Day and thank you for standing by. Welcome to Millennium bcp Full Year 2025 Earnings Conference Call and Webcast. At this time, all participants are in a 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 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 note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Miguel Maya, CEO. Please go ahead.
Good afternoon, Miguel Maya speaking. Welcome to BCP Earnings Conference Call. As usual, I will go through the highlights of our performance, followed by Miguel Bragança, who will provide further details. From a macroeconomic perspective, 2025 proved to be a complex year. Ongoing conflicts and economic climate shaped by the impact of geopolitical tensions continue to have relevant repercussions on global strategy. On Europe, the economy's performance exceeded initial expectations, with the eurozone showing signs of transition from a stagnation to a slow recovery within a framework of controlled prices and a less restrictive monetary policy. Of particular note is the performance of the Portuguese economy, which stood out as one of the most promising: a solid growth, high resilience, and unemployment at record lows. The Polish economy recorded robust growth, supported by private consumption and investment, with inflation dropping into target range.
In Mozambique, too, inflation is an economy showing signs of recovery from the impact of instability experienced, which worsened the country's public finance and led to reductions in the sovereign debt rating. Demonstrating a high level of adaptability to deal with different contexts, the group's consolidated results exceeded the EUR 1 billion mark, corresponding to a year-on-year increase of 12.4% and resulting in an ROE of 14.1% and an increase of more than 14% in earnings per share, reflecting the bank's ability to generate value for stakeholders through an active engagement with the business community and households. Strict management of the financial margin and intensive commercial activity, supported by a robust balance sheet, contributed to an increase of 10.6% of net income in Portugal, surpassing EUR 869 million.
The total earnings from international operations reached EUR 292 million, marking a substantial year-on-year increase of 33%, mainly driven by Bank Millennium in Poland, which saw its profits rose by 67% to EUR 284 million, further reinforcing the upward trend in this subsidiary's contribution to the group's net income. It should be noted that the charges associated with the FX mortgage loan portfolio, although still relevant, registered a significant decrease of 34%, strengthening our confidence that this risk is on a downward trajectory and does not compromise the growth potential we ambitioned for the Polish market. In Mozambique, BIM net income was below EUR 4 million in 2025 due to being heavily affected by provision on exposure to sovereign debt, which this year amounted to EUR 82 million.
I would like to emphasize that we have a solid operation with a very robust capital position and a balance sheet quality that is a benchmark in the market. The proven quality of BIM's franchise, combined with signs of economic recovery already visible, together with the restart of large natural gas projects, which will have a significant contribution to economic growth and improvement of public finances, gives confidence that this subsidiary will eventually converge to the targets that we have set for Mozambique in the strategic plan. Our capacity for organic capital generation is reflected in BCP's robust capital position and the relevant earnings distribution to shareholders. We have ratios comfortably above regulatory requirements, with the CET1 at 15.9% and total capital at 19.9%.
The quality of our retail banking business models, the driving force behind the growth in business volumes, with loans increasing by 7.3% and customer funds growing by 8.6%. Customer funds stood above EUR 111 billion, and loans to customers surpassed EUR 62 billion. At the same time, we maintained the trajectory of improving balance sheet quality by reducing non-performing assets, with NPE reduced by EUR 322 million throughout 2025. Despite the challenging context in which we operate, we maintained a strict and rigorous risk management of the balance sheet quality, which led us to achieve a cost of risk of 32 basis points, an indicator anchored below the target we set in the strategic plan. The growth of the customer base demonstrates our ability to meet clients' expectations. We exceeded 7.3 million customers at the group level, of which 2.9 million in Portugal.
The growth rate is even more noticeable at the level of mobile customers, which increased by 9% and stood at 5.4 million at group level, of which 1.9 million in Portugal. Mobile customers does represent 74% of our customer base, 66% in Portugal, an important indicator of our digital capabilities. We are, year-after-year, recognized as the top choice for families and the leading bank for business. Customer-centric innovation results in substantial growth in mobile usage. In 2025, the number of transactions completed through the app increased by 15%, with a notable 54% rise in the number of account openings. We also achieved 13% more sales compared to the previous year, particularly driven by a 49% increase in personal loan sales and a 47% increase in savings solutions sales.
These improvements stem from our strategy of targeting investments in technology to address customer requirements and in-house development of specialized skills, enabling us to launch very competitive digital solutions even when we compare with neobanks' offers. A prime example of this strategy is the digital offering we provide for mortgage products, which stand out as an innovative solution in the market and give us a significant competitive edge. As we have always communicated to the market, in addition to our ongoing commitment to improving the quality of our products, processes, and customer services, both in person and digitally, we have remained extremely rigorous in managing operational efficiency. This is evident in our cost-to-income ratio, which is firmly anchored below 40%. We have a strong focus on value creation, clearly reflecting the level of results achieved, coupled with a very strict approach to capital management.
This has led us to announce to the market a proposal to increase our shareholder distribution policy, which will be presented at the next general meeting. Provided that the defined conditions are met and the necessary approvals from the supervisors are obtained, this policy would allow us for the distribution of up to 90% of the annual net income, 50% through dividends, and a share buyback program of up to 40%. After the first year of the strategic plan, the results confirm our execution capabilities and allow us to be very confident about BCP's future. Miguel, the floor is yours.
Thank you very much, ladies and gentlemen. As always, we'll be presenting here a short snapshot of our income statement. As you've seen, in spite of the sharp reduction of interest rates in both the eurozone and Poland, we were able to increase the net interest income in consolidated terms, commissions also growing at the level of 4.3%, which means that core income has grown around 3%. The operating costs have grown at a faster pace, mainly in Poland due to wage inflation in the country, as you know, but we were still able to increase the profit before impairment and provisions by around 6% in spite of the very good years in terms of core income that we had and in terms of interest rates that we had in the last years.
The reduction of the legal risk charge for CHF in Poland and the other provisions have made it possible for us to increase the profit before income tax around 17% and the net income after minorities and taxes around 12.4%. In terms of the profitability of the group, we would highlight here on page 10 the growth of 2.4% in the NII. This 2.9% was achieved with a very healthy NIM of 2.9%. As you know, in Europe, the NIM of the eurozone banks fluctuates between 2.5% I'm sorry, but between 1.5% and 2% mostly. We were able to present a very resilient NIM of around 2.1% due to our very prudent hedging policy. This is what made it also possible, together with the volume growth, which was very material in both Portugal and Poland, to grow 0.2% in terms of NII.
In Poland also, we were able to, in spite of the sharp reduction of interest rates, to present a NIM above 4%, which enabled us to achieve a growth of NII of 4.3%. In terms of fees and commissions, also very healthy growth in Portugal, growing around 5.6%, both explained by banking fees and commissions and market-related and market-related fees. Other operating income influenced by the reduction in mandatory contributions because this year we have recovered due to the finalization of some legal processes, the additional contribution that we made in previous years. The mandatory contributions in Portugal reduced from EUR 40 million to around EUR 9 million, which explains this positive performance of around EUR 30 million in this line.
In Poland, because of the end of this was the first full year where we were totally normalized in terms of payment of bank taxes in Poland, we had higher mandatory contributions because exactly of being a full year normalized vis-à-vis the year before where we only were around half a year. Operating costs, a strong focus in terms of cost-to-income. I would highlight here the ability to maintain a cost-to-income of 37%. In Portugal, this cost-to-income around 35%, broadly constant, 34% to 35%. This was achieved together with a focus in the reduction of headcount we had some additional restructuring costs of around EUR 23 million.
In Poland, due to the wage inflation that persists in the country, the costs have increased around 10%, but this is, I would say, the normal in an economy such as Poland. In terms of cost of risk, aligned with the guidance that we have given around 31%-32%, in Portugal, broadly constant at 31 basis points, I'm sorry. In terms of Poland, what we see is a slight growth from 33%-34% basis points. I would like to highlight that in terms of composition, in Poland, we have a higher share of cash loans and still a lower share of corporate loans. We were able to continue to decrease the non-performing exposures, as you see here on page 15, by almost 18%, 23% in Portugal, and the EVA ratio that includes all exposures, so to say, is already at 1.3%.
In terms of business activity, very, very healthy. In terms of customer funds growing 8.6%, so almost 9%, with already a healthy evolution of balance sheet funds due to the performance of the market. These all balance sheet funds are mainly distribution fees from investment trusts. The demand deposits and term deposits also growing healthily in several geographies. In the international operations, growing 13.5%. Loan portfolio, this is also very, very interesting, growing 7%, of which 9.3% in Portugal, even considering the reduction in NPEs. In Poland, in the beginning of the year, we were more prudent in terms of the zloty mortgage loan, so we were not growing materially in zloty mortgages. This effect has been more than compensated by a growth of almost 20% in our corporate portfolio, which highlights a change in the business model and mix of the bank as we had envisaged.
Liquidity, a very healthy liquidity that enables us to keep and to manage the margin of deposits in an adequate way. MREL, on page 21, clearly above the requirement, as you see, both the TREA and the LRE. We have a MREL of 33.3% in terms of TREA, which compares with a ratio of 28.9%. In terms of MREL, almost double, so 12% that compares with a requirement of 6.9%. Our funding plan is being executed exactly according to what has been commented to the market. We have issues in H1 in Poland and a senior preferred in Portugal. This time, exceptionally, we will not comment in detail what we have sent to you in terms of the performance of the several geographies to make our presentation shorter and allow more time for questions.
I will go immediately to the part 2, slide 44, in terms of capital and value generation. As you see on page 45, our Common Equity Tier 1 ratio with the present distribution policy of 75% being deducted from the P&L stood at 15.9%, and our total capital ratio almost at 20%, at 29.9%, incorporating all the effects of CRR3. These capital ratios compare very favorably with the requirements as of December of last year, but also with the requirements that are already in place since 1st of January. We see here that we have a very comfortable buffer above the minimum requirements. Comparing with September, our CET1 ratio is constant. In terms of the moving parts of the capital, the P&L since September, the P&L explains an increase of 57 basis points in our Common Equity Tier 1.
As we are distributing 75% of the P&L, this translates into a reduction of this capital generation of 45 basis points. Our credit RWAs, mainly because of the strong growth that we had in the last quarter, decreased by around 34 basis points. I would here like to highlight that this type of P&L capital generation, these 57 basis points, is more or less between 50 and 60, is more or less aligned with the capital generation that we had in the full year. In terms of RWAs of credit, because of the mix that we had mainly in terms of corporate growth in Poland and of the strong growth in these segments, we had a capital consumption that was slightly above what was the capital consumption for the full year. For the full year, it was around 74 basis points.
In the last quarters, it was 34 basis points. It was somewhat above, I would say, the normal rate of RWA consumption. We had here other effects mainly linked to minority. A very important effect here that is a little bit counterintuitive is when the capital requirements of Poland go up, we reduce the minority deductions. The capital requirements in Poland went up by 100 basis points. The amount of minority deductions in general that we had in Poland also were reduced. This explains a large part of this effect. This is just the metrics that we had presented until 2028, just to show that we are very clearly above the business plan that we had presented for 2028 to the market. We are clearly overperforming. I would like here to focus more on these metrics.
I think it's very important to keep in mind these metrics so that we clearly see an ROTE on the mid-teens. Our strong conviction is that this ROTE of the mid-teens is sustainable. We see an EPS growth also in the mid-teens. We also think that this EPS growth of the mid-teens across the business plan is also sustainable. On top of this, what we clearly see is that the growth of book value per share plus dividend per share reaching almost 20%. Looking forward, what we see is that we do not see this year, so to say, as a one-off. We see this year based on a very strong franchise fundamentals to the point that we can envisage that we will most probably overachieve the plan that we presented to you regarding the 28 values.
As Mr. Miguel Maya commented, this led us to the conclusion that we are in a situation of being able to propose to our shareholders an increase in the payout limit of the limit instead of the limit being 75%, having a limit of around 90%. To give it more transparency and predictability to the market, we have here presented a schedule so that this limit will be a function of a certain schedule. We will disclose to the market every quarter what is our capital ratio before deductions, before the deductions related to dividends and to share buybacks. By the way, this value today is 17.7%, and we will disclose it to the market. Our limit, instead of being fixed at 75%, we will have a reference limit of 90% if we are above 17.5%, as we are right now.
If we are between 16% and 17.5%, we will have a limit of around 80%. If we are a limit below 16%, our limit will be 25% as it was before. In practice, this will allow you to project with a little bit more of foresight what our policy will be. Of course, this is subject to regulatory approval. We have sent this request to the supervisors for approval, which we expect to obtain in the next months aligned with the period of the approval of the AGM, of the results of the AGM, maybe a little bit later, a little bit sooner. Our AGM is also for May, beginning of May. We think we are on track for this. Of course, it is in the hands of the supervisor right now. I will now stop for questions.
We have here some, as you've seen, some news. I'm expecting some questions from your side. That's it, basically.
Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Once again, it's star 11 for any question and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. This will take a few moments. Thank you. Once again, please press star 11 to ask a question. We are now going to proceed with our first question. The questions come from the line of Ignacio Ulargui Lopez from BNP Paribas. Please ask your question.
Thanks very much for the presentation and for taking my questions. I have two questions. The first one is on capital. You have provided a clearer framework that we value a lot in terms of distributions going forward. I just wanted to get a bit of your thoughts, Miguel, on how the capital generation how we should think about organic capital generation in 2026, 2027, should be expected to be slightly above the net profit generation due to DTA consumption or any other moving parts that you may think. Linked to that, how do you see RWA growth evolving in 2026? I mean, should we think a similar growth to 2025 except for first adoption impact? The second question is on costs. I mean, you have taken for a couple of years already in a row some non-recurring costs in Portugal.
How should we think about costs going forward, and what will be the impact of that? How should we think on the AI implications in terms of costs? Has been some banks already guiding for cost to incomes in the low 30s in Southern Europe. How should we think about the cost to income of BCP going forward? Thank you.
Thank you very much for your questions. In terms of capital generation, we expect the moving parts to be more or less aligned with the profit, with the P&L and RWA consumptions. In terms of P&L, before distributions, what we are expecting are levels around 55-65 basis points per quarter. This is of course, you may have here some quarters that are better, some quarters that are less good. In terms of RWAs, it's always very difficult to tell. A part of the RWAs will benefit from the DTA consumption because the first impact when we consume DTAs is a reduction of RWAs because these DTAs somehow have a higher RWA weight, mainly the deferred timing differences.
That we would expect these RWAs to consume, I would say, between 20-25 basis points per quarter if we are able to grow at the speed at which we are able to grow. This is basically in terms of the main moving parts of what we are expecting. In terms of costs, I mean, we have a lot of initiatives in terms of AI. We think that the AI will increase the efficiency both at the personal level. The AI will be the new in the past, you had people that typed letters, and now nobody uses somebody to type its emails. The AI will be something that will be, on one hand, very disseminated for the different people in the organization. As we train the different people in using AI in their functions, this will improve their productivity and their efficiency.
This on one hand. The other hand, for everybody, I would say, it's like using a word processor. It's like using Excel. We have to make sure that we train people that we are doing a large investment in this area. There are some processes where we will, of course, review that we will, of course, review and that will also increase the efficiency. Mainly, what we are expecting here is some customer-facing processes linked to call centers, to bots, to contact centers, some documentation processes, some fraud prevention processes, etc., etc., etc. I would say over this time horizon of three years, we are more, I would say, in an investing mood than in a clear mood of reaping the benefits.
What we are trying to do because it's very easy to make mistakes in this type of circumstances where everything changes so fast is to try not to underinvest, but also not to overinvest. Our rule of thumb here is to try to use the efficiency gains that we are having as time goes by to invest in AI so that we maintain a reasonable cost-to-income ratio, but that we do not overshoot in terms of our cost-to-income ratio in the short term because this would use these buffers, so to say, these savings to invest in the future, to invest in AI so as to maintain this cost-to-income. We all know, the cost-to-income is a ratio that relates cost-to-income. It's not only costs.
A critical factor here is, as banks become more efficient, what part of this efficiency gets passed on to price and to customers. This is mainly when we speak around 3, 4 years down the road, we think it's very difficult to anticipate. We think that a rule of thumb for us is that in competitive markets, I would say, the laggards generate an ROTE that is less than their cost of equity in a steady state. I would say the banks that are normal will earn their cost of equity. The banks that, as we tend to believe about ourselves, that are overperformers will earn more than their cost of equity. We expect to earn more than our cost of equity, of course, on a cyclic just as raises, but not extremely more than our cost of equity because, I mean, we don't own a monopoly.
We are in a competitive market. The prices are there. I would here say that a bank that clearly is focused on being on the top league in everything, also in AI, will probably be earning, as I was commenting, an average ROE on the mid to high teens. That's the way we see it. In the short term, probably, we are not expecting a very strong drop in cost-to-income or in ROE because we will be using these buffers, so to say, to invest for the future to assure that our franchise is totally sustainable.
Thank you very much.
We are now going to proceed with our next question. The question comes up from the line of Álvaro Fernández from UBS. Please ask your question.
Good afternoon. Thanks for taking my questions. I have 2. First, you mentioned in the last conference call that you expected NII in Portugal to grow mid-single digit both in 2026 and 2027. Given that volume dynamics continue quite strong, do you feel that there's upside to that guidance? Basically, your latest view here. Second, how you're thinking about operating jobs both in Portugal and Poland for the next couple of years, for 2026 and 2027. What level of revenue growth and cost inflation you see in both units? Thanks.
Okay. Thank you very much. Thank you very much for your questions. In terms of NII guidance, I would say I'm somewhat more optimistic now. I think things have evolved favorably now than what I was 3 months ago. Three months ago, probably, the guidance that we were giving was mid-single-digit in terms of the several lines of the income statement, including the NII, based on the information that we have today. Of course, in spite of us not being too exposed to interest rate, there is always some exposure. As you know, 3 months ago, the futures of interest rates pointed to the interest rate coming down to 1.75% and then going up. Now what we are seeing is that a very flat yield curve at around 2%.
I would say that the risks of NII growth of mid-single digits today are more tilted to the upside than to being higher than this, than lower than this. I think this is important to say. In terms of Portugal, as I was commenting, our objective right now is to use the excess operating leverage benefits, so to say, to invest for the future. This means that we will be growing costs more or less aligned with revenues so as to maintain this very healthy cost to income that we have right now. In terms of Poland, as you know, the interest rates in Poland are in somewhat of another cycle than in the Eurozone. In the Eurozone, the interest rates have already stabilized. In Poland, the cycle has not yet reached its bottom.
What we expect is to have, over the full year this year, a flattish NII in spite of volume growth and then progressively to grow to start growing, starting on 2027 and more on 2028. What we see over the long term for Poland, as we all know, is that Poland has a very low ratio of CRE to GDP, is less than half of the Eurozone. The main benefit that we will have from Poland is once the volumes in Poland start converging to what will occur in or what are the levels in Europe. We think that this may be possible, I would say, in the next five years. We don't know exactly when the credit cycle will take off, but we think that sooner or later in the next 3-5 years, there will be a convergence moment.
Okay. Thanks.
Thank you.
We are now going to proceed with our next question. The questions come from the line of Maksym Mishyn from JB Capital. Please ask your question.
Good afternoon. Thanks very much for the presentation and taking our questions. I have three. The first one is on loan book growth in Portugal. It has been stellar in 2025. Can you please tell us what you are doing to gain market share and whether you plan to continue in 2026? The second question would be regarding the guidance for Portugal. You already mentioned the NII, but could you also touch on fees and cost of risk, please, for 2026? The last one, you mentioned that you may overachieve 2028 targets. Does this mean that you may plan to update us sometime soon? Thank you.
Starting with your last question, the updating is exactly what I'm doing now. In each conference call, one of the purposes of this conference call is to give you our updated view of what we expect in terms of guidance for the next year. In each conference call, we somehow give or update the guidance that we are giving. For the moment, that's what we intend to do. In terms of effectively, I've just done it. In terms of the loan book in Portugal, there are here several facts. We have been focusing a lot in terms of commercial terms and reviewing our commercial systematic in Portugal so as to be even more proactive in this area, mainly in the corporate side. This is one part.
The other part is that you cannot forget that we are coming from a period where we had COVID first, then the issue of the invasion of Ukraine, then issues related to supply chains and how this will evolve, and more recently, issues around the uncertainty surrounding tariffs. Okay? In all of those, up until, I would say, one year ago, with hindsight, but probably, we have been very prudent. Okay? Looking now to the future and in spite of the uncertainty in terms of tariffs that we know, we see the world as somehow more predictable than what we saw one year ago. Not that it's very predictable, but we see looking forward, please, four years ago, there was starting of the war that nobody knew how it would end.
One year ago, we did not know whether there would be a major tariff commercial war between Europe and the United States. Right now, the way we see it is that these risks are somehow lower than what we thought some time ago. We are adjusting our credit appetite to the more, I would say, normalized view that we have now vis-à-vis the view that we had three years ago when there were moments in which we almost saw that the world was almost I'm sorry for the expression, falling apart. Fortunately, the world did not fall apart. We do not regret being prudent in these areas because we do not know what would be the counter-scenario.
Looking forward, what we see is that we feel more comfortable now in taking somewhat more risk, of course, always with prudence, than when the war in Ukraine started or when there was a huge risk of a tariff war. Okay? This is basically what we would expect as to gain our net market share because BCP is the largest bank in the private sector in Portugal, and it's not the largest bank today in loans in Portugal, in the private sector. We ought to come back to our natural place, so to say. The cost of risk, the way we see it is that the cost of risk that we see right now in Portugal is that this cost of risk absent a major recession in Europe, that is not our base case. We think that this cost of risk is reasonably sustainable.
This cost of risk between 30 and 40 basis points is clearly sustainable. In Poland, as we diversify our book more from mortgages in floaters to corporates, the cost of risk will increase to a more normal cost of risk for banks that have an SME franchise.
Thank you.
We are now going to proceed with our next question. The question comes from the line of Francisco Riquel from Alantra. Please ask your question.
Yes. Good afternoon. Thank you for taking my questions. I want to elaborate on NII. First, you have disclosed in the appendix data about your interest rate hedging strategy regarding bonds, derivatives, and the yield. I wonder if you can comment on your strategy going forward regarding the size of the hedges that you plan to roll over, duration, potential reinvestment rates that we should expect, and comment on the potential tailwinds to NII in 2026 and 2027, if any, from this hedging strategy. Second is related to this. You mentioned upside risk to the mid-single digit growth guidance in NII. I wonder what is driving this upside risk, if it is because of volumes. Loans are stronger than expected, but I also see demand deposits growing in a healthy way, or if it is related to the non-customer spread. If you can, please elaborate. Thank you.
Thank you very much for your questions. Starting with the last question, the main impact is volumes and mix. We do expect the volumes to grow, and we expect to grow somewhat more in the corporate and the SME than what we have grown this year. That's why we think that we will be able to grow around in the mid-single digit area in Portugal. By the way, if we grow between mid and high single digit in Portugal and if we have our NII hedged, this will be the impact in terms of NII. Okay?
In terms of the new slide that we have here provided in page 54 or 57, I'm sorry, what you see in page 57 is that in 2026 and by the way, in 2025, it was similar, we have a fixed-rate book of around EUR 30.4 billion, which has an average interest rate of 2.3% this year. Okay? This has a lot of products here. It has basically swaps, and it has also unhedged bonds. We have some bonds with asset swaps and others without asset swaps. Looking forward for a constant balance sheet, so to say, these hedges, I'm sorry, these hedges, the interest rate risk that we have in our book. These hedges, the demand deposits and the beta of the term deposits. That's the way we have to look at it.
Probably, this value will grow, the EUR 30.4 billion will grow with demand deposits and 50% of the term deposits. This is how the total will grow, the total. The gap that we have, for instance, in 2027 vis-à-vis the EUR 30 billion that we have in 2026, we will reinvest, so to say. We will reinvest or we will invest either in swaps or in bonds. Typically, and as a rule of thumb, our investment is in the 4- to 5-year area because our behavioral models in terms of demand deposits point to an interest rate sensitivity concentrated on the 4- to 5-year area. The way you should look at this is that every year, we will probably have a book of unhedged bonds and swaps, fixed-rate swaps, that will be in disorder of magnitude.
The difference between this rate and the market and we will be reinvesting at the rate that at the time would be the difference between this rate and the market rates, more or less, at the 4-5-year area. You see here, we are quite hedged right now because if we were to invest right now in the four-year area, let's say, the four-year swaps right now are at 2.33%. This means that if we reinvest in 2027, the gap between EUR 24 billion and EUR 30 billion at 2.33%, this will more or less yield the same in 2027 as the ones that we are yielding in 2026 that is at 2.3%. Of course, if we invest in five years, we'll be reinvesting at 2.4%.
What I wanted here to the main message of this slide is to tell you that we have a book right now that is more or less aligned with the rates in the market. If the rates in the market don't change substantially, this will smooth very much our NII, and this will allow us to continue to have a very low-risk NII. For instance, if you compare the evolution of the NII in Portugal of our bank with the banks that have already presented results and I think today, there was another bank presenting results, our competitors have had a reduction of their NII in the 2-digit area. Effectively, we have increased the NII last year, and this was exactly because of these hedges. We are very much aligned with the market. That's the main message here.
Of course, if you believe that in 2027, the five-year rate will go to 1%, this difference between EUR 24 billion and EUR 30 billion, you have to input in your model that this EUR 6 billion would be invested at 1%. This is clearly not our scenario, and I don't think it's a scenario of anybody reasonable. That's the way it would work.
Thank you. Thank you. 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.
Hello. Good afternoon. A couple of questions from my side as well. The first one would actually be on the outlook on fees. I think I'm not sure you forgot this question before. Sorry about that. On the CET1 ratio, I was also wondering you mentioned the impact from lower deductions from the increase in the minimum requirement. Do you have a visibility on the impact from the recognition of second-half earnings into CET1 ratio? Is that already considered there, or that's a pending deduction? Finally, just sorry, on the cost side, you mentioned growth in line with revenues. I was basically wondering what type of revenue growth are you seeing for total revenues? Thank you.
For revenues? I'm sorry, Carlos. Revenues where?
Basically, what type of growth you're expecting for revenues as a whole because you mentioned before, you see costs growing in line with that. Within that, are we talking about recurrent costs or including the non-recurrent items?
Okay. Okay. Let me comment here. Revenues I mean, starting with your last question, revenues, we have a component that is very much franchise-linked and predictable that are the fees and the NII, as you know, and another part that is intrinsically unpredictable that are the trading gains and other non-recurrent parts. The non-recurrent parts, I would like to highlight that this year, we had a non-recurrent of a recovery of the Additional Solidarity of around EUR 30 million that we will not have in 2026. We had in 2025. We will not have in 2026. We may have other non-recurrent, but by definition, something that is a trading gain or that is non-recurrent are very difficult to predict. I would not like to elaborate on this.
In terms of NII and commissions and NII and fees, what we would say, fees in the mid-single digit area, NII in the mid to high single digit area, and costs, I would say, also in the mid-single digit area in Portugal. That's the guidance that we think makes sense to give right now. In terms of the ratio that we are presenting at consolidated level includes already the second-half results at consolidated level for everything. Okay?
I was asking about the earnings from Poland because typically, you have that minorities deduction.
Earnings from Poland at consolidated level, we are recognizing this. In terms of the impact in minority interest, it's a little bit more complex. We have to see, and then we'll comment to you.
Okay. Thank you.
You're welcome.
We are now going to proceed with our next question. The questions come from the line of Luís Pratas from Autonomous Research. Please ask your question.
Hi there. Thank you for taking my question. The first one is on Mozambique. Of course, this quarter, we saw high loan loss provisions and other provisions. In the past, this was often linked to sovereign debt downgrades, but I think recently, we have not seen any downgrades. I wanted to ask you what specifically drove the IA provisions this quarter and what level of net income contribution do you expect from Mozambique in 2026. I have a quick clarification on the RWA growth. If we think about the relationship between loan growth and RWA growth in 2026 and going forward, shall we expect the same type of growth, or can you actually improve your RWA density through some managerial actions? My last question actually, this is it. These are my two main questions. Thank you.
Okay. Okay. In terms of starting with RWA growth, in terms of RWA growth, there are here several impacts. One is the credit RWA growth. The credit RWA growth will grow aligned with credit but adjusted for the differences in mix. I would here like to highlight that mainly in Poland, but not only, in Portugal also, we are pretending to grow more in the corporate area that is more RWA-intensive. This is a negative so this, of course, inflates RWAs, and this is an important factor. Another factor that's becoming more and more important is the RWA growth linked to operational risk. The operational risk, as you know, right now, according to CRR, is linked to the lines of the income statement. At least, the more revenues you have, the more RWA for operational risk you have.
Right now, you have if we are able to increase the NII as we are expecting to increase and the fees and commissions as we are expecting to increase, this will translate into a higher RWA for operational risk. I don't like particularly this model, but as you know, this is the model that is being implemented. The more revenues you have, the more RWA you have. This impact also has an impact. Of course, as time goes by, we will have here a benefit in terms of Poland, mainly in terms of the there is also an RWA associated to the operational risk of the Polish mortgages so that the provisions in the last three years somehow count for the RWAs of operational risk in Poland.
As time goes by and as we see the sharp deductions that we are seeing of the Swiss franc mortgage charges, we have this benefit. We also have a benefit as time goes by because of the reduction of RWAs of DTAs. As you know, the timing differences have an RWA weight of 250%. As we consume these timing differences, this reduces, so to say, the weight of the RWAs of timing differences going forward. All in all, we would be expecting, I would say, the RWA growth to grow aligned with the credit growth because the other effects somehow compensate each other, maybe a little bit less, but not much less. In terms of Mozambique, I mean, Mozambique is a country that has a huge potential.
One year and a half ago, as you know, the country faced social issues that then, of course, had its impact in terms of public finances. There are right now very important green shoots in terms of international investment. The sum of international there are three very important companies that are investing in Mozambique in projects of more than EUR 50 billion. You have Total, the French company that had stopped its investment, it has already said it will come back. You have Eni, the Italian company that is already there, and it's exploring another source of natural gas. It has already said that it will restart its process on its second drilling field of natural gas.
Now, even with the support of and with the new target of the U.S., you have the largest project that it's of ExxonMobil of around $30 billion that is reanalysing the project and saying that it will come with a definite decision by mid of the year. The first ones have already decided. Structurally, you are seeing a comeback of the investment in Mozambique of very large projects. This is a project that was stalled in the last two years. If you see the opinions from international organizations, you see that the country is structurally solvent. I think this is important. It's the first message. The second message is that it is a country with difficulties that are normal and that it will have some volatility. We are there for the long term.
We feel very comfortable that over the cycle, over the long term, we will be earning ROEs comfortably above 20%, clearly, but with volatility. There will be some years where we will be close to break even, such as this year. There will be years where we will be making 30% ROE. Fourth message, we don't have any intergroup funding. Basically, we are very bullish in the country over the long term, but we are also cautious in terms of the risks that we take. I mean, our risk appetite is the capital that we have there. I think this is also very important also to share with you. Our risk appetite is the capital that we have there, and we are prepared to contribute to the takeoff and to the society of the country, but of course, with reason.
In terms of the provisions, I mean, the bank there has only exposure to sovereign debt in local currency. We have models in terms of this local currency debt. We don't think it makes sense for a country to default in its own currency when it has currency sovereignty. We are comfortable that, in principle, there will not be a haircut in this debt. We have to calibrate, so to say, our risk models to the situation of the country. Right now, in spite of the fact that economically, the situation is better and in terms of future, the situation is better, right now, in terms of public finances, the situation is challenging. We are only exposed in local currency. We feel comfortable with that.
We think that in 2027, the bank will, of course, not be in break even and will be having a better result than in 2026. It will not be the normal year yet. It will not be the normal year yet. Over the medium term, we do think that this is a franchise that will pay off.
Thank you very much. Actually, I remember the question that I wanted to ask, the last one. I'm really sorry. After the recent storms and bad weather in central Portugal, have you seen any visible impact on BCP in terms of P&L or volumes? I mean, the storms in Leiria, Figueira, Coimbra, etc.
Yes.
Thank you.
Yes. I mean, it's a drama for many families. It is really this weather. This weather situation is, I mean, it's very dramatic. The way we see it right now, it is more punctual and up until now. We are not seeing any material negative impacts in terms of credit losses or moratoria or something like that. Up until now, we are not seeing anything like that. We are following it very closely. It is a drama for some families, we are not seeing yet anything that would affect materially our income this year.
Thank you very much.
We are now going to proceed with our next question. The questions come from the line of Borja Ramirez from Citi. Please ask your question. Hello, Borja. Your line is open. You may ask your question. Due to no answer from Borja, we are now going to proceed with the next question. The questions come from the line of Miruna Chirea from Jefferies. Please ask your question.
Good afternoon. Thank you very much for taking my questions. I just had a couple, please. Firstly, on Poland, could you share with us your expectations for loan growth in the country in 2026 and how this is split between mortgage growth, which was negative in 2025, and then corporate growth? Secondly, a question on AI. There have been some concerns in the market over the last couple of weeks that agentic AI might disrupt the savings market. Could you please share with us your thoughts on this topic and maybe remind us what proportion of your total deposits in Portugal are current accounts and what is the average or the median balance of a Portuguese current account in BCP?
Just regarding to some comments earlier this afternoon made by the governor of the Bank of Portugal, he was saying that the bank is considering creating a new tax on the banking sector to cover supervision costs. I was just curious if you've been involved in any of these discussions. If so, how large do you think this tax could be? Thank you very much.
Okay. Starting with the last question, we have effectively, there was this statement from the governor of the Bank of Portugal saying that they want to impute to the banks a supervision cost. We already have a supervision cost imposed by the ECB. Of course, our first reaction is that we, I mean, we would like to understand it better because we already have one main supervisor. In any case, we don't expect it to be material to the point that it will affect materially our income statements. It's not like really a tax. It's more like a supervisory charge to cover supervisory costs.
We would expect that as most of our supervision is done by the ECB, that the amount that the Bank of Portugal would charge us would be small because it should be proportional to the costs that the Bank of Portugal would have. In terms of AI and so on, how do we see it? First, we take AI very seriously, and we understand that the risks to business models of having AI is very important. How do we see ourselves positioned in this? We are basically our focus, to a large extent, is in relationship banking and in daily banking. The customers have a full banking relationship with us. Effectively, what they do is they have their, I mean, their daily banking account, their transfers, their debit cards, everything, they have it with us.
We also have a model where we also have some human intervention for we are not a totally digital bank, so to say. We have also a digital solution, a more digital bank, but we are not totally a digital bank. Of course, we cannot guarantee totally the future, but we do think that mono-liners, the banks that are based on one product, be it consumer credits, be it investments, and so on, may be more disrupted by AI than a bank whose main mission is to be close to the customer in its daily banking operations. That's the way we see it, mainly when we speak about the AI disruption models by agentic AI. That's how we see it. Of course, we want to be a player if we are following it very closely. We also have our AI agents.
We want to be on the forefront also of this area. It's part of the DNA of BCP to be a very innovative bank in everything that has to do with systems and IT. We are more protected, so to say, also than other banks based on our business model itself. Yes. Yes. It is similar to what happened, I would say, 25, 30 years ago with internet banking. Some customers would have liked it, others not. Others prefer to have this more hybrid approach that we follow. In terms of loan growth in Poland, in consumer loans, what we are seeing is that that is a main product area of Bank Millennium, is that we are now in our natural production. We would expect for next year something similar to what we have had this year.
In mortgage, we are expecting a recovery on the, I would say, in terms of the stock, on the low to be single digits. In corporate, we are expecting something closer to the high single digits to low double digits. That's what you're seeing in c orporate.
Okay.
Perfect. Thank you very much.
We are now going to proceed with our next question. The questions come from the line of Sofie Peterzens from Goldman Sachs. Please ask your question.
Yes. Thanks a lot for taking my question. Here is Sofie from Goldman Sachs. My first question would be going back to your Core Equity Tier 1. The Core Equity Tier 1 was almost 16%. With the Q4 numbers, your target is that 13.5%. You also mentioned that your organic capital generation after kind of RWA growth will be somewhere between 35-40 basis points a quarter. I mean, will you ever go down to 13.5% Core Equity Tier 1? Would you kind of consider doing M&A or kind of deploy capital in a different way to reach a 13.5% Core Equity Tier 1 target that you have? My second question would be on the mortgage loan growth in Portugal. It was very strong in 2025, over 11% year-over-year in Portugal. In Spain, you have a lot of competition.
Could you maybe just talk about the Portuguese mortgage market? How competitive is it? What is the kind of pricing for mortgages? How do you see the competitive dynamics in this market? Thank you.
Starting with the mortgage, as I was just commenting, I mean, our business model is very much customer-focused, and it's multi-product. The way we look at the mortgage is as a way to start a long-term relationship with the customer where we have the mortgage, but also have the daily banking that allows us to monitor the needs of the customer and the risk of the customer with a very sophisticated triad model that allows us also to cross-sell, that allows us at different life stages to offer the adequate product at different life stages so that, I mean, we are able to offer an integrated solution where the customer is able to contract a lot of satisfaction of its needs with us instead of shopping around.
The customer has a lot of products with us, we are able to have a win-win situation in which we offer to the customer really value in each product because we have more products with the customer, and he gets more value than if he would have shopped the products in several areas. The mortgage market in Portugal is a competitive market. The front book is between 75 to 85 basis points of production. You have to consider the insurance. You have to consider the relationships. You have to consider everything that I was commenting. We calculated the NPV of the relationships and of the customers. What we see is that it makes sense, and you see it in the numbers, so to say. In terms of the convergence of our capital ratio, as I have commented, the capital ratio for us is not a target.
It is a restriction, so to say. We want to grow. We want to achieve these ROTEs of the mid-teens that we are commenting to you subject to this is a restriction subject to having more than 13.5% Corporate Equity Tier 1. It's not a target. It is a restriction to our main target that is to generate shareholder value through an adequate ROTE. This is the way we look at it. We expect that as time goes by, exactly through this new policy where we can go up to 90% of the P&L in terms of distribution, that as time goes by, our capital ratio will start to decline and converge to a value above 30.5. When I say above 30.5, it does not mean 30.5. It is above 30.5.
Of course, you have to put there probably a 100 basis point buffer above this 30.5, but we will get there. We will get there, but we will get there in a healthy way. We will get there by healthily growing business with clients, by having good value of loans, and by distributing more capital to our shareholders than the needs that we have due to the RWA increase. The RWA will increase more than the retained P&L. It is through this RWA that will increase more than through the retained P&L that we will get there. In terms of M&A, I mean, M&A for us is not an objective on itself. Effectively, the plan that we have presented to the market was a plan of organic growth. Of course, when there are opportunities, we look at them, but we are very, very disciplined.
There was an opportunity in the market, as you know, some months ago. We look at it from the outside in. We reached the conclusion that at least based on our best estimations, it would not probably suit our targets in terms of shareholder value generation, and we did not do it. We are very disciplined. To be honest, I'm not seeing any opportunity right now in the markets in which we are in that would clearly generate shareholder value.
Thank you. That's very clear.
We are now going to proceed with our next question. The questions come from the line of Cecilia Romero Reyes from Barclays. Please ask your question.
Thank you very much, Miguel, for taking my questions. My first one is on other provisions. How much do you expect the other provisions, including the CHF mortgage provisions, to fall over the course of the year? What are the trends that you're seeing that affect portfolio and renegotiation supporting this assumption? I also wanted to ask, we were expecting a headwind due to the reevaluation and recognition of the Deferred Tax Assets following the changes in the Portuguese tax regime. Was this included in capital this quarter, and what was the magnitude, or is that still coming? Finally, I wanted to ask on cost, you guided to group cost growing mid-single digit this year. In that cost guidance, how much should Poland cost grow? Thank you.
In terms of the CHF costs, what we are seeing is clearly a trend of decreasing of inflow, a clear decreasing of inflow in terms of cost, I'm sorry, of new cases in the courts and more negotiations with the customers. What we are seeing is that there is already this was already the second year in a row where our total costs with Swiss francs have decreased. I think you have to sum the provisions and the costs that are booked in the trading line. I think it's important. Our decrease this year was our decrease with the total costs of Swiss francs before taxes, before the tax impact, it was positive, was around 34%. We expect for 2026 to have an even higher decrease, a much higher decrease than this 34%, I would say between 34% and 50%. That's what we are expecting.
For the years after, what we will expect is to have a natural charge for operational risks and for litigation, but that will be a part of the normal business that will, I mean, include everything that has to do with litigation. What we expect is that this year, this will be the last year of a really important charge in terms of Swiss francs. In terms of DTAs, effectively, there was a decrease in terms of DTAs and different taxes. I'm just checking here. The decrease from September to December of DTAs is around before tax loss carried forward, so the timing differences. Let me just check here.
Around EUR 200 million of less DTAs that we have in our books, of which around EUR 100 million in terms of guaranteed DTAs. I'm speaking here from September to December, and the remaining around EUR 70 million, but of non-guaranteed DTAs. This was already translated into the relevant DTAs for our capital ratio. The impact was already there. The costs in Poland, I mean, Poland has its own inflation costs. We will continue to have an evolution of the costs in Poland that are on the high single digits to the low double-digit area.
We are now going to proceed with our next question. The questions come from the line of Borja Ramirez from Citi. Please ask your question.
Hello. Good afternoon. Can you hear me?
Yes.
Perfect. Thank you very much. Sorry for my prior technical issues. Thank you for taking my questions. I have two. Firstly, on the NII, I think it's very useful the disclosure you've provided on slide 57. I think you're probably one of the banks in Southern Europe with the highest level of hedges relative to deposits. Sorry, I didn't fully understand the NII guidance for in the medium term, 2026, 2027, and 2028. In Portugal, you're going to have mid-single digit loan growth, but then you're going to have a tailwind on the structural hedge linked to the steepened yield curve. If you could kindly elaborate on that. My second question would be on costs, if you could kindly provide details on the evolution in Portugal, also beyond 2026. Please.
I'm sorry. Just to make it clear. First, in terms of NII, what I have commented is that we have a quite hedged balance sheet so that our NII will grow more or less aligned with our volumes, okay? We are expecting volumes to grow on the mid-single digit area. Our NII will grow in the next years mid to high single digit because of the mix effect, okay? Mid to high single digit, that's what we are expecting in the next years to occur in terms of NII. In terms of costs, I'm sorry. When in page 57, I don't know whether you were there when I was explaining it, the objective of page 57 was not to explain or to communicate that we have a high upside from our hedges.
It's basically to say that our hedges are more or less at market level. If you were to hedge everything now at market level because we have to look at the 5-year rate as a substitution for our hedges, and our hedges right now are more or less at the level of the 5-year rate. If we were to substitute right now our hedges, we would more or less be more or less where we are. Just to give you this idea. This just confirms that we are aligned with volume growth, and our hedges will contribute to it, okay. In terms of costs, this mid to high single digit is for 2026, but also for 2027 and 2028.
Of course, the confidence I have in 2026 by its own nature because it's more difficult to anticipate three years than one year are safer than the guidance that we give for 2028. In any case, that's what we are expecting here for Portugal. For Poland, the interest rate is still going down. We expect over this year to have a flattish NII on the whole year. There may be some volatility in terms of the quarters because Poland is growing a lot in terms of volumes, and the impact of the volume growth is felt more towards the end of the year than towards the beginning of the year.
We expect the NII in Poland to be flattish because of the interest rate reduction that will occur in Poland and not in Portugal anymore or in the eurozone anymore, and then to start growing in the years after. In terms of costs, the guidance that we gave is that because we are in an extremely competitive cost-to-income position, our objective, more than to try to minimize further our cost-to-income, is to prudently invest potential savings that we could have from efficiency and processes, to invest in AI, in processes, in innovation so that we can remain competitive in the future. That's always with the target of having an ROTE in the mid-teens area, okay?
We don't think it makes a lot of sense for a bank such as us to try to milk the cow, as one would say, based on the BCG metrics right now because we have a long-term franchise. We want to have here the adequate remuneration for our capital above the cost of capital and a resilient business model. We have to make sure that the model continues to be resilient for the long term. The costs will grow aligned with the income.
Thank you. We have no further questions at this time. I will hand back to Mr. Miguel Bragança for closing remarks.
Thank you very much for the time devoted to us. I think, really, we appreciate your effort in trying to understand our equity story and trying to understand our effort of value generation. We do think that a franchise such as BCP is in a particularly well-suited position for this new future of serving the society and serving the clients in a differentiated way, whereas at the same time, continuing to generate a remuneration of our capital clearly above the cost of capital. We expect exactly to continue to generate a total shareholder return for our investors and for the market that keeps them as satisfied as they are now. Thank you very much.
This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.