous periods, and it is important to highlight that global costs related with the CHF saga have decreased more than 30% compared with the same period of last year. The outstanding balance of legal risk provisions as of September 2025 stood at EUR 1.6 billion and represents 150% of the outstanding CHF portfolio in this quarter. I think it's important to highlight there was two positive trends.
From one side, continuation of the lower inflow of new court cases, which for the first time in five years were below 1,000, and on the other side, the number of settlements that was above 1,200. Once again, it's worth mentioning that within those settlements there is a relevant number of in-court settlements. Since the beginning of this process, more or less in 2019, Bank Millennium was able to reach more than 29,000 amicable settlements with clients, and this is reflected also in the decrease of the number of outstanding individual lawsuits. Turning to page 42 regarding Millennium bim in Mozambique now, net income amounted to EUR 25.4 million at the end of the first nine months of 2025.
This level of net income is significantly lower than last year, and as I already mentioned, this was influenced by the impacts associated with the sovereign debt, which resulted in an increase of provisions. Although, if we look to the pre-provision profit, it is possible to see that Millennium has been quite resilient and stood at similar levels to last year. Net operating revenues went up almost 5% in local currency, and operating costs grew 8.5%. Capital ratio stood above 40%. Moving to page 43, NII Mozambique went up around 8%, and for this evolution, Millennium bim benefited from the reduction in the local requirements for non-remunerated cash reserves that has been applied since January 2025. NIM was stable at the level of 8%. Commissions registered a decrease of 6%, and other income that includes mostly the contribution from the trading line went down less than 6%.
On page 44 regarding asset quality, non-performing loans 90 days past due stood at 3.5%, and coverage at 127%. Regarding volumes on page 45, as you can see, customer funds registered an increase of almost 6%, driven by the increase on demand deposits, which grew 8.7%. Loans to customers registered a light increase of around 3%. Thank you for your attention. Before we move to Q&A, we'll return to Mr. Miguel de Bragança for some final remarks.
Thank you very much. This is a very important milestone. These are the first nine months of our new strategic plan. As I commented, this new strategic plan is focused on rebalancing our balance sheet in terms of the mix between individual banking and SME and corporate banking. We are showing you that we are clearly on the right path with a high level of resilience in terms of our core income that is basically stable when we compare with last year, in spite of the reduction of interest rates in both Portugal and Poland. I will now open the floor to questions.
Thank you, sir. As a reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one for any question and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q& A roster. This will take a few moments. Once again, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We are now going to proceed with our first question and the questions come from the line of Maksym Mishyn from JB Capital. Please ask your question.
Thanks. Good afternoon. Thank you very much for the presentation and taking questions. I have two questions, please. The first one is on Portugal. Your loan book growth has accelerated notably in the quarter. You seem to be gaining market share. Can you please touch a bit on every key segment? What kind of demand are you seeing and do you think it is sustainable for the next years? The second question is a consequence of this. Do you think the cost of risk in Portugal can sustainably remain close to the 35 basis points that we are seeing today? Or growth in corporate loans may push it up. Thank you.
Okay, thank you for your questions. Maksym. Yes, I mean, we think that the type of loan growth on mid to high single digits is possible going forward in Poland absent a major recession in Europe, clearly. For our expectation in terms of the macroeconomic environment in Europe, we do expect our loan growth in Portugal to be around mid single digit and we may gain a little bit of market share in some quarters. There will always be some volatility there. In terms of the cost of risk, the guidance that we gave was the guidance between 30 basis points and 40 basis points. Closer to 30 basis points in the more benign part of the cycle, closer to 40 basis points in a less benign part of the cycle, but still under normality conditions. As we look forward, we are not, in spite of the geopolitical risks that we all know of, we are not seeing any trigger to concretely say that we may enter into a recession in Portugal or in Europe. There is always a lot of volatility in the market.
Our view for the next quarters is relatively benign. I would say that 30 basis points- 35 basis points is reasonable for the next one or two years. Of course, if we speak about five or six years, we'll have to go through the cycle view.
Thank you.
For the next two years, we think this makes sense.
Thank you. We are now going to proceed with our next question. The questions come from the line of Ignacio Ulargui from BNP Paribas Exane. Please ask your question.
Good afternoon. Thanks very much for the presentation. I have two questions. The first one is coming back a bit on the NII in Portugal. How should we think about the growth in coming quarters once the effect of rates starts to be digested? Should we expect volume growth to be kind of the basic driver of the NII? And if you could help us a bit to update on the contribution of the structural hedge that you have, how this could impact the NII in 2026. The second question is on costs. If I just look to the cost base, particularly in Poland, but looking to the group as well, the bank has been not delivering positive operating yields, which was kind of the DNA of the bank for a while.
While I understand that rates effect and rates can have impact, should we expect the bank to come back to positive operating yields in coming years? Thanks.
Okay, two very important questions. I would say it's difficult to separate in terms of NII what is the structural hedge and what is the natural hedge. Once we have some, for instance, mortgages that are fixed rate, the change in the structure, our balance sheets also contribute to some extent for the hedging of the balance sheet. We see it in an integrated way. So it is a little bit artificial because we are constantly adjusting it. What I can tell you is yes, the main trigger forward for our NII evolution is the volume evolution. As I commented previously to Maksym, we are expecting a volume evolution in the mid single digit area.
Consequently, this means that we are expecting an NII evolution also in the mid single digit area going forward, perhaps even a little bit better, depending on the evolution of the interest rates. We have a very small exposure to interest rate development, but of course there is some exposure in spite of it being like that. Our base case is mid single digit evolution of the NII going forward. In terms of the jaws, we are living a special moment in the banking industry, so to say. The jaws depend on the starting point as every evolution. For us, much more important than the jaws is the cost-to-income and the resilience of the business model. It is difficult for any industry, so to say, to maintain very abnormal relationship between cost and income.
Be it because the employees demand more compensation, a fair compensation, they demand a larger part of the distribution of the value created, or the suppliers mainly in it also demand it. There may be also some price pressure when the business is very healthy, so to say, when the income exceeds a lot the costs, the motivation to compete on price is higher. I would say that we should focus much more on the cost to income. We clearly see in Portugal the cost to income in being able to maintain this cost to income around the levels that we have today, around 37%, give or take. Not going materially above this level, which we think is a very good level when we compare it with other geographies.
Of course, with this cost to income, there will be some years where the operating costs will grow more than the income. Please don't forget that we are having in Portugal also a NIM that is much higher than the NIM that you see in other European countries, so clearly above 2%. This of course creates some pressure. Also the investments here are important, so to say, when the market is very interesting and when the business opportunity is very interesting, we cannot allow the situation to depreciate our franchise. When it is interesting for all the industry, for all the competitors, we have to remain competitive, we have to remain the leading edge. We have to make sure that we continue to increase our customer base and to increase our franchise. This has costs.
These costs are more bearable when the business case is interesting than when the business case is not interesting. Now we are faced with a very interesting business case. We are making more than 2% NIM, we are increasing our customer base, we are having a very interesting ROTE. It does not make sense to constrain ourselves too much in terms of the digitalization, in terms of the new tools of the bank. Going forward our focus is the cost to income more than the operating jobs.
Thank you very much.
Thank you. We are now going to proceed with our next question. The questions come from the line of Sophie Petersen from Goldman Sachs. Please ask your question.
Yeah, hi, thanks a lot for taking my question. Here is the feed from Goldman Sachs. My first question would be around the tax rate. You had a 24% tax rate in this quarter. I think previously you have guided for much higher tax rate and consensus is around 27% tax rate. How should we think about that tax rate going forward? Do you have any DTA's that you can kind of utilize? If so, how should we think also about the capital impact from those DTA's? The second question would be just a clarification on net interest income.
In terms of the mid single digit net interest income growth for 2026, I assume it's fair to assume that that growth level kind of in a steady state is fair. Did extrapolate also to 2027 and 2028? The final question would be on capital. You had some capital headwinds this quarter. Could you just outline if you expect any additional capital headwinds to come or tailwinds and how we should think about the core equity tier one evolution going forward? Thank you.
Starting with the last point, I would not call it capital headwinds. What we are having here is a growth in RWAs and a growth in credit. When we presented our plan, I was challenged by some of you that were constantly telling me how will you be able to go to a level that is above 13.5% through organic capital generation. I said we are going to grow in corporate and corporate is highly capital intensive. What happened in the last quarters is that we were not growing in corporate at the speed and with the intensity that we were expecting in the past, or when we developed the plan. Now we are implementing the plan and having, so to say, the first more concrete results of our growth in the corporate area.
This is happening and this, I would say, at least the RWA consumption in the corporate area, we hope it's the new normal. We hope this will be the new normal in terms of RWA. Of course, in our pricing model we reflect the capital consumption of our business model. This is a new model. There is then another part, just like a seesaw effect. That is this impact that I commented on, the 15 basis points. That is a situation in which provisionally we are able to account for the P&L of Poland in our capital base without increasing the excess minorities. When the K&F authorizes the bank to recognize locally the excess minorities, this then gets deducted from our consolidated capital ratio. The seesaw effect that happens in some quarters, but then gets derecognized in other quarters, will continue to exist.
There will be some quarters in which I will benefit from this. In other quarters, I will be then adjusting the ratio. This will continue to exist, but over the long term it is not an effect. This gets compensated in one quarter after the other in terms of capital. In terms of NII, if we are, as we expect, totally successful in our plan, as we have presented to you, we do expect that our NII will continue to grow in Portugal. I'm speaking about Portugal, mid single digit in 2026 and in 2027, in 2028, I would say also mid single digit, but with a bias upward. As time goes by, as it's normal in the plan, we expect it to get better and better. This is for 2027, 2028. The mid single digit area, I would keep it.
Of course, if we are successful, the more time a successful plan is implemented, the better it reflects in the P&L. In terms of the tax rate, of course, we have to separate here, Portugal and Poland. In Poland, as you know, there was a separate conference on Poland. There has been a new tax rate approved in Poland for Polish banks. This is now in the process of being or being discussed. The tax rate in Poland will increase as it's public information. In the first year, the tax rate has increased from 19% to around 30%. This is something that is in process and is already, so to say, incorporated in the price of our banking. In Portugal, we are having the opposite movement.
What we are seeing in Portugal is that the government has approved a reduction of the tax rates in Portugal in the next years to 17%, so to say, in a gradual way. We expect this decrease of the tax rate in Portugal to feed almost on a one to one basis into the effective tax rate that we also pay in Portugal every year in terms of the DTAs. What we do is that we do an evaluation of our DTAs and we recognize or derecognize based on our view of the recoverability of the DTAs. We have done this in the past, we'll continue to do so going forward, but that's more or less the level that I would expect.
The type of average level that we are expecting for the next years will be closer to the 25%, 26% than the level that we had in the past in Portugal.
Thank you, that's very clear.
Thank you. We are now going to proceed with our next question. The questions come from the line of Carlos Peixoto from CaixaBank BPI. Please ask your question.
Yes. Hi, good afternoon. First question on capital, basically in terms of you did have some. Consumption this quarter, but there is a clear excess CET1 at the bank level. Do you see any possibility of looking into the distribution of this excess capital? Could some sort of announcement take place with full year earnings? Just a little on that. A second question would be. Basically, on the outlook on the other. Provisions both for the fourth quarter indicating.
Into 2026, both for Portugal and also for Mozambique, particularly in Mozambique, whether you expect this level of additional charges related with the silverine to persist over the coming quarters. Finally, if I may, just a quick question on your expectations on the evolution of costs in Portugal. My doubt here is basically last year you had a bit of a hiccup in the fourth quarter which relates somewhat to the variable compensation that wasn't being accrued. I was wondering whether this year we should expect a more flattish quarter on quarter evolution into the fourth quarter. Just basically the outlook for the quarter. Thank you. Sam. Hello?
Hello. Yes.
Sorry, I think I was muted.
No, no, we understood your questions.
Okay, thank you.
In terms of capital, we have presented a plan. This plan was based, to a large extent, on, in differential terms, an increased growth of the corporate portfolio in both Portugal and Poland. As you've seen, this year we have been able to do it. In terms of, as it was explained here, in Poland the corporate loan growth year to date has grown 19% and in Portugal the year to date of the performing loan book has grown 9%. It has even gone more than what we were expecting. This plan has been approved and we are basically in execution mode.
Having said that, it is normal that when we present the net profit and the final year end statements to you, we will look, of course, at the plan and we will see whether we are generating substantially more capital than what we were envisaging in the plan and whether we should recalibrate any of the distribution decisions and possibly anything related to our distribution policy. We will look at it, of course, because the year end is a moment in which we typically make a balance of our decisions. Before the presentation of the year end results to you, that will be the next presentation. I am not expecting any type of decision. One year after our plan, we look at it and see whether the plan is totally adjusted, whether it needs to be recalibrated or not.
Now I cannot tell you whether it needs recalibration or not, especially considering what is happening, what happened in this quarter. It depends a lot also on our credit pipeline, both in Portugal and Poland. I can assure you we have a good pipeline. Depending on the concretization of this pipeline, we may have to recalibrate some of the distribution decisions or not. The moment will be the moment of the year end presentation. In terms of other provisions, as I have commented to you in the past, the other provisions in Portugal are by their own nature a little bit also like the trading gains. They are particularly difficult to forecast. They have to do with mark to market of real estate assets that we may own. They have to do with litigation provisions and so on.
What I've told you in the past is that we were expecting across the cycle to have EUR 10 million- EUR 15 million charge per quarter in Portugal. This year it has been much better than that. Looking forward, at least for the next 12 months, we are expecting to remain more or less at the levels of this year, but across the cycle, I mean, by its own nature, it's like trying to project trading gains. I cannot give any assurance on this type of level. In Mozambique, we have made provision that was linked to the local current sovereign debt. We do not have any foreign currency sovereign debt of Mozambique. I think that's very important. Of course, when there is reevaluation, when there is a rating change or so, we have to look at the credit to see whether how the PDs have changed.
What I can tell you is that in the last weeks the rating agencies have maintained the rating of Mozambique in local currency. As of today, we are not expecting any change. Of course, this is a function of the rating of the country in terms of costs and on the context. There are some green shoots even in terms of Mozambique. Some of the companies that had exited Mozambique, that have threatened to exit Mozambique, are now coming back, mainly because of the huge gas reserves that Mozambique has that are now proving to be more crucial in this new geopolitical scenario in which Europe wants to be less dependent on the Russian gas. In terms of variable compensation, so on, I think it is early days to comment on this, but this will be a decision of course of the full board.
If we are able clearly to over deliver substantially, there may be an adjustment in the fourth quarter, so we'll have to see it. It is still too high. If there is a decision in terms of variable compensation in the fourth quarter, it will be for good reasons. It will be because the bank will have over delivered well in the year. It would be a good sign, I would say. Besides that, I'm not expecting anything special in this line.
Thank you. We are now going to proceed with our next question. The next question comes from Francisco Riquel from Alantra. Please ask your question.
Yes, thank you. They want to ask about corporate lending. Two questions here. First one is if you can give more color about the growth in corporate lending in Portugal. Whether you have changed pricing or risk taking at all, or if the growth is demand driven. What sectors are driving this growth, whether this is short term or long term funding, large, small corporates, so what? Any color. What sustainable growth do you see here going forward? You mentioned a good pipeline now.
The second question is also related to this because the corporate loan growth is. Highly capital intensive as you mentioned. You also had some SRTs maturing in Poland this Q3. I wonder if you can update on your plans for SRTs in both Portugal and Poland. Poland, how much resort to SRT is. Embedded in your strategic plan. I wonder if you could do more to mitigate the RWA inflation. Thank you.
Starting with your last question, what I here would like to say is that we do not have any prejudice for or against SRTs. What is important is that we generate shareholder value, that the SRTs cost less, so to say, than the value that they generate for shareholders. At the end of the day, we can do more on SRTs depending on the cost of equity implicit on the SRT. If there are available SRTs with a low cost of equity, we will do more. If they are not, we will do less. It is as simple as that. We do not need SRTs because we have a good capital ratio.
We will resort to it to the extent that the cost of equity is lower than the cost of equity implicit in our share price. Of course, for negotiation purposes, I will not disclose to you exactly what is our negotiation limit when I negotiate the SRTs with investors. What I can tell you is that we are involved in SRTs continuously. We have always a lot of mechanisms to make sure that we have good capital management and good capital allocation. You're right, there are some SRTs in Poland coming to an end. We will be in the market, seeing what are the conditions, and depending on the conditions, we may resort to them or not, but we will always be prepared. We will be in the market continuously. In the market, it's not something, I would say, abnormal. It's part of our business.
It's like quoting a credit or quoting a deposit. In terms of the credit, I would say we are a very focused organization and we believe very much in discipline and in prioritizing. We have also very good solutions for some of our clients, both in terms of user experience and in terms of the credit lines, so to say, that can be used, be it government guaranteed, similar to the ECO that you have in Spain, that we here in Portugal call SGMs. Insurance products that sometimes are interesting. We have here some differentiating products that may allow the customers to finance themselves at a lower cost to some extent, because it also consumes some less capital than what they otherwise would cost. Our competitive advantage in Portugal lies more in the SMEs, both the smaller sized SMEs and the larger SMEs, than in the large corporate.
We do have relationships with a large corporate, but where we are more different, where we have more differentiating solutions, is more on this area. Our growth has been much more granular, has been diversified, and has been more concentrated on the SME segment than on the large corporate. Not any special sector. Of course, we have the sectors, the distribution of sectors of the Portuguese economy, but not any special sector, but more the SMEs as I am commenting.
Thank you.
We are now going to proceed with our next question. The questions come from the line of [Luis Emanuel Grillo Pratas] from Autonomous Research. Please ask your question.
Good afternoon. Thank you for taking my questions. My first one is on the group net income in 2025. If I'm not mistaken, when the year started it was mentioned that it would be possible for the group to match the EUR 900 million bottom line achieved in 2024. If I apply the quarterly run rate achieved already in the first nine months of this year, you know, the bank may run ahead of the record EUR 1 billion in 2025. I wanted to ask you if this could be possible already or if you are thinking about a different number. My second question is regarding inorganic opportunities in Poland. Could you consider any opportunity to accelerate the corporate growth strategy there or could you think about maybe buying the minorities in Poland as well? Thank you.
Starting with your last question. In terms of minorities in Poland right now, our exposure to Poland is broadly slightly below 20% of our value, 20% of our market cap. We think Poland has a very interesting business case. We are very bullish in Poland. However, there are still some risks that probably would advise us to maintain this type of exposure of 20% of our market cap that we have right now. It is not our intention, so to say, to increase our exposure to Poland right now, or at least until these more, I would say, political regulatory risks decrease materially. This is our risk appetite right now. We do not have any plan to buy minorities. To make a long story short, inorganic opportunities in Poland, we could consider inorganic opportunities to accelerate our corporate grade growth, but there are none.
I mean, there is not any target that I know of, at least that is for sale and that would accelerate our growth in terms of corporate loan growth in Poland. It is a very theoretical question. In terms of bottom line, it is not our policy to give round numbers in terms of bottom line. We comment on the results, we explain the dynamics of the results. Of course, this is equity, it's not fixed income. Equity is by its own nature dependent on performance and the macro issues and so on. Any one of us may have its own ideas, its own vision in terms of interest rates, in terms of interest rate, in terms of the macro environment, in terms of what will happen.
For us, it's much more important to show how we work and how we react to different assumptions than to give a round number. That would always be somewhat theoretical because this is equity, it's not fixed income.
We are now going to proceed with our next question. The questions come from the line of Alvaro Fernandez from EBS. Please ask your question.
Thanks. Good afternoon and thanks for taking my questions. I have to first a follow up on capital. If you could walk us through the different moving parts for Q4. I don't know if you're expecting any regulation either. Positive. Gadif, you mentioned in the past that part of the Basel IV impact could be gradually reversed. You also have the DTA impact in Portugal. I don't know if you could quantify that. Also, depending on the quarter, you could be active on SRTs. I don't know if you have anything in the pipeline at the moment. Basically, your view on capital for Q4 and if we should expect CET1 levels to increase in the last quarter. On Mozambique, when do you expect the unit to recover normalized earnings levels of around EUR 100 million pre-minorities per annum. Thanks.
Okay. Starting with Mozambique. Mozambique, as you know, had a political change some months ago. The transition, as it sometimes happens in young countries, was more controversial than it is in, so to say, in older democracies. This generated some turbulence in the market, some uncertainty. This had also paid its toll in terms of GDP. Now the country is recovering. Exactly at what speed it will recover totally is particularly difficult to say. I would say probably that 2026 will not be a normal year yet. 2027 will already be close to normal. I would say that's basically what we are working with. 2028, totally normal. That's what we are expecting, with all the mitigants that you have to understand that we, and all the disclaimers that we have to put in such a vision.
It's just, so to say, an expert judgment from an institution that has been for some decades in the country. In terms of capital, we do not give such precise guidance quarter on quarter and especially for the next quarter. What I can tell you is that we have presented a plan. Our plan is to consume our excess capital through growth. This is our plan. Over the plan, this means that our capital ratio will go down, not stay stable. I mean, when we say that we will use our capital to finance growth, this means that the capital ratio instead of growing will go down. This would be a contradiction with what we are saying. This is exactly what is in the plan. You cannot have the cake and eat it.
If we want to grow in credit, and you believe that credit is profitable, of course over the short term this has negative impact on capital. Over the longer term, as we know, as the credit starts generating income, this pays for the cost of capital and this generates value for the shareholders. In terms of SRTs, I have already commented the SRT. We do an analysis based on the cost of the SRTs versus the cost of equity. Depending on the cost of the SRT, we may resort to more and less. I don't think it makes sense to pre-commit to any SRTs right now because it depends on the price.
In terms of the tax reduction in Portugal, as I commented here in the previous conference, we expect that the present legislation impact on our DTAs will mean an impact in terms of capital of around 15 basis points. Of course, this depends on the size of the TAs, on the projections and so on. This is around 15 basis points, what we are expecting, as I commented in the last conference here.
Thanks.
Thank you. We are now going to proceed with our next question. The questions come from the line of Dmitriy Kurgan from Mediobanca.
Yeah, one question on term deposits. Basically, I've noticed Q2, quarter on quarter there was an uptick in share of term deposits as part of total deposits. I just want to ask, given that in euro area rates are stabilizing and we're at the end of a rate cutting cycle, do you expect current trend to continue or you expect the. Demand deposits to pick up in the coming years.
Yeah, I mean term deposits and demand deposits address different needs of the customers. When we speak about retail, what we have been seeing already for some time is some stabilization in terms of the mix of term and demand deposits. We are having here a stabilization in terms of term and demand deposits. The fact that sometimes we have more term deposits than demand deposits in any given quarter may be more linked to some special deposits that may come from large corporates than anything else. To give you an idea, in terms of individuals, our current accounts represent more or less 45%- 46% of the total on balance sheet funding from individuals. This has been stable since September 24th.
In terms of corporates, it is more or less also 2/3 demand deposits and one-third term deposits, also quite stable, quite stable but with some volatility in terms of large deposits of large corporates. I would not read anything special in terms of any quarter-on-quarter evolution because the underlying trend is quite stable. Another thing is whether we want to quote a larger deposit or not on a larger corporate or institutional investor.
Thank you.
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.
I thank you for the time. Just two questions. One is on the bank levies in Portugal. There's been some noise in the press. One of the levies has been declared unconstitutional and the government said that they will find some other way. The banks have been fighting the others as well. What's the latest story there? Do you expect any change, material change going forward on bank levies in Portugal? Secondly, I'm trying to reconcile your comments on the loan growth, it's been very strong in corporates and so on. If you want to grow in corporates, my question is, why shouldn't we see margin expansion NIM? Why shouldn't the NII grow faster than loans if you are basically taking more risk by going to corporates? How do you think about that, both in terms of what the corporate growth does for your NIM, but also how our front book and back book margins compare? If you want to just talk about Portugal, that would be very helpful, thank you.
First, starting with your last question, I'm not speaking about a NIM expansion. On the contrary, what I'm commenting is quite a NIM stabilization, but with the growth of the NII aligned with the volume, so it's a little bit different. What I'm saying is that a reasonably stable NIM so that the NII grows aligned with the volumes. Nevertheless, there are multiple parts, but there is a positive part. The positive part is that as we change the structure of our balance sheet with more credit than we have right now, what we will see is that a part of our sovereign debt portfolio will mature and we will invest it in corporate credit that has a higher spread, of course, with slightly more risk, if we do it correctly, than the sovereign debt.
One of the reasons that will contribute positively to our NIM is this rebalancing of our balance sheet with more credit and less institutional investment in sovereign debt. Then there are other negative parts so that the NIM will be broadly constant in Portugal. In terms of the bank levy, I don't want to make it too complex, but in the Portuguese legislation you can have contributions or you can have taxes. If you have contributions, in theory, for them to be legal, the sector as a whole has to somehow benefit from them because else it's not a contribution, it's a tax. If you have a tax, you don't have a special benefit to the sector. It has to be, so to say, it has to be non-discriminatory by sector. The fact that basically what the previous government had designed was a tax that was discriminatory.
According to the Portuguese constitution, there is the principle of equality and a tax cannot be discriminatory. I think there's a principle of equality, egalité, as the French say. This comes from the French Revolution to most of the modern constitutions. A tax cannot discriminate against a sector. I think this is in principle, so I think this is very important. This levy that we had in the past was a tax that was discriminatory, so it was judged unconstitutional. That's why it was declared null and void. That's why we are receiving back what we paid in the past. The situation which we have right now is that the Constitutional Court has declared it unconstitutional. The several processes that we have in court are incorporating the decision of the Constitutional Court in their final decisions as they decide.
Of the five decisions that we were expecting, we have already obtained three. We received the money back and we ran our P&L. This is what happened. In terms of legal media buzzword, what the government said is that they will try to find another source of revenue for us. First, this was not a key source of revenue. I think it's important to know this is not something that affects tremendously the Portuguese government budget. I think it's important. It's not something that is critical. Secondly, I think that if they want to define a new source of revenue, if it is a tax, it has to be in principle non-discriminatory. Let's see what they come up with. It would also be a little bit contradictory because they are just reducing taxes. We don't have any additional information that's not the public information.
We think that the most probable scenario for us is that nothing is imminent. Of course, we will have to wait and see.
Thank you.
We are now going to proceed with our next question. The questions come from the line of Borja Ramirez from Citi. Please ask a question.
Hello, good afternoon. Thank you very much for taking my questions. I have two questions please. Firstly, on Poland, if you could kindly update on how should we think about the NII next year? If you could maybe provide your views on the Polish bank tax impact. Secondly, I would like to ask how should we think about costs at the group level for this year, please?
I'm sorry, your last question is,
if you could please provide guidance. For costs at group level, please.
In terms of course, the guidance in terms of growth will be right now is broadly aligned with the year-on-year evolution that we are having until Q9. That's probably what I would like to say at this moment in terms of the impact in terms of tax. As you know, they will depend on the final version of the law. It's expected to be published in November, and it will be very dependent also in terms of the time scaling of the law. We are still of our time scaling of the PBT. As you know, the tax rate will start increasing from 19% to 30% in 2026, but then it will go down to 26%. I'm sorry, 19% to 30% in 2026, then it will go down to 26% in 2027 and 23% in 2028. The computation of all of these is quite complex.
We are waiting for the final version of the law, and before that I think it's not correct to comment on this. Our base case in Poland is for interest rates to continue to decline until reaching 3.5% during 2026. In spite of this important decline, we expect the NII to be quite resilient. That's what we are saying right now, and to be broadly, I would say broadly constant, but quite resilient. That's our base case. This means as we are going in volumes, of course, that the NIM will compress somewhat. The NIM will compress somewhat, but the NII will be quite resilient.
We are now going to proceed with our next question. The questions come from the line of Fernando Gil de Santivañes from Intesa Sanpaolo. Please ask your question.
Hello. Thank you very much. Two questions, if I may, please. First one is regarding the securities portfolio. There is a nice amount of bonds maturing this year and I wonder what is the strategy on the reinvestment and how far can you increase the portfolio going forward? Because I see it has nicely increased during the last year, especially regarding the common bonds. Second, related to the Mozambique question that was raised before, I wonder if you can provide us with the allocated capital you have as of today in Mozambique. This is basically it. Thank you very much.
As Mozambique is a different country and has its own regulations and so on, instead of using an economic model of capital allocation, we tend to use what is the capital, the real capital that's real there in accounting terms. Our allocation of capital to Mozambique is EUR 329 million for 2/3 of the bank. That's the capital that we have at risk. By the way, there are no intergroup funding lines. There is nothing. I mean, there are not any material additional exposures to our operation in Mozambique's portfolio. As you know, we are a very liquid bank and at any point in time we evaluate what is best from a hedging strategy standpoint, whether to use swaps, whether to use government bonds and if so, of which countries and so on. What I can tell you is that the government bonds that we use are of a diversified portfolio. Our largest exposure is of EU bonds that were used for the resilience program.
We tend to analyze this vis-à-vis the alternative that we have to hedge our balance sheet, that is basically interest rate swaps, because we look at it more as a hedging of our balance sheet than as a profit center on its own. We don't have any limitations, so to say, because of our strong liquidity position.
Thank you.
We are now going to proceed with our next question. The questions come from the line of Cecilia Romero from Barclays. Please ask a question.
Hi, Miguel. Thank you very much for taking my questions. I have two. The first one is on tax. Again, I saw that Prime Minister Luis Montenegro had proposed a plan to gradually lower the effective tax rate by 3% points through 2028. Shouldn't we see the tax rate in Portugal go from 25% perhaps to 22% by 2028 on this basis? You were talking before about the impact on DTAs of - 15 basis points. I just wanted to make sure that we understood the P&L. You were mentioning the bank tax in Poland, sorry, the increasing corporate tax rate in Poland. Should we see also a reduction in bank tax if that increase in corporate tax comes through?
My final question was on volumes, which has surprised positively on the quarter. However, we have seen an NII that has come more or less in line with consensus. I was just wondering when did this increase in volumes take place? Did it happen at the end of the quarter? Should this be a tailwind into Q4? The shoehep NII in Q4. Thank you.
Starting with the last point, the NII, if it were not for the volume growth, of course with the reduction of interest rate that we have, it will be decreasing, so to say. The volume growth together with the management of the balance sheet is a counterweight to the decrease of the interest rate that we are seeing in the market. You cannot compare only with the past. You have to compare it in terms of the dynamics of the future. When I say that we will have our NII stable this year, when you compare with last year, of course, this was helped also by the volume growth to some extent next year. What we are expecting in Portugal is that the volume will explain the growth in terms of the NII going forward.
In terms of the tax rate in Portugal, the tax rate is a little bit more complex because we effectively have a total tax rate in Portugal of around 29%. When we are now having a tax rate of around an effective tax rate below this level, this means that there are already some revenues, so to say, and some issues in our P&L that are not taxed at 29%. We already have a benefit in terms of this level. It is not a pure accounting mathematical operation, just of looking at the PBT, multiplying it for the nominal tax rate, because the nominal tax rate is 29%, so to say. If it is this way, we pay 29% and not 25%. The fact that we are already having 25% already reflects some benefit in this direction.
When we look forward, these 29%, as you say, will decrease 3 percentage points slowly and over time, so to say, it is early days to pre-commit that the tax efficiency that we are able to obtain by the difference of 29% and that is the nominal tax rate and 25% that we are presenting or will be able to have exactly the same type of efficiency when it goes down. That's why I'm saying that this level around 25% is a reasonable level. If you ask me, the risks are more towards a lower rate or towards a higher rate. In terms of effective tax rate, I think the risks are more towards a lower rate than towards a higher rate. It will then depend on the structure, so to say, of the P&L. There are some costs that are not tax deductible, like these contributions, so to say.
There are other revenues that are not taxable, such as dividends obtained or our participation in the insurance business that is not taxable, is already net of taxes. Depending on the composition of our capital gains, by the way, some capital gains are not taxable. Depending on the composition, there is a difference between the nominal tax rate and the effective tax rate. You're right that the risks when the tax rate goes down, it is easier, so to say, to have a 25% tax rate when the nominal tax rate is 26% than when it is 29%.
We are now going to proceed with the next question. The questions come from the line of Miruna Chirea from Jefferies. Please ask a question.
Hello. Thank you very much for taking my questions. I had two, please. Firstly, in Portugal you discussed your expectations for NII growth, but could I also ask you if you can give us a sense of what you expect in terms of fee growth going forward and what are the drivers behind that. For example, I see in the slide that bancassurance fees are growing at around 14% year on year in the first nine months. Do you think this rate is sustainable going forward? Is this the level at which.
Is the market growing or are you actually capturing share in this segment? Secondly, this time last year when you presented your strategic plan, you presented a 2028 return on equity target greater than 13.5%. Obviously, things are progressing better than expected this time last year. When should we expect to receive an update on this long term return on equity target that you plan on delivering? Thank you.
Okay, as you may recall when we have presented our plan, when we commented that we were having a target of an ROE above 13.5%, we also presented in the same presentation a target of the sum of book value per share and dividend per share, around 15%. At the time I commented that this target, one is around, the other is higher than, is more, is more, how can I say, is more precise than just larger than. The larger than is updated. It's larger than, it's really larger than. The larger than is clearly updated and we are more or less in line with the 15% of book value per share plus dividend per share growth. In terms of fee growth going forward, there are a lot of moving parts in this issue.
In the bancassurance evolution, there is a component that has to do with some review of the division of fees between ourselves and our insurance partners. I would not see this growth as necessarily as the sustainable growth level into perpetuity. What I would here expect is the fee growth of banking fees and commissions to be aligned with this mid to high single digit growth based on our commercial systematic and based on the effectiveness of the client acquisition strategy going forward. In terms of asset management, it will depend to some extent on the markets and on the level of interest rates. If the level of interest rates remains at this level, we think that this type of growth is normal.
If the level of interest rates decreases further and we live in an even more benign market movement, then probably we will have more interest from the clients in asset management products so as to have an alternative to very low yielding deposits, and it may grow somewhat higher. I would say mid to high single digit growth in terms of commissions in Portugal is a good starting point.
We have no further questions at this time, so I'll hand back to you for closing remarks.
Okay, thank you very much. Thank you very much for your interest in our equity story. We remain fully committed in delivering our plan in creating shareholder value as well as value for all the other constituencies. This was a very important milestone in terms of client acquisition, client growth, in terms of us being able to deliver on what we have promised in terms of ROTE, in terms of book value per share plus dividend per share growth. We are really looking forward to 2026 and 2027 in a quite positive way, showing the resilience of our business model. We really think that the core income will continue to grow at mid single digit area and this will enable with cost control and this will enable us to continue to grow in terms of shareholder value generation and in terms of earnings per share.
Thank you very much for your interest.
This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a good day.