Today, and thank you for standing by. Welcome to the Millennium bcp first quarter 2026 earnings conference call. 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, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised today's conference is being recorded. We'd now like to hand the conference over to your speaker today, Mr. Miguel Maya. Please go ahead.
Good morning, Miguel Maya speaking. Welcome to BCP earnings conference call. As usual, I will mention the highlights of our performance, and then Miguel Bragança and Bernardo Collaço will follow, providing additional detail. The first quarter proved particularly challenging with the global context marked by increasing instability and intensifying geopolitical tensions as conflicts erupted in the Middle East. These events have had a severe impact on international trade and energy costs worldwide, which in turn is affecting global economic growth. Despite operating in a complex environment, the bank's performance remains strong. Net profit grew by more than 25% year on year, reaching EUR 306 million and translating into a return on equity of nearly 16%. This profitability underscores the resilience and ability of our business model to generate sustainable value, as outlined in our strategic plan for the cycle up to 2028.
Our commitment to creating value is matched by our ambition to increase shareholder remuneration. We exceeded our initial target in this matter, having announced last quarter the intention to implement a shareholders distribution of 90% over results 2025. The competent authorities have meanwhile granted the required permission for our share buyback proposal of up to 40%. Yesterday, the board of directors approved the share buyback related to 2025's profit that will lead to the acquisition of shares in the amount of EUR 407 million. In Portugal, we achieved a net income of EUR 265 million in the first quarter, an increase of 21% that reinforced the growth and profitability trajectory of previous quarters. This result is grounded in a solid balance sheet, rigorous and effective NII management, and the diligent cost control, while executing ongoing investments essential for the bank's future positioning.
Our international operations posted a significant 65% increase, notably driven by Bank Millennium in Poland, whose net profit rose by 68% to reach EUR 71 million. This performance was supported by a strong commercial momentum and a 61% reduction in charges related to FX mortgage loans. The increasing containment of risks and impact associated with FX loans demonstrates the quality of the franchise and realized the potential for value creation of the operation in Poland. There was growth across several business lines, especially corporate lending, which increased by 26.5%, materializing an important priority of our strategic plan for this market. In Mozambique, although Millennium bim profitability continues to be heavily affected by sovereign rating impacts, the bank delivered a positive performance.
There was relevant commercial activity with notable increase in both customer resources and lending, maintaining a robust capital position with a capital ratio above 42% and rigorous risk management, ensuring the bank's balance sheet remains the benchmark in the market. Millennium bim is therefore well capitalized and positioned to take advantage of the economic growth phase that will be driven by the resumption of major natural gas projects. On a consolidated basis, the quality of our relationship banking model is evident with the rise of over 7% in customer loans and a nearly 8% growth in customer funds. We continue to operate with very strong capital ratios, with a common equity Tier 1 has 15.1% and total capital of at 19.3%.
These figures already account for the maximum value of the share buyback equivalent to a 40% of the 2025 net profit and include just 10% of this quarter's profit in line with the new shareholders distribution policy. At the same time, we are continuing to improve balance sheet quality with a reduction of EUR 238 million in NPEs year-on-year and a stable cost of risk around 35 basis points for the group and 33 basis points in Portugal. At group level, our customer base expanded almost 5% in the last 12 months, reaching the 7.4 million customers mark, out of which nearly 2.9 million in Portugal. Most notably, mobile customers continue to grow at 8% per year, accounting for 75% of the group's customer base and 67% in Portugal.
Individual and corporate clients continue to choose Millennium as their preferred bank, and our services were again awarded this year with several relevant distinctions. Our ongoing investment and continuous customer-centric innovations in the mobile platform with a constant focus on outstanding user experience have resulted in a consistent upward trend in both interaction and sales. This quarter, customers carried out 6% more transactions on the app with a notable rise in transfers. Sales figures increased by 5%, highlighted by 18% growth in card sales. Customers are increasingly choosing the app as their preferred method for conducting their most significant financial operations, as shown by the high penetration rates of the channel. For example, for services such as mortgage related activities and the acquisition of personal loans or to perform financial investments.
With this week's general meeting, if as expected, the proposals submitted for the shareholders' decision are approved, a new term of office will begin. This will be a term of office in which we will maintain our purpose and commitment to innovation, operational efficiency, prudent risk management, and a strong value creation for shareholders. It is an illusion to continuity, maintaining the performance trajectory that has been consistently recognized by the market, both in the execution of the strategic plans and the increase of BCP value. I would also like to take this opportunity to express my gratitude to the two members of the Executive Committee who are leaving, namely José Miguel Bensliman da Silva Pessanha and Rui Teixeira, for their exceptional contributions throughout their executive functions, and in the preparation of the two outstanding professionals who will now join the executive team. Our commitment to creating more value remains unchanged.
Miguel, the floor is yours.
Thank you. Thank you very much, Miguel. Presenting now the income statement. As you see, a very resilient P&L with the net interest income in spite of the general reduction of interest rates growing 2.4%, in contrast to what's happening in the majority of the banks in Europe. Commissions growing also a very healthy 8%, mainly linked to asset management, insurance and payments and cards, which means that the core income grew almost 4%. Operating costs at 4.5 is our guidance with a strong contribution here from IT investment that is part of our general adaptation as an institution to this new environment. The core operating profit growing in spite of the reduction of interest rates.
On top of this, we have other income, mainly in the sale of some legacy assets. That was a positive evolution this quarter, so that the profit before impairment and provisions grew around 10%. In terms of impairments and other provisions, a very healthy evolution of the impairments that stayed constant in spite of the growth in the credit portfolio and the strong reduction of, as anticipated, of the legal risk charges in Poland. I would like to highlight these 4 indicators in page 9 that clearly are our benchmarks and what we want to be with an ROTE of almost 17%, 16.6%. A growth in the book value per share plus dividends per share above 18%, and an EPS growth above 29%.
It is a really positive development. Going forward, we continue to expect an ROTE and the book value per share plus dividend per share growth in these high teens as you are seeing here. In terms of the EPS, looking at the future, we also expect it to continue to grow materially above 15% for the years to come within the period of our strategic plan. Going now to our accounts in more detail. The NIM showed a strong resilience, reducing only 14 basis points in spite of the reduction in interest rates in Poland. This explains why it was possible to grow the NII or 2.4%.
This together, of course, with the volumes. The NIM in Portugal even increasing from 2.12 to 2.2, which is a good NIM to have in a mature market such as the Portuguese market. Which together with the volume growth that we will see, allowed us to grow around 10% in terms of NII in Portugal. In the international operations, I would remind that when you compare quarter-on-quarter, Poland, which is the main operation, reduced the benchmark interest rates in the market almost two hundred basis points. We only reduced the NIM around sixty basis points in spite of these two hundred basis points reduction, and the NII reduced to 3.7%.
As we have pointed out in our previous conference calls, our expectation for this year is as the quarters flow, as time goes by, is to have a quite stable NII when you compare it with last year, with the volume growth compensating the reduction in interest rates. Fees and commissions also growing healthy, both in Portugal and international operations. 8.5% in Portugal, 7.4% in international operations. Both in banking fees and commissions and market related, market related includes asset management. Here a strong contribution from clients, transactionality, cards and asset management products.
Other operating income, as you see here in page 13, the net trading income in Portugal showing here a very positive evolution in the quarter, mainly linked to the sales of some legacy assets that is obviously not recurrent on a quarter-by-quarter basis. This difference, this growth from EUR 13.3 million to EUR 37 million, I would classify this difference as a one-off. In the international operations, what we see is that there was some increase in monetary contributions, mainly in Poland. However, this has more to do with the mix of the monetary contributions. If we take a look at the full year, we expect the monetary contributions to be broadly constant in Poland.
Operating costs, evolving at the very contained and disciplined or in a very contained and disciplined way, in spite of all the investments that we are doing, as you see here, mainly in the other administrative costs in Portugal. The cost to income at 36%. In Portugal, the cost to income only at 31%. This clearly shows the competitive advantage that we have and the possibility that we have to remain and to be quite competitive in the market. Cost of risk, also very contained. We are not seeing in our market any warning signals in spite of what's happening in the Gulf and of course of the war in Ukraine.
Very much in line with our plan, with a cost of risk in Portugal in the low 30s, as we also have anticipated, and in our international operations, also re-reducing from 47 basis points to 41 basis points. This was achieved together with the continued re-reduction of our NPEs, so that today, as you see our hard NPE ratio, so the really day past due ratio is only at 1.2%, and the more traditional NPE loan ratio at 2.3%.
In terms of business activity that explains this evolution of the P&L, we see that strong growth in customer funds, which shows the resilience of our business model and the ability that we have to originate new customer relationships and to deserve the trust of our customers in terms of our advisory businesses, asset management businesses that here grew more than 10% as you see, but also in terms of term deposits and of the transactionality that shows up in the demand deposits. This in the several geographies. You see Portugal, a more mature market. We have been growing and gaining market share, growing 6.3%.
in the international operations, where we are a challenger, mainly in Poland, growing 11.1% with a very strong contribution, as you see here, from asset management also. The loan portfolio also growing well in Portugal at 9.6%. As I had anticipated in the last call, our objective for this year is to see here some deceleration mainly in the mortgage market. The mortgage market grew very healthy in Portugal. We expecting some deceleration in Portugal. However, to continue to grow, looking forward at mid-single digit level, now more biased towards the SME and the corporate sector. In the international operations, a slower growth but a very good composition.
What we had said is that we wanted to rebalance our business mix in Poland towards the corporate segment. As Miguel Maia commented, we grew more than 20% year-on-year on the corporate segment. This strong growth is continuing, showing that we really have a business model that works in Poland also for the SMEs and corporate segment. This last year, we have reduced somewhat our mortgage portfolio as we had commented. However, in the first quarter of this year, it has already stabilized. The mortgage portfolio that during last year, mainly the last two quarters, was a drag in terms of volume growth, will start also to contribute in Poland to the growth of the credit portfolio.
In terms of capital, as you see, a very strong capital position that compares well with the minimum capital ratios, both in terms of CET1 and in terms of total capital ratio. Here, this next page, I think it's very important to understand the evolution of the capital. Of course, in the data that we had presented in December 2025, the share buyback that we are now going to implement was not deducted yet because we did not have the authorization. It was disclosed that we had this objective and that this would represent 35 basis points. On a pro forma basis, we'd have to adjust for the share buyback.
The other elements of the capital waterfall, I would say, are more recurrent elements and others not so recurrent elements. The P&L and of course, the distribution of the P&L, as we are distributing almost everything and we are, as we are deducting from capital, 90% of the P&L is not contributing materially to increase the capital ratio. On the other hand, we are continuing to grow on a healthy way, mainly in the corporate sector, both in Portugal and in Poland. This growth in the corporate sector, of course, consumes more RWA than the growth in the mortgage segment.
These 20 basis points that we see here in the first four columns of the waterfall are what I would classify more as the more recurrent evolution of our capital ratio on a quarter-by-quarter basis. As I commented in the last call, as you may have recalled in our last call, I had commented that we should expect a P&L before distributions between 55 and 65 basis points on a quarter-by-quarter basis. We had here 70 basis points because of this extraordinary gain that I just commented.
In terms of RWA growth or RWA linked exactly to this, a strong focus on the corporate business, we would have, so to say, a consumption of RWAs between 20 and 25 basis points. This is exactly what I said in the last conference call, and this is what I am reaffirming here. There are other elements in our capital waterfall that are not so recurrent, so to say. Namely the evolution of the IFRS reserves. We don't, we do not have a very material exposure to interest rates in IFRS reserves in terms of our fair value through OCI portfolio. Still, with the volatility that we have in the market, this has an impact.
Part of it has already been reversed, but there are some small changes here. As time goes by, some of the securitizations that we have, namely, here there was, one important securitization in Poland, lose a part of its contribution to the capital ratio. This is something that when we take the view of the full year, is not necessarily to be considered, because what happens is that the securitizations lose their eligibility. They reduce, so to say, the secured amount, so to say. What happens is that we, in the meantime, we prepare new securitizations.
Right now as we did in the last years we are preparing new securitizations to be executed in Q3 and Q4 that will represent between 1 and 2 billion of risk-weighted assets. This will be more than compensated as time goes by by new securitizations. These other are some small effects that may work one way or another. All of them are below 5 basis points typically linked to market risk or to operational risk or to minority deductions. It's a small effect. All in all the guidance that here I would like to comment is that it is a constructive view of the capital position. The capital is growing is evolving exactly aligned with what we wanted.
It is, so to say, a virtuous capital consumption because the reason why we are consuming most of the capital is because we are being successful in terms of the implementation of our SME and corporate strategy in Poland but also in Portugal. This is the MREL, very comfortable above the MREL requirements. We are executing our funding plan exactly as commented. The liquidity position, very robust, as you say, with the net loans to deposits ratio at 68%, which is important because this is exactly what allows us to be very confident in terms of the management of our spread on deposits.
if we were not in such a comfortable position, probably we would not be able to grow so heavily in terms of the deposit margin as we have now right now. I'll pass it now to Alvaro.
Okay. Thank you, Miguel. Good morning, ladies and gentlemen. This time, in order not to take too much of your time, I will briefly go through some of the slides, and I will not follow the full set of slides that you have, as you already had the opportunity to look at it. Starting on page 26, net income in Portugal grew 21%, reaching EUR 265 million. As Miguel said, this performance was driven by the increase on NII of 9.1%, and also by the strong improvement on fees and commissions that grew 8.5%. It's also important to highlight, as Miguel also stated, that disciplined management costs and costs in Portugal just rose 4.5%.
On page 27, net interest income stood at EUR 357 million in the first quarter of 2026. That is 9.8 above what was recorded in the first quarter of 2025, and this is equivalent to an improvement of almost EUR 32 million. Let me also highlight here that on a quarter-over-quarter basis, NII went up 4.1%. In the last, this is something that we have shown, it's the constant consistency in terms of NII growth over the last 6 quarters. Regarding year-on-year evolution, as you can see also in the graph, I mean it's important to highlight the increase of the credit portfolio and also the strict management of deposits more than compensate the effect from lower interest rates.
This means that the commercial activity was responsible for more than EUR 25 million of the positive evolution of NII year-on-year. This also, it's important to remember that it's important also to consider the decrease of almost 30 basis points of the average three-month Euribor that was registered in the first quarter of 2026, compared with the first quarter of 2025. Moving to page 28, commissions amount to slightly more than EUR 160 million at the end of the first quarter, 2026, increasing 8.5%. That 8.5% compared with the same period of last year. Banking fees and commissions went up 7.1%, supported by higher contribution from cards and transfers. Also, let me highlight the strong contribution and improvement from bank insurance fees.
Regarding market related fees, that there was a significant increase that is coming from security transactions but also from asset management and third party distribution of investment products. Here also on this slide, as Miguel said, there was some change and improvement in terms of the trading line that as it was stated, it was mostly driven by gains from the disposal of some legacy assets stemming from the recovery of non-performing loans.
On page 29, operating costs stood at EUR 176 million in the first quarter of 2026, 4.5% above last year, and the increase in operating costs in the Portuguese operation was driven by the increase on admin costs and amortizations and depreciations, as Miguel said, related with some investments, and as you can see, staff costs were broadly stable compared with the first quarter of 2025. Cost to income stood at 31%. That compares with 34% in Q1 last year. As I said, I will jump some slides and, if I may, I will ask you to move directly to page 33 to deep dive on volumes.
On volumes, and starting with customer funds, as you can see, there was a continuation of the growth trajectory reaching at the end of the first quarter 26.7, more than EUR 75 billion, compared with EUR 71 billion in March 2025. This represents an increase of 6.3%. I think it's also important to highlight the growth on balance sheet funds, which grew 5.2%, driven by the stabilization of term deposits and the increase in demand deposits. Off balance sheet funds posted also a positive growth, increasing more than 10%, and this reflects what I already said, the growth in terms of the distribution of third-party funds, alongside with a positive performance recorded in sales of financial insurance products and by the improvement of assets under management.
Gross loans stood at EUR 44 billion at the end of March, EUR 9.6 billion above the EUR 40 billion reported at the end of the first quarter 2025. This growth reflects in one way, in one end, an increase in mortgage lending, which rose by more than 11%, somehow also driven with some support by the state initiatives for young people and, on the other end, by the positive performance in corporate lending, which was materialized in a growth of 7.6% or more than EUR 1.3 billion that in this portfolio related with companies. Once again, I will ask you to jump some slides and move to page 36.
In the year, I mean, leaving the Portuguese operation, let's have a quick look on the international operations that, as you can see, there was a strong improvement, and the contribution grew after deducting minorities almost 65%, reflecting mostly the strong improvement from the Polish operation. Bank Millennium, as I'm sure you have followed their results disclosure on the 28th of April, this improvement in the Polish operation was somehow, I mean, apart from the positive evolution on volumes, but it was basically, I mean, it has improved mainly with a decrease related with CHF costs.
It's also important to highlight, regarding Poland that, I mean, it has been applied since the beginning of the year, a higher tax on banks. There was also an increase in terms of mandatory contributions, and the interest rates in Poland have decreased significantly. I will not detail, I mean, the following slides about Bank Millennium, but, I would like just to reinforce, as I said, the resilience of NII, taking into consideration that there was a reduction of almost 200 basis points on the three-month WIBOR registered in the first three months of 2026, compared with the three-month WIBOR registered in the first three months of last year. Let's move to page 40.
Once again, about volumes, and starting with customer funds, as you can see, are still growing at a fast pace, reaching more than EUR 35 billion. That compares with EUR 30.6 billion, and this is in euros, from March 2025. Regarding the loan book, it's important also to highlight the positive trends on mortgage lending on zlotys and the strong increase on loans to companies that grew more than 26%, compared with March 2025. Loan book growth was not more pronounced, due to the continued sharp reduction in CHF, on the CHF mortgage portfolio. To show that, I will ask you to move to the following page that, I mean, provides some detailed information that I'm sure all of you are aware of it, but, regarding the FX mortgage portfolio.
Here, once again, it's important to mention the strong drop of the CHF outstanding portfolio that registered a decrease of 44% on a year-over-year basis and 15% on a quarterly basis. The percentage of the CHF loan portfolio at the end of March was just 0.7 of the gross loan book. That compares with 1.4% at the end of the first quarter 2025. Cumulative provisions for legal risk at the end of March 2026 represented 169% of the outstanding CHF mortgage portfolio.
Here, it's also important to highlight the significant drop in the number of individual lawsuits that is explained by the effort of the bank to achieve extrajudicial agreements, and even more relevant, as it was already mentioned, the significant drop of 61% of pre-tax costs related with CHF portfolio. Turning to page 32, regards Millennium bim in Mozambique, reported net income slightly above breakeven. The results continue to be somehow constrained by the provisions associated with the exposure to the sovereign debt in local currency. It's also important to highlight that from operational standpoint, net operating revenues are growing almost 4% and costs are under control. I will conclude here, but before we move to Q&A, I will start-
Yes.
I will hand the floor to Miguel Bragança for some final remarks about the execution of the strategic plan.
Yes.
On page 47.
As you know, 1.5 years ago, we have presented a plan to market with a roadmap until 2028 that implied further evolution, and even, I would even say transformation of the bank.
A plan of growth in terms of number of customers, in terms of making sure that these customers use the mobile channel, making sure that our cost to serve these customers and our service quality, both in terms of quality of the advisory and quality of the transactionality improves so as to achieve a low cost to income, a very controlled cost of risk within the limits of a prudent CET1 ratio and an ROE ratio that was above benchmark. All of this together with more distribution, so to say, of these values, of the generated value to the shareholders. At the time, what we had presented was 75%.
What I would even here like to say is that in qualitative terms, we are clearly ahead of schedule. In terms of the customers that we are acquisition, in terms of business volumes, in terms of the conversion of our customers in a more mobile usage or digital enabled customers, we are clearly ahead of schedule. The fact that we are ahead of schedule in qualitative terms shows that our strategy is the correct strategy, and we want to maintain the strategy that we have defined and we have presented to the market. Having said that, it is clear that we are overachieving this strategy in financial terms.
What we see is that we said that we intend to have an ROE above 13.5, for instance, that is the synthetic measure, as you see. We have an ROE today close to 16%. If we use the ROTE even clearly above these values. We have also in the meantime proposed to the AGM and communicated to the market a new shareholder distribution policy that is basically a table that depending on the need of capital we could go up to 90% of value. Very clearly we are overachieving this plan as I have commented in the first page that we have commented here.
We feel very comfortable that we will continue, as I commented in the first slide I presented. We will continue to grow book value per share plus dividend per share on the high teens level. We will continue to grow, of course, EPS in the next years also on the high teens levels. We are also having an ROTE on the mid-to-high teens. Of course, we have been giving this guidance to the market in the several conference calls. With the results of Q3, without changing the strategy, we will maintain the strategy. With the results of the Q3, we will give a more formal guidance on what is our objective for 2028.
we hope that with all this transparency and with all this commitment from our teams and the confidence from our customers, we will continue to generate and create more value for the different stakeholders. Thank you very much.
Thank you. We will now begin the question and answer session. If you would like 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. Please stand by while we compile the Q&A queue. Thank you. First question today comes from the line of Maksym Mishyn from JB Capital. Please go ahead.
Hi. Good morning. Thank you for the presentation and taking our questions. 2 questions from me, please. The first one is on Portugal. Given the strong quarter-on-quarter pickup in the NIM and the still high loan book growth, how do you see your NII guidance for 2026? Also, if you could give us a hint on how the current rate curve impacts your 2027 outlook would be super useful. The second one is on your cost base. Some Iberian peers are executing headcount optimization. Is this something BCP could consider as part of the digitalization and implementation of AI? Thank you.
Okay. Thank you. Thank you very much. Thank you very much for your, for your questions. In terms of NII, the last guidance I gave was the NII growth in Portugal growing between the mid-single digits and the high single digits. This was the last guidance I gave here. With the evolution that we've seen in the market interest rates, right now we are much in spite of the fact that the bank is quite hedged, but we are much closer to the high single digits, and this would run both for 2026 and 2027.
The NII guidance that I would like here, I mean, assuming, the market is very volatile, but the NII guidance based on the current structure of interest rates both for 2026 and 2027 is on the high single-digit area. Okay. In terms of costs, of course, we are in a transformation phase. The world is in a transformation phase. We are exploring all or most of the opportunities that AI gives us. We were clearly innovators in terms of service model, in terms of mobile, in terms of everything that has to do with technology. It's part of our DNA to be a technology-driven innovator, so to say, since the inception of BCP.
Actually, there are several case studies on how BCP has been an innovator in technology since the inception. There is here, so to say, a J curve. There is a phase of investment and then the phase of saving of the cost typically takes some time. What we are trying to do is to make sure that we profit from these opportunities and that we reinvent ourselves.
In the period of this plan, then I would say that the potential cost savings that we will be having, and we will be having some cost savings, will be invested exactly in the transformation to ensure that the bank continues to be a reference bank, that the bank continues to be a main, a main player in this. I would not review our guidance, so to say, in terms of total costs of the mid-single digit area. What I would here say is that the composition of this cost will become more and more different.
We will probably have more and more as time goes by, more costs related to change the bank, more to IT, more to technology, more to training and somewhat less the pure traditional headcount costs. The guidance, or we would keep the guidance in this mid-single digit area for the time being.
Thank you very much.
Thank you. Next question today comes from Ignacio Ulargui from BNP Paribas. Please go ahead.
Thanks very much for the presentation and for taking my questions. I have two, if I may. The first one, Miguel, looking to the capital performance, how should we think about it? You have just given some sense that part of the impact that we have seen in the quarter might be recovered throughout the year. How should we think about capital and distribution into 2026? Is 90% still kind of the current target payout ratio? A link to that actually, if we see an acceleration of lending growth, could we expect a relevant acceleration as well in NII? There is a conversion effect on that profitability improvement that may be not captured at this stage in your, in your guidance. Thank you.
I mean, the answer to the second question is yes, it's mathematical. If the growth of the credit, I mean, accelerates even further, of course, we will grow even more than what I said. It's mathematical. I would say that at this point in time, with so much uncertainty in the world, probably what I would keep, so to say, the guidance that I gave in terms of volumes.
Except I would say if suddenly all this uncertainty that we are seeing in the Gulf, in Ukraine, and so on, in a very, I would say, Goldilocks scenario, where suddenly the investment picks up and potentially the scenario we could have a much higher growth in terms of credit. This is not our base case. In terms of our capital distribution strategy. First, I would like to highlight that we have been quite innovative here. Instead of doing what most banks do, that is presenting a target payout ratio, what we have said is we wanted to come up with a situation in which we ensured a couple of objectives.
First, we wanted to make sure that the market sees through and almost anticipates what may happen based on the evolution of the bank. That's why we have, so to say, a maximum reference value for capital distribution that is a function of the ratio. This assures this transparency. Okay. It also assures strategic flexibility. If suddenly there is a much better, so to say, opportunity to create value, in, let's say, growing SMEs or credit in Poland or in Portugal, we think that exactly the fact that we are giving quarter after quarter, very close to the market, how we will reason and how we will go about it, allows us also to, I mean, do what at the end of the day is our main mission. That is to create value.
Our main I mean, the capital distribution is a means, is not an end. What we want is to create value, to create value. Thirdly, transparency, strategic flexibility, and thirdly, what our strategy assures is exactly this balance between discipline, so that we do not accumulate unneeded capital, and value creation. The objective of the, of the payout ratio is to assure this discipline because the market puts a premium to this discipline. The objective is not 90% per se. The 90% is a means to assure discipline, and is a means to be transparent, and is a means to assure the strategic flexibility with value.
Having said that, based on the projections that we have right now, and based on the guidance that we've just given you, together, of course, with the fact that some of these securitizations that are coming to an end will be replaced by new securitizations, what I can comment is that it is still a likely scenario that we can reach the 90%. It's not the only possibility, but it's still, it is still likely. Of course, if we do not do it will be for good reasons. It's because we are creating even more value, namely in terms of SME credit growth. But it is still likely.
I mean, this is equity, it's not fixed income, so I cannot, I cannot assure exactly what will be the growth of what our clients will do, how our competitors will move, and what will be the growth of our credit portfolio in Portugal and Poland. What we have is, I mean, a view. The reality will then be the confrontation between this view and what will happen in the market in the next quarters. I remind you that it's still the first quarter.
What we can commit to you is to give you and to keep you posted in every one of these quarter meetings, and we will see, I mean, much more in a much more transparent way and in much closer way what we will be doing and how we are reasoning and thinking about it.
Very clear. I mean, in a sense, it would be that if the payout is 80 for the reason of growth, that would probably mean a better profile in the P&L.
Yes.
It is at the end of the day.
Yes.
The conclusion of the message. Thank you.
Yes. Yes.
Thanks very much.
Well, of course, I mean, it's better to have a smaller payout in a larger P&L than a larger payout in a smaller P&L, I would say.
Totally. Thank you.
Okay. Thank you.
Thank you. Next question today is from Francisco Riquel from Alantra. Please go ahead.
Yes, thank you for the presentation. 2 for me, please, on margins and volumes. On margins, I wonder if you can update on the NII tailwind that we should expect from the hedging portfolio. You include in the appendix of the presentation with a yield of just 2.3% in 2026, 2027. If you can share with us how you are managing those rollovers, if you are already looking forwards agreements or if you will just replace those hedges at the prevailing rate at the time. In this context, just provided guidance for NII. I wanted to ask you about the guidance for NIM in Portugal, which came at 2.2 in Q1, if you can please comment. My second question on volumes.
The sector in Portugal is growing loans 8% and deposits 6%, so a 2 percentage points gap. The gap for BCP is 5 percentage points, so plus 10 and plus 5. I wonder if you want to close this gap or not. In loans, you've mentioned that you're going to slow down the growth in mortgage loans. I don't know if this is housing demand or you want to be more conservative here. In deposits, you are growing a bit less than the sector. If you can please explain what is driving this underperformance, if it is growth in retail or corporate deposits. Thank you.
Okay. Starting with your last question more around deposits gap and so on. First, we are in individuals, what we are clearly gaining some market share in terms of deposits. In the corporate sector, we are more opportunistic there, mainly in terms of term deposits. We only quote when the price makes sense for us. Because there is not so much franchise linked to it. Mainly in the large corporate deposits, we are not overpaying or we consider all the costs. Here and there, we, I mean, we may lose one or other large deposits to a competitor that needs more, so to say, the deposits than we do.
It is large corporate deposits. As you see, we are evolving very much aligned with the system. In terms of the of the hedge of the balance sheet. As you see here in the annex, we have here a hedge book. This hedging book that uses swaps and unhedged bonds, so to say, is used to hedge the balance sheet as a whole, so to say. Because it is used to hedge the balance sheet as a whole, what we typically do is that we have our own metrics, typically the standard metrics of basis point value is and EVE, so economic value sensitivity to interest rates.
Typically, what we do, as most other banks, according to guidance of the EBA, is that most of our demand deposits are modeled to a large part as 5 years. Not everything, but to a large part as a 5 years zero coupon liability, if you want. Most of it. What we tend to do is that we use the interest rate swaps and the unhedged bonds to hedge, so to say, these, I mean, the balance sheet as a whole. We hedge both our demand deposits and, so to say, the beta part of our term deposits. Typically, mainly when we'll take look NII, typically our term deposits have a beta of 50%.
We typically, in terms, in terms of NII hedging, we typically hedge 50% of it to emulate the sensitivity of our margin to interest rates. This means that our margin is not very sensitive to interest rate movements. As you see, when you compare with our competitors, we are in a very immunized margin. The way to look at this slide in page 55 is that on average, as these hedging positions mature, and not all of them mature in one day, we typically will be maintaining this level of EUR 32 billion-33 billion, plus the increase in demand deposits. We will be typically be investing at the then prevailing 5-year rates.
I think this is today, the five-year rates are at 2.8. More than a headwind, I would say this is a tailwind. You should look at this page as the opportunity that we have as time goes by to reinvest, for instance, in 2027, the difference between EUR 27 billion and EUR 32 billion that are now invested on average at 2.3, they will be invested at 2.8 if the five-year rates continue. This will be a positive contribution to the margin going forward and not a negative contribution. Okay? Let's move. I'm sorry. In terms of volumes, I mean, here. I mean, we don't. To make it clear, we don't. We are not worried about having a commercial gap, so to say.
What we want to make sure is that the credit that we originate, I mean, pays well our cost of equity, and that the deposits that we, of course, originate are well-priced, so to say. That we make money on the, on the, on the deposits. We want to grow in SME credit, and we want to grow in corporate credit as we have presented in our strategy. However, what we don't want to do is to destroy value in this growth. I would say we will not grow credit just because we want to close the gap. Or what we want to do is to make sure that every credit that's decided really pays well the cost of funding and the cost of equity.
We are not limited by the equity, but we are very disciplined in terms of our cost of equity. We prefer to distribute if we have excess capital than to do value-destroying business. Okay. We are not worried about having a gap.
Thank you.
All right.
Thank you. The next question comes from Carlos Peixoto from CaixaBank. Please go ahead.
Hi there. Good morning. Thank you for taking my question. I would actually have a couple of follow-ups, which would be on one of them on NII. Basically you upgraded or you put the guidance on the top end of the previous guidance on NII for Portugal. Basically if we annualize first you NII and adjust for the account, we will already be on a pro forma basis on an 8% year-over-year increase. My question here is, shouldn't we see actually something above that considering that you will be having some loan growth throughout the year and also some tailwinds from interest rates, even though part of that is hedged?
The second question would be on capital, the second follow-up would be on capital. Just a couple of issues here. You mentioned securitizations of EUR 1 billion-EUR 2 billion. I was just wondering here to clarify the EUR 1 billion-EUR 2 billion, are they impacts in RWAs or are the size of the securitizations that you could be doing? Still within capital, the 100 basis points increase in capital requirements in Poland in September, that should mean a lower deduction from minorities. Do you have an estimate on exactly how much could that mean? I am calculating around 15 basis points, but I wanted to cross-check that.
Then just sorry, finally, on cost of risk outlook, maybe if you could comment on what you're seeing now, what your expectations and whether you're seeing any signs of deterioration in the corporate segment driven by the higher the rises in oil prices. Thank you very much.
Okay. Okay. Thank you. Thank you very much. I mean, first in terms of NII, it is true that when we annualize what we have, we are already at 8%. It is also true that mainly when we consider what we had achieved in the end of last year, it was also a positive evolution. Looking forward, we want to maintain this high single digit, maybe 9, maybe 7. It's also 8. Let's see. Based on the uncertainty that we are seeing right now is what we see.
The credit growth, as you know, the main impact of the credit growth, mainly if it starts now or if it starts later in the year, I mean, in the year where the credit grows, it is not so material for the NII. It becomes more material the year after because it does not contribute so much for the average balance, so to say. Credit growth, even if we grow a lot credit this year, this may mean more EUR 10 million of NII, so to say. It is not so sensitive, but it will be more sensitive for the year after, we will be here at the end of the year to see whether we can be more optimistic for 2027.
For 2,000 at least for 2026, I think that it's now prudent to focus on the high single-digit. In terms of RWA, in terms of the RWA, the EUR 1 billion-EUR 2 billion are traditional or are SRTs. SRTs and equivalent deals through insurance protections and so on. The values that I mentioned, and they are not guaranteed, but we typically do them, we do them all the years. The values that I mentioned are RWAs in Portugal and in Poland, so to say. The cost of risk, as I commented in the presentation, we are not seeing any worrying early warning signals that would point to an increase in the cost of risk.
Neither in Portugal nor in Poland. Of course, it's early days. Of course, I mean, every day we hear something new about Hormuz, and we do not know whether the end will end to-today, whether it has ended or whether it will restart in one week and whether the fuel prices will stay high for a very long time. It is, it is a very complex situation, the situation that we have right now. I would say in a baseline scenario and assuming that the situation normalizes, the level of cost of risk that we are seeing right now, we do think it's recurrent. I'm sorry.
Thank you very much.
I mean, Pedro too.
No. The additional requirements from Poland from September 26th, that will be around 100 basis points. This will have an impact at CET1 at group level of around 30 basis points. It's also important to highlight that, I mean, that this will have a positive impact on capital. Yeah. Exactly. Okay.
Okay. Okay, let's then move forward.
Thank you. We'll now take the next question. This is from Alvaro Fernandez-Garayzabal from UBS. Please go ahead.
Yeah, good morning. Thanks for taking my questions. I have two. First, on operating jaws. You were expecting kind of flat operating jaws at a group level, so revenues growing more or less in line with costs. Is this still the case or do you now expect like kind of positive jaws in 2026 and 2027, given, you know, volume growth on a better yield curve? Second, there has been recent news on Fosun looking to divest their stake. Do you see any risks of a sale to a bigger player in Europe, and then therefore, BCP becoming an M&A target? And what actions could you take to protect yourself from that happening? Thanks.
Okay. First, in terms of operating jaws, we have to separate here Portugal from Poland. Okay? In Portugal, effectively, what we are pointing to is a growth in costs in the mid-single digit area. Right now what I commented is that we were targeting NII in the mid to high single digit. If the NII goes to high single digit, there could be a slight positive operating jaws in terms of the recurrent NII and the recurrent costs, so to say. Of course, there are always some non-recurrent items. As it happened this quarter that was positive, that may change on a quarter by quarter basis. This is the situation which we in which we are.
In Poland, as you know, we come from a situation in which the interest rates were very high, where they went down very sharply. What we are trying is, in spite of the strong reduction of interest rates, to have a stable NII. The costs is the guidance in terms of costs, are more on the high single-digit area. In Poland, we will continue to have negative operating jaws, but from a very, I would say, from a very high value in terms of the NIM. All in all, this is the situation that we have. I would say slightly more positive, at least in Portugal and in Poland, than what we had before.
In terms of our equity investors and so on, I mean, we are totally committed and totally focused in creating shareholder value, and we do not condition any of our investors, neither institutional investors, nor more strategic investors, nor. I mean, on what they want to do with their participation. What we want, we are totally and relentlessly focused on is on generating value. I don't think it is, I mean, even advisable for me to comment on what investors in BCP, that's always an honor to have good investors in BCP, I mean, want to do with their participation. We are totally focused on generating value and making sure that our share price reflects this value. I think this is the best thing to do for our shareholders.
Thanks.
Thank you. Next question today comes from Miruna Chirea from Jefferies. Please go ahead.
Good morning. Thank you very much for taking my questions. First thing, I had a clarification, please. Your high single digit NII growth guidance in Portugal for 2026 and 2027, does it assume any hikes from the ECB? If you could please remind us what is your NII sensitivity to 100 basis points higher rates in the Eurozone? If there is a meaningful difference between your year one and year two sensitivity. Then also on fees. I guess your fees are also performing better than your previous guidance, both at the group level and in Portugal, you are growing above 8% year-on-year. I think previously you were discussing about mid-single digit growth in 2026. Just wondering if there is any upside there. Thank you very much.
Starting with the fees. What I would here like to comment is the difference in fees is to a large extent also related to market related fees and to asset management fees, and these depend a lot in the situation of the market. What we had commented before was a mid-single digits in Portugal. Probably right now, given the performance that we had in the first quarter, we'll more go to between mid and high single digit, contingent on the market evolution. The market has been volatile, as you know, and the retail investors flows, as you know, because you're active in the asset management area, have also been volatile.
We, if the market performs well, if the retail investors come back, so to say, mainly to invest in products, there is room to go closer to the high single digit. If we have here more, a more, can I say, challenging market environment, probably the retail investors would focus more on deposits on balance sheets and on balance sheet products. Our, our projections and other guidance that we gave were very much aligned, have implicit, so to say, the forward rates. When we give a guidance, we typically give it based on the forward rates.
The numbers that I gave were basically, if you go to the present forward rates, the forward rates as of today, if you want. In terms of that reflects of course some ECB rate increases. In terms of our sensitivity, our sensitivity is very low to the margin. Our sensitivity in year 1 is both in Portugal and in Poland, around 2 to 3% of the NII for each 100 basis points increase in the interest rate. Our NII sensitivity is very low. Our year 2 sensitivity is not an information that we have been giving publicly. Probably is something that we have to improve.
Let me just check on, and then when we start giving it, we'll give it in a, in a more formal way. Okay?
Thank you. We'll move to the next question. This is from Dmitry Kirgan from Mediobanca. Please go ahead.
thank you. Yeah, just two questions on volume growth in Portugal. Firstly, how much of the mortgage demand is driven by the current government scheme for young borrowers? Second, how would you see the resilience of corporate borrowers to the energy prices right now? Maybe if there's any guidance for the corporate loan growth in Portugal for this year. Thank you.
I'm sorry. The connection is very, very poor. I only understood your first question. I don't know if you can-
Can you hear me better now?
Yes.
Yeah. The first question would be on the mortgages in Portugal. How much of the mortgage demand comes from the government scheme for the young borrowers?
Okay.
The second question is on corporate loan growth. Is there any guidance for this year, and how the corporate borrower is resilient to the energy prices right now?
Okay.
Thank you.
in terms of the percentage of the production-
that was done according to the guarantee was around 40%. In terms of the corporate loan growth, it is, I mean, there is some expectancy right now, in terms of how the situation will evolve. We do expect the loan growth to be around the mid-single digit, but this is probably one of the most volatile parts of our PNL because, or the most uncertain parts of our PNL, because it depends a lot on investor confidence, on corporate confidence. Due to current volatility, I mean, some of the investments are being at least postponed. I would say around mid-single digit, but it could be, I would say, low single digit or high single digit with an equal distribution.
In terms of the impact of the crisis yet, as I've commented, we are not seeing yet any material impact of the crisis in terms of the business profitability of our customers. Up until now, it is not happening. We all know that if this takes too long, I mean, the impact may be exponential. We take some comfort from the fact that Portugal has a large part of its energy from renewables, and Portugal almost does not import any oil and gas from or most from the Persian Gulf. Our providers come from other parts. We will be more impacted by the price than by the quantity. Let's see.
I would say if there is an issue, I would say probably that our economy will suffer much less than other economies. Of course, if the situation remains for very long, I mean, all the world will suffer. We have to be realistic about this.
Got it. Thank you.
Thank you. As a reminder, if you would like to ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can press star 1 and 1 again. We will now take our next question. This is from Cecilia Romero Reyes from Barclays. Please go ahead.
Thank you very much for taking my questions. The first one is on NII again. In a higher rate scenario, do you expect deposit betas to remain stable with current levels, at current levels, or is there a risk of further pass-through that what we have seen in the past, given that you are now growing more on corporate and SME, which are usually more rate sensitive? I would like to clarify, what are the rate assumptions that are embedded in your Poland NII guidance, which is currently flattish? The last one is on provision. I know you just said that there is no reason to change cost of risk outlook, and you're not seeing any deterioration, and you for now quite comfortable, but obviously the situation is very fluid.
Do you have overlay provisions available that could be used if the macro scenario deteriorates to soften the impact of changing macro scenario? Thank you.
In terms of provisions, we have our normal provisions, so to say, that come from the models. We have additional provisions exactly to we have the what we call the overlays that to cope with additional scenarios. These overlays are appropriately disclosed in our accounts, and they are there exactly to cope with potential scenarios, and they are allocated to industries that are most sensitive to the current risks, so to say. Right now, the overlays are around EUR 100 million in Portugal and around EUR 40 million in Poland.
That's the situation that we have right now for these overlays. All in all, we think this is aligned. In terms of the stable NII in Poland, as you've seen, I mean, the reference interest rate in Poland decreased very materially to around 200 basis points. Right now, the forward interest rates in Poland are reasonably stable. As I commented in the previous question, we typically give our guidance based on the forward interest rates. The guidance that we gave was based on forward interest rates that are stable.
This means that this stability continues then to 2027, in 2027, we will start growing with volumes. In 2026, basically what we are expecting is that the volume growth will compensate this massive reduction in interest rates that happened in Poland.
Thank you. We'll now take the next question. This is from Luis Pratas from Autonomous Research. Please go ahead.
Good morning, everyone. Thank you for taking my questions. My first one is on the NIM in Portugal this quarter. I think there was a small pickup in NIM for quarter Q on Q. I wanted to ask you what was the driver for this, whether there was any change in the mix, hedging or something else. My second question is on the CET1 this quarter as well. You know, there was like a small headwind from available for sale. Given the strong recovery in equity and debt markets in April, my question is whether we should see a tailwind instead in Q2, and maybe the full recovery of the 10 bps negative that you felt in Q1. Thank you.
Okay. Starting on your last question, as you correctly pointed out, this is sensitive to the market. Our sensitivity of the fair value to OCI is very low. With all that happened in the market, it only impacted our capital ratio 10 basis points, which is very little. Of course, a part of it has been already recovered in April. As we were, I mean, I do not want to disclose any non-public information, but you can, it's reasonable to expect that as interest rates then reduce both in Portugal and in Poland, I mean, this has an impact on the fair value through OCI. A part of it has already been recovered.
I will not get into details because this is not public information. In terms of NIM, I mean, actually, our NIM is much more sensitive to the composition between credit and government debt portfolio than anything else. There was not any special reason to explain this NIM except the fact that we are having a larger proportion of our credit vis-à-vis government debt, and this has, of course, a higher spread. In the meantime, as the interest rates have already picked up a little bit in our deposit spread, as we have a beta that is not 100%, but is typically 50%, even with a low sensitivity, this then has a small impact on the NIM.
I would not make it too much on the NIM in any specific quarter because there will be always some small volatility in the quarter by quarter NIM.
Thank you. Maybe can I just do a quick follow-up? Maybe could you provide then a sensitivity sovereign spread?
A sensitivity to the sovereign spread? Yes. Our sensitivity of our fair value to OCI to a sovereign spread, if all the sovereigns, the Polish sovereign, the Portuguese sovereign, the European Union supranational go up by 25 basis points, the impact on our capital, so to say, would be around EUR 50 million. It's very small.
Yeah.
Thank you. There are no further questions. I will now hand over to Mr. Miguel Bragança for final remarks. Thank you.
Thank you very much for your trust. Thank you very much for following our equity, our equity story and our story of value creation. We will continue with our plan and to grow and to create shareholder value and to adequately remunerate our shareholders. We will ensure that we will not disappoint you. Thank you very much.
Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Speakers, please stand by.