Banco Comercial Português, S.A. (BCP) Earnings Call Transcript & Summary

Good afternoon. This is Miguel Maya speaking. Welcome to BCP's earnings conference call. Before going into the first quarter highlights, I would like to start with a couple of introductory remarks. This quarter was still marked by the worldwide evolution of the pandemic, although the global economic recovery progresses in good rhythm due to the success of the supporting measures undergone by major economic blocks and by the execution of the vaccination programs. The high pace in which most of the developing countries are running their vaccination programs was unforeseeable in mid-2020 and is paving the way for an economic recovery that we are confident will start sooner and be bolder than expected. In fact, both United States and China economies are already growing significantly, which provides confidence that also Europe will resume its growth as the vaccination levels advance. As you know, in Portugal, when the vaccination program was still incipient, we faced a spike of the pandemic on the first quarter that reached unprecedented levels, which imposed the need for hard lockdown measures. But nevertheless, in this period, the Portuguese economy exports grew almost 28.8% quarter-on-quarter, showing its resilience and capability to seize the opportunities of a spike in the global economic activity. On the other hand, the intensification of the turmoil around the FX loans in file in Poland have not enabled yet a stable framework towards an equitable solution driving the need to increase provisions to deal with the uncertainty associated with this matter, which led us to reinforce provisions in the amount of EUR 112.8 million in the first quarter, a significant amount that compares with the EUR 12.7 million of provisions made in Q1 last year. Although the legacy of the FX loans is a complex file that is having a significant impact on the profitability of our subsidiary in Poland, it didn't distract the bank from developing its core activity. Bank Millennium has a strong franchise, is well recognized by the customer for its innovation capabilities and quality of service, recently was awarded by Best Bank in Poland by Global Finance and is managed by a very professional team that has successfully steered the integration of Euro Bank and is expanding in the bank business. Therefore, we still hope a fair or at least reasonable outcome for the FX loans file. The resilience of our business model and the quality of our franchise in the different geographies in which we operate as reflected in the increase of the consolidated pre-provision profit by 5.8% this quarter reaching almost EUR 329.5 million. Standing as a benchmark on efficiency continues to be an absolute priority for BCP. We managed to decrease the operational costs by 9.2%, achieving a cost-to-core income of 47%. The net profit was contained by the significant increase of EUR 20.3 million in impairment and provisions, which we reinforced due to the economic impact of the pandemic and to deal with the risks associated with FX legal uncertainty in Poland. The consolidated net profit stood at almost EUR 57.8 million, increasing more than 63.8% year-on-year. The activity in Portugal contributed with EUR 83 million for the consolidated earnings of the quarter, a very relevant increase considering the macroeconomic environment. The capital position was preserved in the first quarter with total capital of 15.5% and common equity Tier 1 of 12.2%, both above the correspondent regulatory requirements. Our loans-to-deposit ratio remained low, and we have high -- high liquidity levels well above regulatory requirements, having EUR 23 billion of assets eligible for ECB funding. We have a very intense commercial activity in this quarter in supporting the customers to prepare for the opportunities that will arise from the economic recovery. The performing portfolio in Portugal grew 5.9% over the last year, an increase of EUR 2 billion that was driven by loans to companies, which increased by almost 11%. BCP stand out as the preferred bank for companies. Customer funds kept increasing this quarter, mainly from individuals with an additional amount of EUR 2.6 billion. Over last year, the increase of customer funds was persistent, rising more than BRL 7 billion, a growth of almost 9%. In spite of the unfavorable conditions, we pursue our determination of consistently improving the balance sheet quality by keeping -- reducing NPEs. Since March 2020, we managed to reduce NPEs in Portugal by EUR 725 million, of which EUR 170 million in the last quarter. As expected, the economic prices dragged the cost of risk upwards but still aligned with the guidance we provided in our last presentation. having reached 79 basis points on consolidated basis and 94 basis points in Portugal, while we reinforced the impairments coverage by 10 basis points to 65%. The quality of our digital channels is well recognized by the customers, particularly the quality of our mobile solutions that drives the growth 22% of the number of mobile customers. This quarter, we exceed the 3 million mobile customers figure at the group level, which represents 51% of our customers' base. In Portugal, BCP stands out from the competition clearly leading in all the digital dimensions assessed by the customers. which reflected on the increase of the 221,000 mobile customers. Our digital competencies have been particularly valued by our customers in Portugal during the restrictions imposed by the pandemic, which has accelerated the digital adoption trend. Customers are increasingly selecting the apps as their preferred channel to interact with the bank. 89% of the digital interactions of customers are made through the app, and 48% of our digital customers just use the approximately. And this extensive usage of the app by the customers also reflects on the strong increase of mobile transactions and sales. Over the last year, the number of sales made through the app increased 81%, and the transfers increased 86%. Our strategy to invest in the digital information of the bank and prioritize the mobile approach is being very welcomed by the customers. Portuguese digital customers clearly select BCP as the best digital bank, a distinction that is also reflected in the most recognized market resources. In the first quarter, we firmly pursue our commitment with innovation. The release of 40 new features on the app upgrading its usability and convenience were especially valued by customers as we are constantly providing new service and product design from this platform and fulfill the customers' expectations and foster their relationship with the bank. Since March 2020, we saw an increase of 39% in the number of mobile customers above 65 years, which is an excellent indicator that our app is user-friendly and is an efficient platform to serve customers of all ages. To conclude, I would like to say that we are finalizing the update of our strategic plan focused in improving the engagement with our clients and supported in streamlining the efficiency of our business models and operational models. We will disclose it no later than next quarter earnings presentation. Miguel, the floor is yours.

Sorry. Going now to Page 12, as you see. Our core income has a 2% decrease in spite of the evolution of the macroeconomic evolution and the very strong decrease in interest rates in Poland. The operating costs reduced 9.2% with some contribution of the nonrecurring costs, but also of the recurring costs. And this was achieved both at the Polish level and at the Portuguese level, strong contribution from international activity here, so that the core operating profit grew 5.4%. The other income, including trading and dividends and so on, grew 9%, so that the operating net income grew 5.8%. So very clearly, a positive evolution in spite of the challenging macroeconomic situations. The impairment and other provisions grew 20%, to a large extent, explained by the Swiss franc mortgage provisions. And effectively, this then was the main driver for the decrease of the net income before taxes that we presented. Because of the minority interest in Poland, the -- this is then reversed with a strong increase in net income of 64%, as you may see in this page. At the net interest income level, we see a very strong increase in Portugal. As time goes by, as time goes by, this increase will flatten. As I have commented in the past, our guidance for the year is a low single-digit increase in NII with some margin compression, mainly explained by the mix and also -- but also some volume growth. The international operations, to a large extent, explained by the sharp decrease in market interest rates in Poland, that decreased from around 160 basis points to 20 basis points in a very short period, decreased 13.8% The conjunction of these 2 elements made the net interest margin at consolidated level decrease 2.5%. In terms of fees and commissions. We were able to show a high resilience. As you see in the Portuguese unit, the fees and commissions even increased with some contribution from market-related fees and asset management commissions. The typical banking commissions decreased somewhat to a large extent, explained by transactional fees, which is an area that, of course, suffers more from the macroeconomic situation and the decreasing consumption. Other income. We see that we have here a good evolution of other income when you compare with a normal quarter. However, the first quarter of last year, as we had explained, was not so normal in the sense that we had an extraordinary trading gain of around EUR 40 million that we disclosed at the time. Adjusted for this extraordinary trading gain, this was a good quarter, as you see. So basically stability in terms of other income in Portugal and a positive contribution, to a large extent, also explained by the reduction of mandatory contributions in Poland. The costs. Of course, the challenge that we had in Poland with a very strong decrease in interest rates and with the risks in the Swiss franc portfolio made us accelerate the restructuring plan with a decrease of around 1,100 people and a very strong decrease in costs. That's why you see here a strong decrease in cost in international operations that decreased 17% in the period. On the contrary, in Portugal, due to the good performance of the operations and also to the social consequences of accelerating this decrease to such an extent, we also have a cost decrease, albeit not as large a cost decrease of around 3%. The conjunction of these 2 elements allowed us to present a 9% -- 9.2% cost decrease at a consolidated level. In terms of impairments. As you may recall, last year, in Q1, we were just learning about COVID and the impacts on COVID on the portfolio, and we had created a provisioning other impairments to be allocated in Q1 of around EUR 60 million. This was in the subsequent quarters then allocated to credit. So the good comparison would be the total provisions of loans plus other compared with loans plus other. So we still show a positive evolution here. This positive evolution is, to a large extent, explained by the prudence of the COVID provision that we created in the first quarter of last year. But nevertheless, we are here at a prudent level with the cost of risk of 94 basis points in Portugal and 46 basis points in the international operations. Credit quality. In spite of all the difficulties, we are being able to continue this NPE reduction trend that we have shown in the past. As you have seen since the beginning of the year, and in spite of COVID, we have reduced around EUR 170 million only in Portugal and EUR 100 million -- around EUR 100 million in international operations. So this is a good evolution, as you may see here. This makes our NPL plus 90 days ratio go down to around 2.8%. And the NPE ratio, including all the EBA criteria, including securities and off-balance sheet, already at 3.6%. And if we focus only on loans, the value is 5.5%, so much lower than what we were -- we had in the past. In terms of business activity, Page 20, starting with international operations. In spite of all the challenges in Poland, in Mozambique, our franchises are growing very, very -- in a very healthy manner with customer funds, mainly individuals, growing. In total, there was a growth of 6.5%. And in Portugal, we are growing 9.8%. We have to tell you that in terms of deposits, of course, we are being very conservative in terms of what interest rates we pay. So we are very close to 0 in terms of what is our interest rates of the deposits. Although, of course, current accounts are at 0. But nevertheless, the strength of our franchise and the customer loyalty has made it possible to continue to grow in terms of customers and in terms of the most affluent customers. An important evolution in our customer funds strategy is this growth in off-balance sheet funds. As we know, as I have commented here in the past, 1 of the 3 drivers for the future, not least because of the negative Euribor rates, is the focus on off-balance sheet funds. And what you see here is that the off-balance sheet funds have already grown from EUR 17.6 billion to around EUR 20 billion in just 1 year, so around 15%. The loans. We see here also very healthy performance in terms of loan growth. Our performing loans grew, in consolidated terms, almost 5%. And so that the total loans, because of our good performance in terms of NPE reduction, then grew 3%. This was explained to a large extent in the -- by our performance in the mortgage market where we have grown EUR 1 billion in the companies -- the loans to companies and the SMEs where we have grown, in consolidated terms, around EUR 800 million. In terms of capital. As our CEO has already commented, we are clearly above minimum regulatory levels, both at total capital level and at CET1 level. Our leverage ratio, as you see in Page 24, also compares and continues to compare very favorably with the leverage ratios of the key sectors in Europe, which is also, to a large extent, explained by our conservative risk-weighted asset entity. Liquidity is not an issue in the sense that, I mean, our liquidity risk is very, very conservative, is very low. Of course, this has a cost, and this cost is showing its bill in the P&L account. We are trying to manage this, to a large extent, by focusing on off-balance sheet funds as we have commented. But another way of looking at it is that once this negative cost of liquidity is fully addressed, there is an additional upside in our P&L. I'll pass now to Bernardo, our Investor Relations Officer.

Okay. Good afternoon, ladies and gentlemen. On Page 27, starting with the Portuguese operation, net income increased, year-on-year, EUR 67 million to EUR 83.4 million due to the performance on net operating revenues and lower operating costs. Quarter-on-quarter, net income increased 96%, demonstrating the strong operating trends on a very challenging environment. Performance was boosted by an increase of NII, stable fees and commissions and lower operating costs as well as other provisions. As a reminder, on the first quarter of 2020, domestic operation booked EUR 60 million of provisions related with COVID-19 on other provisions that were allocated to credit provisions on the following quarter. On Page 28, looking to NII in Portugal. It's true that the end of the first quarter 2021 at EUR 204.5 million, meaning, almost 10% above the first quarter of 2020. Favorable impacts of the expansion of the credit portfolio supported on loans to companies and mortgage loans as well as the positive effect of the wholesale in funding, which includes the impact of TLTRO and the repricing of deposits were more than enough to compensate the negative effects of EUR 21 million arising from lower price on credit, lower yields on securities, the NPEs' reduction and the excess of liquidity. NIM, on a yearly basis, went down 5 basis points. And this year-on-year reduction on NIM is explained by the lower spreads related with the guaranteed credit lines. On Page 29, regarding spreads on term deposits. Back book spreads stood at minus 58 basis points, more or less at the same level of the first quarter 2020 and almost aligned with the 3-month average Euribor. Spreads on loan book were compensated -- were compressed year-on-year but stable quarter-on-quarter. And as explained before, decrease is mainly explained by the COVID guaranteed lines. Moving to Page 30 that presents the evolution of fees and commissions and other income. You can see that banking fees decreased 2.4% due to the lockdown that was in place in the first quarter 2021 in Portugal. Most significant impact come from cards and transfers with a reduction of almost 8% and loans and guarantees with a reduction of 10% due to the lower usage of overdrafts that were not compensated -- that were more than compensated by the increase on customer accounts related fees with an increase of almost 10%, explained by the performance on customer acquisition. Market-related fees registered a strong increase as a result of the performance on asset management, where we have seen a significant move of customer funds to this type of instruments. All in all, fees and commissions were pretty stable year-on-year at a level around EUR 120 million. Looking to other sources of income, altogether decreased 3.6%, explained by lower gains on trading compared with the first quarter in 2020. On equity accounted earnings, there was an increase of more than EUR 5 million related with mostly some one-offs from the insurance company. And on other operating income, improvement was mainly from lower sales of real estate compared with the previous year. Going to Page 31, regarding costs. There was a reduction of 2.8% year-on-year and of 7% quarter-on-quarter, mainly driven by the lower staff costs. We have been doing well on costs, but there's still some more to do to become even more efficient on this area. In terms of employees, there was a reduction of 189 employees, where the significant decrease occurred in the last quarter of 2020 with a reduction of 139 employees. To what regards to branches, there was a reduction of 25 branches, out of which 2 were closed in the first quarter 2021. Moving to Page 32, which refers to asset quality. Even under a challenging environment, BCP was able to reduce EUR 725 million year-on-year, meaning, 25%. And NPE stood at almost EUR 2.2 billion at the end of the first quarter. On the last quarter, there was a reduction of EUR 170 million, supported mainly through sales. Cost of risk year-on-year, due to the pandemic situation and conservative risk models, increased to 94 basis points, which was similar than the level reached at the end of last year. This level is within the range that we estimate and present to the market on the first quarter 2020. Let's move to Page 33, which looks at the NPE coverage breakdown. And as you can see, total coverage stood above 120%. With the reinforcement of NPE coverage by loan loss reserves to 66% from 55% one year ago, total coverage for individuals with high levels of real estate collaterals stood at 97% and for companies at 133%, 6 percentage points above the end of last year. Coverage by real estate collaterals on companies increased from 37% to 42% and by loan loss reserves from 73% to 76%. On Page 34 that shows the evolution of foreclosed assets and restructuring funds. There was a reduction year-on-year of 22% and 10.3%, respectively. In terms of property sales, there was a slowdown in the first quarter '21 compared with the first quarter '20 due to the restrictions in place in the first quarter '21 in Portugal. Number of properties sold decreased 28%, but sale value was just 4% less than 1 year ago. As you can see, and as we have been presenting from previous quarter, sales value was above book value. Now moving to Page 35. Total customer funds grew 10% to EUR 62.1 billion. The growth was more than EUR 5.5 billion, was strongly supported by the increase of individual funds. Let me also highlight the increase of more than 10% of off-balance sheet products, explained by the high level of subscriptions of mutual funds. In terms of gross loans. There was an increase of 3.5%, supported by an increase of 6% in companies and a slightly lower increase of almost 2% on mortgage loans. It is also important to highlight that performing loans went up 5.9% year-on-year and -- or plus EUR 2 billion, and NPEs were reduced by more than EUR 700 million or almost 25%. Going to Page 36, it is possible to see our strong support to companies and also their recognition as the main bank. The growth of the performing portfolio was strongly supported by companies where this segment was responsible for 84% of the total performing loan growth. On Page 37, you have a picture of our support to companies and households. And in terms of companies, the bank increase is present. Total disbursements from BCP on COVID credit lines reached almost EUR 2.5 billion. Also on this front, BCP signed an agreement with the European Investment Bank and the European Investment Fund to provision EUR 1.2 billion loans with European guarantees to support small- and medium-sized companies affected by the pandemics. That already start to be disbursed from the second half of April. At the end of the first quarter 2021 and after the reopening of the moratoriums request during the first 3 months of 2021, the total outstanding of moratoria stood at EUR 8 billion; out of which, EUR 3.4 billion related with households, where mortgage loans represent 96% of moratoriums. And let me also highlight that most moratoria under the Portuguese Banking Association framework expired in the end of March, and we haven't seen a significant impact on overdue loans compared with the total loan book. Towards regards to companies, at the end of March, total amount under moratoriums was EUR 4.6 billion, slightly higher than the amount at the end of the year, although there was a reduction of more than EUR 500 million from the highest level through a combination of liquidations, cancellations and moratorias that have expired. Regarding total amounts under moratorium, 91% of the outstanding amount is performing and 67% of loans with moratoriums are covered by mortgages, 46% by residential mortgage and 21% by commercial mortgages. Moving to Page 39. With regards to results of international operations. You can see that there was a significant reduction of the contribution from international operations to consolidate net income. And these results have -- has impacted -- was mainly impacted by the Polish operation that booked significant provisions during the first quarter '21 for potential litigation risk. Bank Millennium had a loss of EUR 68.6 million, and Mozambique contribution was around EUR 15 million. Combined contributions from international operations represented a loss of EUR 25.6 million in the quarter compared with a positive contribution of EUR 19 million on the first quarter of 2020. Moving to Page 40. Net income was -- in Poland was impacted by CHF provisions that amounted 112.8 million compared with 12.2 million on the first quarter 2020. Excluding the CHF provisions and due to the excellent operational results, net income from Bank Millennium should stood at around EUR 40 million, even considering the substantial decrease of more than 1.4 percentage points on the 3-month reference interest rates. Looking to the operation itself, we can see -- we can understand how strong is the franchise where customers fund -- where customer funds and loans to customers increased -- increased 7.4% and 4.7%, respectively. Even with the strong interest rate decrease, net operating revenues went down only 5.8%, and it's important to mention the strong performance of new mortgage loan production that reached a record level on the first quarter 2021. Operating costs went down 17.5%, as mentioned, due to the restructuring process in place over last year. CET1 at 16.3% and total capital ratio at 19.4%, well above the regulatory requirements. On Page 41, some detailed information about Bank Millennium. NII is down almost 10% year-on-year, reflecting the strong decrease of interest rates, but it has been stable quarter-on-quarter due to the strong repricing of deposits. NIM decreased 25 basis points, but stayed at a similar level at the end of 2020. Fees and commissions increased 5.3% and other income plus 9.1%. Operating costs with a decrease of 17.5% after the strong efforts on 2020 related with the restructuring process of eurobank and that we also move a little bit further. Reduction on costs also reflect a decrease of mandatory contributions with -- what regards to the resolution fund. Moving to Page 42, related with asset quality. NPL ratio decreased 20 basis points, and cost of risk continues the downward trend registered since the second quarter of 2020. And it stood at the end of the first quarter at a level of 39 basis points, reflecting the good performance of the loan book and particularly to the good performance of the moratoriums that already expired. NPL 90 days past due coverage ratio by loan loss reserves at 122%, meaning, an increase of 14 percentage points year-on-year and a stable level quarter-on-quarter. On Page 43, you can see the power of the franchise where customer funds increased 7.4% year-on-year and around 7% quarter-on-quarter. Major recovery was related with the off-balance sheet funds as the trend of subscription of mutual funds keep on track by individual -- by individuals as interest rates are at low levels. In terms of loans to customers, gross book stood at EUR 16.7 billion, more 4.7%, and it is important to highlight again that the new production of mortgage loans reached the high level on first quarter 2021, allowing Bank Millennium to achieve a market share of 14.6%, where it was lower than 10% one year ago. On Page 44, regarding the FX mortgage portfolio. It now represents 16.6% of total loan portfolio. Bank Millennium, due to the increase of court claims and decisions more favorable to customers, made additional provisions of more than EUR 112 million in the first quarter 2021, increasing the coverage of the outstanding amount to almost 11%. Cumulative provisions for legal risks on the FX mortgage portfolio stood above EUR 300 million. It is also important to mention the reduction of the CHF portfolio of 2.5% from the end of 2020. Turning to Page 45, which regards to Mozambique. Net income increased 5.9% to more than EUR 15 million. Net operating revenues decreased 2.4%. And operating costs slightly higher than the first quarter 2020. Capital ratio stood at 45% and return on equity above 15%. Moving to Page 46. NII was stable year-on-year, but it is possible to see an increase of 7% quarter-on-quarter. NIM decreased to -- due to the normalization of interest rates in Mozambique. Commissions were lower than in 2020 due to the pandemics, and other income was also lower than one year ago due to lower gains related with securities. Moving to Page 47. NPL 90 days past due ratio decreased almost 5 percentage points, cost of risk stood at 306 basis points, and coverage by loan loss reserves stood at 67%, which is 8 percentage points higher than -- compared with the fourth quarter 2020. Regarding volumes on Page 48. You can see that customer funds grew 14% and loans to customers decreased 9%, reflecting the conservative approach under the challenging environment of the country. And so let me thank you for your attention. And before we move to Q&A, I will return to Mr. Miguel de Braganca for some final remarks.

Thank you very much. As we have been committing to you, we are presenting exactly our key performance indicators in Page 50. And as you see, the first group of indicators that have to do with our performance are evolving very, very positively. Effectively, we are ahead of the original plan with more than 5.9 million customers as of today, of which 2/3 are already digital and of which more than half are mobile. In terms of the NPE stock reduction. In spite of the COVID crisis and the COVID situation, we are also clearly aligned with the plan. And we are doing this, of course, fulfilling our restrictions in terms of common equity Tier 1 and in terms of liquidity ratios. In terms of cost to income. Due, on one hand, to the lower level of interest rates and to some postponement of more aggressive cost reduction measures, we are with a slightly higher cost-to-income ratio and to a large extent, explained by the Swiss franc issue with a lower ROE than what we were expecting. As our CEO was commenting, we will present our new strategic plan in the half year result presentation. We think that we are clearly on the right track. We think that the key priorities that we have developed until now that have brought us here have to be further identified, but they have to -- they have been clearly in the right direction. And we hope to surprise you positively with that. Thank you very much.

Thank you, ladies and gentlemen. We will now begin the question-and-answer session [Operator Instructions] The first question comes from the line of Maksym Mishyn from JB Capital.

Before I start with the questions, I just wanted to wish good luck with the new role to Luis Pedro Montero and his help over the past years is very appreciated. I have 2 questions, if I may. The first one is considering the quarter-on-quarter performance of your domestic loan book, there was an almost 4% increase in gross loans for other corporate. I was wondering if you could give us some color on what is inside these loans and whether growth was driven by large tickets or SMEs. And also whether there was state guaranteed lines in the new production in the first quarter of 2021. And then the second one is on the asset quality. You've made another sale in the first quarter of '21. And I was wondering if you could touch a little bit on how you see the market for NPEs in Portugal in 2021, in April and May, particularly. Do you expect to make more sales this year?

Miguel can answer that.

Effectively, these other corporates are SMEs, and these -- we have had a production of around EUR 100 million in terms of state guaranteed loans. We have had, traditionally, in the last months, a very good performance in these type of loans, and we expect to have a market share in these type of loans that is at least as high as our normal market share, if there are no limitations. In terms of EIB and loans and similar loans, so loans with certain types of guarantees. Our production has been around -- more than EUR 1 billion. In terms of market for NPEs. We are -- as you know, our strategy in terms of NPE sales is a very focused strategy where we don't -- where we try to have quite homogeneous packages so as not to leave too much value on the table. We are continuously in the market with smaller tickets. It is a higher effort, but we are continuously in the market. They are part of our NPE reduction strategy. They are included, so to say, in what we have commented to you that we intend to continue, so to say, to have an outflow of NPEs that will at least compensate the inflow of NPEs that are expected in this new COVID situation, so as to reach the end of the year without an increase in NPEs.

The next question comes from the line of Ignacio Ulargui from Exane.

All the best to Luis Pedro in his [ newer venture ] within the bank. I just have 3 questions, if I may. One is on NII. I just wanted to get a bit of what is -- what should we expect in terms of NII outlook in Portugal over the coming quarters? And whether there is any particular strategy to tackle the excess liquidity that you are covering. The second question linked to the Swiss franc mortgages. I mean we have had several rulings in Poland, I mean, regarding this topic and also in the Court of Justice of the European Union. How do you see -- or could you update us a bit on what are the impacts? What is the potential outcome? What should we expect in terms of other provisions from the incoming quarters? And just a final question on the NII, if I may, coming back to it. You had a very strong trading this quarter. I mean do you think there's going to be any impact from the bond portfolio sales in NII in coming quarters?

Okay. Thank you very much for your questions, Ignacio. First, a small correction to what I've just said. The more than EUR 1 billion of EIB and similar loans are a line that we have negotiated and that we will dispose to our clients. Actually, the production in this quarter was around EUR 200 million, just to correct the previous question. In terms of NII outlook. We do think that we have, I mean, pardon my lack of being humble, the best commercial effectiveness in terms of what concerns the SME sector. So we think that we can deliver the best growth in terms of the trade-off volume and margin in the market. So we hope to continue to gain market share, mainly in these lines, as I have commented, government-guaranteed lines and EIB and the European Investment Fund guaranteed lines. So these are clearly products and areas where we think that we have a competitive advantage. On the other hand, as we are seeing that the network -- and our clients are getting more and more comfortable with off-balance sheet products, as you have seen with the growth year-on-year, and of course, as more and more deposits become off-balance sheet products, these contributes to a reduction of the excess liquidity investment in the European Central Bank. So this is also another positive element. In terms of the Swiss franc mortgages. It's effectively a complex question to try to anticipate what is going to happen. What we have seen recently in these 2 important decisions is the following. The first issue, making things simple, is that they -- I mean, none of the decisions, none of the previous, and none of the future decisions is taking a position on the abusiveness or not abusiveness of the clauses. So as we have said in the past, all these decisions are about the consequences of a potential abusive nature of the clauses. But they are not saying, neither the Polish Supreme Court nor the European Court of Justice, which courts are abusive. On the contrary, they say that each contract has to be analyzed on a case-by-case basis because it depends on what's on the contract itself. I think this is very important. A second important element is that this somehow simplifies the decision tree, so to say. They say, I -- mean if there is an abusive clause, or an abusive element, actually, it's important, they actually said an abusive element, not necessarily the full clause, an abusive element, this abusive element is invalid. And only the abusive element is invalid, and we should focus on the abusive element. However, if the element is so critical to the full contract and this is so inseparable from the rest of the contract that it cannot be removed alone, then the full contract becomes invalid, okay? So I think this is -- I mean, they may seem simple in the sense that there are some contracts where you can take out, so to say, the FX spread. And in these contracts in which you can remove the FX spread, I mean, only the FX spread, the difference between the bid and the ask should be addressed, I mean, should be taken care of. These are some contracts. There may be other contracts, depending on the wording on the contract, depending on the clause, on the denomination or indexation clause of the contract where you cannot remove simply the reference to the FX spread without losing the possibility of interpreting the contract. And in this case, the full contract becomes invalid. And these are effectively only the 3 possible situations. So either the clause is not abusive or it has an element that is abusive. And if the element is abusive and it's possible to take it out, it should be removed. If the element is abusive, but it's not possible to take it out, then the full contract becomes invalid. So all these other theories about [ PLN plus 5 or ] -- about -- or I mean a lot of other possibilities right now, unless the courts change again their view, but are right now, much, much, much less problem, okay? So I think this is important to say. So the questions will now be, going forward, whether the FX clauses, the FX table clauses, are able of being removed from the contracts or not. Up until 2 years ago, I mean, most courts in Poland thought that they were possible to be taken out of the contract. It was possible to remove the lot of the contract. In the last decisions, there was a reversal in terms of this type of decision. But we think that this battle is still a battle. And then if the clause is able of being removed, is not able of being removed, what are the consequences of invalidity? In terms of the consequences of invalidity, there are then 2 possibilities, effectively. So either the banks are compensated by the time value of money, or the banks are not compensated by the time value of money. And this makes a very big difference. If the banks are -- if the contract -- the full contract is declared invalid and the banks are compensated by the time value of money, depending on how the compensation is done, one gets close to a solution that is the KNF solution. Depending on if you use the kind of rates, of course, you get to the so-called KNF solution. If there is a decision that the invalidity does not mean that banks have to be compensated by the time value of money, then the losses may be higher. So this is the situation which we are right now. And that's why this decision of the Polish Supreme Court is what's -- that was scheduled for the 11th of May was so important because, among other things, it was going to decide whether there was a compensation for time value of money in case of invalidity or not. And we will have to wait for these to have a stronger view on that. I mean, our personal view is that, of course, in finance, one has to be compensated by time value of money. In many countries where these type of situations occur, I mean, banks have been compensated by time value of money. And our bank in Poland has already compensated. I have already communicated to the market what would be the impact of the solutions such as the KNF solution. I believe the number that was disclosed to the market was between PLN 4.1 billion and PLN 5.1 billion. At this point in time, I mean what we are seeing is, I mean, some good news, not least because there were some -- there were other series on the pie, as you read that clients could get zloty, but at the Swiss franc, right? We think that this is right now, much less trouble to be decide. And another group of clients was being motivated to sue the banks basically with the promise that they could get their house for free because the rights of the banks to claim back the capital has already expired. And I believe this was made clear in the decision of 7 judges of the Polish Supreme Court that has ended. So to make a long story short, there were some important victories in the last 2 court decisions. We think that these important victories, I mean, took out of the way some of the tail events. And that's why, I mean, you have seen an increase in the share price of our bank in Poland and subsequently also on our share price. I think this is very important. We also think that linked to this removal of the tail risks, I mean, some clients -- there will be less clients suing the banks than that would have been if this had not occurred. But we will have to have a clearer view on the final outcome. We have to know exactly what will be decision of the Supreme Court that was originally sched -- originals -- I mean, that was lastly scheduled for the 11th of May, okay? In terms of the -- I mean we have not -- we have not -- we have had a good quarter in terms of trading results, not as good as last year, as you know. But the type of spread that we have on our present government debt portfolio is quite low. So the yield -- the average yield on our government debt, on our Portuguese government debt, is between 10 and 20 basis points. So we are not expecting a huge impact of these sales of Portuguese government debt on the margin going forward.

[Operator Instructions] The next question comes from the line of Sofie Peterzens from JPMorgan.

Here is Sofie from JPMorgan. Just my first question is follow-up question. Did I understand correctly that the first case scenario on the Swiss franc mortgages is that you could potentially face up to -- or between PLN 4.5 billion and PLN 5.1 billion in compensation? Was that correct? And is that on top of what you have already taken? Or is -- should we deduct the provision that you have taken so far? And then my second question would be on the moratoria in Portugal. You have around EUR 8 billion of moratoria. When should we expect most of these moratoria loans to expire? Is it in the third quarter? Or is it later? And then my final question would be if you could just update us how much TLTRO III you have taken. Did you take any additional one at -- in March? And how should we think about the net interest income impact from the TLTRO in the second quarter, if you took additional TLTRO in March?

Okay. So in terms of worst-case scenarios. I mean it's almost impossible to, I mean, to know exactly what the worst-case scenarios could be in Poland. What I'm saying is the following, is that if the decision start being invalidity with compensation for time value of money, we will get to values that are similar to the values of the KNF solution, that would be the PLN 4.1 billion to PLN 5.1 billion, and these values were before our latest provision. But this is for invalidity with compensation, which we think within the reasonability of the decisions, is -- I mean, how can I say -- more than that would be, at least according to our point of view, that is a biased point of view, of course, but it would be very, very difficult to justify. Having said that, it is possible that the courts decide that if the contracts become invalid, it's invalidity without any type of compensation. And in these type of situations, the value would be higher than the ones that you are commenting. In terms of moratoria. Most of the moratoria they expire in September. I would like to say that for the moratoria that have expired in March, as my colleague Bernardo commented, we're not seeing any abnormal behavior, not aligned with what we were seeing before. As you -- as we have disclosed, of the credits that are in moratoria, we have already classified as Stage 3, i.e., NPEs. In our case, Stage 3 NPEs are very, very similar criteria, almost 10% of the moratoria. So almost 10% of the moratoria are already in our NPE stock. So the moratoria would only affect our NPE stock to the extent that more than 10% of the credits in moratoria would fall into NPE. They are evolving very -- I mean, as we were expecting. Of course, at the 31st of March, I mean we had almost none past due because they expired in 31st of March. But even speaking with hindsight with what we know, with what occurred after 31st of March, there are not any special evolutions different from our expectations in the situation. In terms of the TLTRO, our first draft was around 7.65. We did the second one of EUR 600 million. We are now with around 8.1, rounding numbers, and that's the value that we intend to maintain. And we feel very comfortable that we will be able to attain the production levels and the [indiscernible] levels necessary to get there.

And just on the TLTRO. You're accruing it at 100 basis points or less?

100, 100. Yes, 100.

Thank you. The next question comes from the line of Carlos Peixoto from CaixaBank.

So a couple of questions here. The first one would actually be on moratoria again. So yesterday, there were some comments on the price, I believe, from the CEO, which seem to mention some pockets of concern within moratoria. I was wondering if you could give us some additional visibility on that. Should we think on the Stage 1 and Stage 2 loans in moratoria as being the relevant pockets here in terms of risk for the bank? And also, what will, in this context, what type of solutions do you think could still emerge within the government context, where we saw some news regarding the possibility of Banco Fomento being a part of the solution for these exposures? The second question was actually related with overall loan book composition per stages. And this for Portugal and for the group as a whole, but basically, if you could give us the split between Stage 1, 2 and 3 for both Portugal and the group.

Okay. Just in terms of moratoria. From the book that we have in moratoria, around 30% of the book, around 30% of the book is in sectors that we deem to be more affected by the crisis. And 70% of the book in sectors that we deem less affected by the prices. Within sectors that are more affected by the crisis, such as the tourist sector, of course, there are some companies that more fragile than others. And we do think that many of these companies that are more fragile also were fragile before the crisis, more fragile before the crisis, and they typically have less bank loans than other companies. So the large touristy groups, they have more bank loans, but we do expect them to survive -- well, most of them, after the moratoria. So there will be more, I would say, more a social problem, I would say, than an economic problem because many of the -- an economic problem for the banks, I would say, because many of these mom-and-pop shops, of course, may face a mom-and-pop restaurants, let's say, may face financial difficulties and may create, I would say, a social challenge. But of course, I mean, they don't have a lot of credit in the banking sector because even before the crisis, they were higher-risk sectors. So our comments is that, I mean, we are quite confident that the Portuguese economy will grow well after the COVID crisis, aligned with the Spanish economy and other economies in Europe. But the comment that our CEO made is that in spite of this strong confidence, this does not mean that some segments of the Portuguese population will not suffer and will not need help. So that's the way in which one has to interpret this situation. And since the beginning of the crisis, what we said is that we have to be realistic. We were reducing the NPEs at a very sharp pace before the COVID crisis. We faced this COVID crisis and what we -- our best case scenario is that we will somehow delay the further reduction of NPEs so that the inflows more or less compensate the outflows. And this is our best case right now. So we will continue to have strong outflows, but there will be some inflows, of course. And of course, in this EUR 8 billion of -- many of these inflows will come from the EUR 8 billion of moratoria, but they are already in the plan, and they are already in the number that we comment to you that at least until mid of next year probably will have a stable NPE. In terms of -- in terms of Portugal, Stage 1, Stage 2 and Stage 3. We have around 80% -- 80% of Stage 1, 15% of Stage 2 and 6% of Stage 3, rounded numbers. In terms of the international -- in terms of the consolidated numbers. We have 82% of Stage 1, 13% of Stage 2 and 5% of Stage 3. So the numbers are quite -- are quite similar, as you would expect, so with around 80% of Stage 1. In terms of -- by the way, in terms of the solutions. Of course, there are a lot of solutions that may be developed. We, as an agent in the Portuguese economy, we are always engaged in trying to find solutions. But our NPE reduction strategy is not dependent on solutions. So we think we have to get involved. We think to -- have to -- we have to contribute for the economic growth of the country. But we are not dependent on certainly a state guarantee or anything similar to deliver on our NPE reduction strategy.

The next question comes from the line of Gabor Kemeny from Autonomous Research.

I have a couple of questions on Polish FX and another broader one. Firstly, firstly, on FX. Just I would follow up. So if the litigation continues, so if court cases kind of bumble along in the next few quarters, how do you think about the possible provision requirement for the additional court cases? As I understand, you see chance of a lower inflow of the new lawsuits going forward. And then the second question. You mentioned that the impact from the scenario of canceling the contract and receiving compensation would be similar to the KNF settlement solution, which I -- and I saw the KNF own estimates, which show that the impact for the total sector, the cost for the total sector, would be actually twice as much from this scenario of canceling the contract and the banks receiving compensation. So 70 billion versus 35 billion. So my question is, would you -- why would you not have higher cost if the sector costs are that much higher? And then finally, a broader question on the improving outlook for tourism at least. Reading the news, it sounds like that the -- that there have been promising developments around the situation in the Portuguese tourism sector. How does this impact your business outlook and especially the profitable provisioning for 2021?

Okay. Starting with this -- the issue of the business outlook. Of course, it is good news that the Portugal perform recently well in what is the COVID situation for many reasons, including the economic reason. And the fact that some markets are now open to the Portuguese tourism, such as the British market, of course, is also very positive. We have also to stress that we were expecting already, as I had commented here in my previous presentations, that this summer would be a summer that would be already close to normal. So that's what we had already said in the past. As you may recall from my previous speeches here. So I would say that for the good and for the bad, I mean, things are behaving as we were expecting. If we were to lose this summer in terms of tourism, I would say this would have been worse. In terms of the cost of risk. We do think that it's prudent to assume that our cost of risk will remain for the next -- in Portugal for the next quarters at the level similar to the present cost of risk. In terms of the litigation in Poland and so on. I mean, firstly, I have to stress, the bank in Poland is a listed bank, with a special supervisor, with its own analyst conferences. So I have to be extremely careful with what I say outside of this context. So -- and if some of you want to invest directly in the Polish subsidiary, please feel free to do so. And if some of you wants to post specific questions in the context of the Polish subsidiary, of course, feel also free to do so. So I think this is important to say. In terms of -- I mean, as I commented before, I mean there is absolutely no decision yet that says that all the Swiss loan mortgages contracts are abusive. So we don't have any decision in this situation. And each situation is being judged on a case-by-case basis. And the same context that 1.5 years, the Polish judges were judging as not being abusive or not containing abusive contracts, exactly the same contracts, without any new information in terms of these abusive content, so to say, being now -- some of them are being now judged as abusive. So this difference in criteria is very difficult to anticipate. So you can go back to a situation that's closer to the previous situation. You can continue with the present situation. So it's very difficult to anticipate when there is such a high volatility on the first issue. So first on whether the clause is abusive or not, on one hand. And then if it is abusive, whether the FX table is a separable element to the rest. I think the fact that the European Court of Justice, in its Paragraph 69 -- I suggest that you read Paragraph 66 and 69 and probably also Paragraph 86 at least these 3 paragraphs, I suggest you to read them in the net because I think they are very interesting. They clearly speak about an element, an element -- that if an element is abusive, only the element should be taken out. This in Paragraph 69. And they also say very clearly in Paragraph 86, if I'm not mistaken, that invalidity should not be a kind of punishment for the bank. So I think this brings a new light in terms of how Polish judges should decide. If they decide so or not, I mean, it's up for them to see how this will frame their decision process. I confirm you that the bank in Poland, the number that the bank made available was for the KNF solution. And I confirm you that, of course, the number of not having compensation in a loan, so that the banks have to give back to the customer all the interest that they earned in the last years, is a solution that is much more costly than the solution of earning interest. Of course, it goes without saying that 20 years of interest are important. So whether it's half or not, I don't have the numbers by heart, I believe that the numbers of KNF are public. But I also can tell you that, I mean, there is not any official disclosure to the market on these type of solutions of not having any interest in the last 20 years, not least because -- I mean, this was not a solution in Hungary, this was not a solution in Serbia, this was not a solution in many other countries.

Okay. Of course. And there are many moving parts in this Polish FX story. Just simplistically, if we take the Q1 provision number you took for the FX mortgages. Do you think it's a good proxy for the second quarter? Or shall we expect lower provisions?

In the provision, I mean, the provision is then based on models and based on the previous decisions and the impact of the previous decisions going forward. I -- and of course, they will be dependent on any decision that may come through by the Polish Supreme Court. I can tell you that the type of provision that we are doing, it has to do with the number of clients that we expect to occur in the next years, the percentage of outcomes that we have had in the past and the impact of this percentage of outcomes. For instance, in the situation of invalidity, so to say, the type of outcome that we are considering is a conservative outcome. So It's very difficult for me to anticipate exactly how the courts will evolve in this type of situation. I would not expect -- I would not expect a higher number, but it's not up to me to -- I mean, now to anticipate what the number could be because it depends on a model.

[Operator Instructions] The next question comes from the line of Noemi Peruch from Mediobanca.

I have several from my side. I see that NPE coverage increased sizably Q-on-Q. Can you share with us if you increase the coverage on performing loans as well? And if so, by how much? Can you -- and then can you update us on the latest data on moratoria? Whether you have it in May or April, it's okay. And then you said that this summer is expected to be close to normal. So is it fair to expect a negligible impairment on the corporate restructuring funds in 2021? And then on cost. Costs in the quarter were quite good in Portugal. Should we consider Q1 level as the run rate? And of course, notwithstanding update of the strategic plan? And finally, on FX mortgage. Again, sorry to follow up here. I just wanted to know if there is a willingness on your side to address the issue in the short term, even if there is no clear decision taken by the Supreme Court. Or whether you would prefer to continue with the current strategies, so dealing with the claims on a case-by-case basis. And lastly, if I remember correctly, you can exercise a put option on your stake in the Angolan business. If so, when does it expire? And do you intend to exercise it?

Okay. So in terms of our -- starting with that, in terms of our put option in Angola. It ends in '29, if I'm not mistaken. And of course, as it happens in many options, there is a time value to exercise it. So we are not intending at the moment to evaluate the possible early exercise of this option. In terms of costs. Yes, we are more or less on these run rates right now in terms of the recurrent cost. Of course, if we then decide, and this will be presented in our next presentation, if we then decide to come up with a stronger cost reduction, this may have then a one-off impact of an investment for this one-off, for the stronger reduction. As we have seen in Portugal, typically, the paybacks of cost reduction are between 2 -- 2.5 to 3, so between 2.5 to 3. So that's the type of impact that one can expect from cost reductions in Portugal. In terms of the coverage. I mean what we have is a total -- what the number that we typically disclose is the total number of impairments divided by NPEs. So if we want to see them, the numbers -- the number in -- by stages is in our annual report and we can sell it -- send also to you then off -- also sell. But we can then say to you off the sell. We have had a small increase in coverage. But typically, the number is the total number of provisions, of balance sheet provisions divided by NPE. The corporate restructuring funds. The corporate restructuring funds are not managed by us. They are managed by third parties. I think it is very important. And they are under the supervision of the Portuguese SEC, of the CMVM. And they have their own valuations with then by typically big 4 companies, or they're on audits done by big 4 companies, under the supervision of the Portuguese SEC. So we typically register in our income statement when we intend to maintain these funds. The value that they give us is the fair value of their participation unit as long as there is no qualification in the accounts. We have had -- we have 1 company that has the qualification in the accounts. And because it has the qualification, as an exception, we have valued it at 0, just to give you [ that ]. But the rule is for the moment, during which we want to maintain in our books the participation unit in the restructuring funds, we value them as we are taught to value by the independent valuators. These are totally independent funds.

Yes. I also asked about the latest data on moratoria, if you have them. And also what's your stance on FX mortgages or your willingness to tackle the problem in the short term, even if there is no clear decision taken by the Supreme Court?

I mean, willingness to solve the problem, of course, we have willingness to solve the problem. But it then depends on what is solving the problem. So -- and it depends on the costs. So the question, in abstract, whether we are willing to solve the problem, it is difficult to answer because, of course, we are willing to solve the problem. But it's very difficult to think that the problem is solvable without a decision from the Supreme Court when there is a Supreme Court decision pending. Because one thing is that if there were no Supreme Court decision, no? But if there is a Supreme Court decision pending, that may change totally the outcomes. What is solving the problem? It's very complicated. In terms of the moratoria. I believe we have already commented what we could. So a part of the moratoria ended in March. The part of the moratoria that ended in March, I mean, there was absolutely nothing there that raised our eyebrows. They evolved exactly as we were expecting, to a large extent, aligned mainly in the consumer segment, which was at least exempt, the area where we have probably more concerns, very much aligns with the book that was not under moratoria. We think -- I think it's very, very interesting this. Of course, we are projecting inflows in NPEs because of the COVID crisis, as we have commented to you. But we also expect, as I had already commented twice, these inflows to be compensated by outflows in our regular NPE reduction plan. But there is not much more to say than that.

[Operator Instructions] The next question comes from line of Jonas Floriani from Axia.

Just a quick follow-up on cost of risk in Portugal. So I was just wondering if this, let's say, relatively higher cost of risk that you're seeing, is it mostly driven by moratoria loans or is there's something else? I've seen that you mentioned in your press release that there has been some analysis -- individual analysis of customers. So just wondering what exactly is that or if this is mostly driven by the moratoria loans. And second, also to follow on a question on the staging. Do you think we should -- well, do you think we will see any kind of change in the proportion of stages into 2021, mostly migrating from Stage 1 into Stage 2? Is this a part of your best case scenario? Or the proportions you mentioned in the previous question are expected to remain the same?

Okay. So I mean our -- there will be some flows from Stage 1 to Stage 2, from Stage 1 to Stage 3, and from Stage 3 to out of the bank through write-offs and through sales and so on. So I mean there will be, of course, flows among the different stages. But what we are commenting is that our best case scenario is at this Stage 3, the inflows will compensate the outflows. Whether at the end of the year in Stage 2 we will have somewhat more than what we have right now in percentage of the book, it is possible that we may have, it is possible that we may have a couple of percentage points. But we are not expecting anything, I mean, extraordinary on these issues. So there may be some adjustment there, but we are not expecting anything fundamentally changing on this issue. And as I've commented, there will be a strong inflow from Stage 2 to Stage 3 that will be then compensated by the reduction of Stage 3. So I think it's important to keep this. The cost of risk. The cost of risk is behaving exactly as we were commenting at the beginning of the crisis. So this high cost of risk is linked, of course, to the level of Stage 3, i.e., NPEs that we have and to our effort to make our balance sheet healthier and to keep on reducing the Stage 3, i.e., NPEs. And of course, the speed of reduction of NPEs that we have shown in the past to be high bears the cost also in terms of cost of risk. So if we want to recover a loan quickly, it costs us more. So if we were here to highlight any single factor here that we would highlight in terms of the explanation for the cost of risk, is this -- is the strong focus that we have in terms of the reduction of the NPEs that it has -- bears its impact in terms of cost of risk. Just to give you an example, I mean, if we want to recover a credit in a hotel chain that has 7 hotels and there's negative equity, if we want to do it quickly, you will speak with the owner of the hotel group and let him keep 1 hotel and you get the other 6. So that -- then you have a quick view. But probably you may not maximizing the short-term cost of risk, just to give you an example. There are time compression in these economies.

The next question comes from the line of Paul Fenner-Leitao from Societe Generale.

I just wanted to know if you've got any intentions of returning to the corporate bond market? And if so, at what level of the capital structure?

I mean, as you know, we have recently issues in the market. We will continue to be present in the market because we think we shall do so, and we have to maintain a healthy relationship with investors. The type of -- for the foreseeable future, what we intend to issue, if anything, is senior preferred because we do not have our need to issue senior nonpreferred or subordinated debt. That is now more expensive relatively the perception that we have our own risk. If we get to a situation in which we think that the market is evaluating from our perspective correctly our risk, we might tap the subordinated market. But for the time being, the only thing that we may consider is in a preferred. Okay. Shall I? Okay. So thank you very much for all the questions. We really appreciate your interest in our equity story. We are always fully available to take further questions. And please feel free to call us. And again, let's meet in the next quarterly presentation. Thank you very much. Bye-bye.