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

Thank you for standing by, and welcome to the Millennium bcp 9 Months 2021 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 28th of October 2021. I would now like to hand over to your speaker for today, Mr. Miguel Maya, Vice Chairman and CEO. Please go ahead.

Good afternoon, Miguel Maya speaking. Welcome to BCP's earnings presentation. As usual, I will go through the highlights of the past 9 months, and then Miguel Braganca; and Bernard Collaço will follow, providing you a more detailed presentation of our earnings. The successful execution of the vaccination programs, particularly in Portugal, has been decisive to lower the impacts of the pandemic and switch into a more controlled phase. Confidence clearly raised among the economic actions, bringing a significant degree of normalization across the economy that is steadily supporting the recovery mode. Under this scenario, we have achieved a net profit of EUR 59.5 million, still contained along the year by provisions of EUR 313 million of legal risks in Poland related to FX loans, including a provision of around EUR 100 million done last quarter. Impairments and provisions stood at EUR 726 million, growing 31% year-on-year. While the complexity around FX loans in Poland didn't enable yet required clarification for this legacy issue, which is containing the profitability of our Polish subsidiary, Bank Millennium's management has been firmly committed to accelerate conversion of existing FX loans with the dedicated teams that are closing agreements with clients at a high pace, having achieved this year a decrease equivalent to approximately 16% of the FX loan portfolio. Bank Millennium has a very good franchise and a solid business model, and the complexity of the FX file did not distract the bank from steering the enduring value creation path by growing organically, grasping the opportunities to increase the engagement with the customers in the high-potential Polish market. In Portugal, and within a time frame by the end of last quarter, we successfully managed to execute the headcount adjustment program that was deployed in June. A very rigorous and balanced implementation of a well-conceived plan, which kept the cost control within the envisaged amount will lead to a reduction of nearly 800 employees this year without significant setbacks and having not affecting the working environment, nor the bank's regular functioning. This is an important step that will enable us to deliver on the annual cost reduction target of around EUR 35 million included in the strategic plan for 2024 while adjusting the bank's workforce for the evolving challenges of the competitive landscape. The strong and resilient business model of the bank is reflected on the very positive evolution of NII and commissions, which have supported the increase of 3.1% on core income. Combined with 2.7% decrease on the recurrent operational costs, this performance resulted in a growth of 8.3% of the group's net core income to almost EUR 940 million. We have a capital position above regulatory requirements, with total capital of 15.2% and common equity Tier 1 of 11.8%, with our business model showing capability to organically generate 20 basis points of common equity Tier 1 on the quarter. Our liquidity levels remain high, well above regulatory requirements, having EUR 25 billion in assets eligible for ECB funding. The quality of our franchise and the strong commercial activity of the bank is shown by the evolution of the performing loans, which increased EUR 3.1 billion year-on-year. In Portugal, performing loans increased EUR 2.2 billion, a year-on-year growth of 6.2%, of which 56% in loans to companies, confirming our strong position as the leading bank for companies and our distinct capabilities to support them in the ongoing upward trend of the economy recovery. Customer funds have been increasing steadily each quarter, being an evidence of the confidence customers have on the bank. Since September 2020, customer funds increased by more than EUR 7 billion, a growth of nearly 9%. Off-balance sheet assets grew 10%, reaching almost EUR 21 billion, providing our competencies -- proving our competencies in assisting customers in their investment decisions throughout their life cycle. Still under an adverse economic context caused by the pandemic, we didn't deviate from our downward trajectory for NPEs, being firmly committed with our priority to improve the bank's asset quality. Over the last year, we managed to reduce more than the EUR 770 million NPEs in Portugal, of which EUR 433 million in the current year. This improvement in the asset quality has been well balanced with the normalization path for the cost of risk, which has decreased to 60 basis points at the group level and 68 basis points in Portugal. Alongside the reduction of the cost of risk, the coverage levels of NPEs by impairments increased by 6 percentage points year-on-year, reaching 68%, while the total coverage increased to 120%. I must underline that, for the first time, the NPE ratio, loans only, is now below 5% at both group and Portugal levels. Together with a relevant increase in coverage by impairments and collateral, this is a clear evidence of the very positive path undergone by BCP in the past years concerning balance sheet quality. The clients recognize the value and enhanced usability of our digital interfaces, namely the mobile app, which, combined with the proximity and insights of the customers' needs, enabled by the human interactions throughout our high-quality physical network, have been crucial to drive the growing onboard of customers to our mobile solutions. 55% of our group-wide clients base are mobile users; 45% in Portugal, where mobile customers increased 21% over the last year. I also will highlight 2 relevant milestones achieved last quarter. We exceeded 6 million active customers at group level and reached the threshold of 2.5 million active clients in Portugal. The constant improvement and the new features released in our app provide an increasingly superior user experience that is reflected in the strong growing figures of mobile adoption by the customers. More than 77% of the customers' transactions with us are performed through the digital channels, and their high adoption level of mobile is reflected on the number of transactions performed over the app, which increased 40% year-on-year, with the peer-to-peer transfers more than doubling national transfers at 44% and payments increasing 39%. A large proportion of our sales, 70%, are also made throughout the digital channels, and the sales throughout the app increased 57% year-on-year, with more and more customers choosing our app as a preferred platform to acquire cars to save or to make personal loans. This growth in the number of transactions and sales through the app is more typical of fintechs rather than in regulated banks, clearly showing the relevance we provide to innovation, our focus in execution and BCP's capability to adapt. Our digital strategy to privatize the investment in a mobile breakthrough by designing an outstanding app that provides customers with a top user experience and seamless access to products and services that fulfill their daily needs have been very well-perceived and widely recognized by the customers who consistently choose Millennium as the best digital banking partner. Millennium app leads the competition on the ratings of major platforms and in the terms of Net Promoter Score, which has been consistently increasing since 2019. As I have already underlined, in a competitive landscape where new plays such as big techs have strong arguments, this positioning of Millennium bcp, if a customer's digital first choice, it is a very important competitive advantage for the bank's future, enabling us to differentiate in an efficient and -- in efficiency and customer engagement, combining an outstanding capability of target human interactions with a leading mobile platform. We have been preparing the bank for the challenges associated with the transition on ESG dimensions. The planet may not afford that actions to mitigate the effects of climate-related events kept being postponed. Wide action is needed, and institutions and companies must also adjust procedures and business models to the growing and more frequent climate-related effects. As an example, our electricity consumption in Portugal already come exclusively from renewable sources, and we have defined a credit policy that excludes financing to projects that do not comply with responsible lending principles that we are committed with. Moreover, we define ESG priorities in our strategic plan and have already presented to the ECB our action plan to prepare the bank to swiftly and efficiently manage both the physical and transition risks that come from climate changes. We have a governance model adjusted to deal with ESG priorities and have recently issued our inaugural ESG bonds, having raised EUR 500 million that will be mainly applied to finance micro and the small companies to support their recovery from the pandemic's economic impacts. I also will highlight that the management team incentive model already includes ESG factors. That being said, we are well aware that profitability is an imperative for the bank to have a sustainable position. Finally, I conclude reaffirming our trust in the execution skills of the bank teams that have been shown each quarter and also our belief that the rejection of the budget by the Portuguese Parliament will not hinder the bank's execution capabilities in 2022. Miguel, the floor is yours.

Good afternoon, ladies and gentlemen. Going now here to Page 12. As you've probably already seen, as a group, we show a very healthy top line development, focusing on fees and commissions, as you see, with a growth of 7.2%, but also a positive evolution of the net interest income in spite of the challenging interest rate environment. Then the recurring costs have gone down materially, 2.7%, in spite of all pressures. And so that the recurrent core operating profit, i.e., the core income minus the recurring costs, grows 8%. The other income that includes, among others, the trading gains, decreased somewhat, as you may see, but still positive, so that the operating net income is aligned with the value of last year. The impairments and other provisions increased vis-a-vis last year, mainly explained by the evolution of the coverage of the legacy assets in Poland, i.e., the Swiss franc mortgage book that has been originated until the end of 2018. And this is the main cause of the decrease in the net income. In terms of the net interest income, I would like to highlight the positive -- the very positive evolution in Portugal, where it grows almost 5%, with an important contribution of the volumes of credit of -- and of the reduction in the interest rate of deposits. In the international operations, it goes down when compared with last year. But mainly in Poland, when you see the evolution quarter-on-quarter in the last few quarters, it has been positive. There was an important interest rate reduction in the beginning of the -- in Poland, as you know. In the meantime, we have compensated most of it, so that basically now, we are relatively aligned. And going forward, we expect this year already to be very much aligned with the NII of last year in Poland. Fees and commission, a very healthy development both in Portugal and in the international operations, with a growth of around 7% in Portugal, around 8% in -- outside of Portugal in market-related fees and commissions, i.e., investments, funds, bancassurance products and so on, but also a positive evolution of the more transactional fees, and this is linked to the progressive normalization of the economic activity. In terms of other income, as you may see in Page 15, there is some reduction in equity earnings. As we explained last year, there was a nonrecurrent gain in the insurance income last year. The trading income, positive, international -- in international activity, as you see, from EUR 47 million to EUR 64 million. And what we have -- what we see here is a stabilization of the mandatory contributions in Portugal, with even a small decrease, and some decrease of the mandatory contributions in Poland. An important effect that we see here in the trading income, I would say, is a positive effect. We have around EUR 32 million on the quarter and EUR 47 million year-to-date of FX losses linked to negotiations in order to reduce the FX -- the Swiss franc portfolio. So this is a positive evolution. We have been able to engage with customers so as to reduce the Swiss franc portfolio, but it is showing here as this cost. So I would say, that even this line that is showing some decrease, has some virtual factors behind it. Bernard will go a little bit in detail into this. In terms of the operating costs, a lot of discipline here. As you are seeing -- as you see the staff costs, a part of it is already linked to the reduction effort that we are doing, reducing EUR 17 million, as you see here in the graph. The other administrative costs stable in spite of these tensions that exist now in some of the value chains. And this is exactly what makes it possible to benefit in terms of cost reduction. The cost of risk. The cost of risk, I would say, adjusted by one-offs. We had commented before, that in Q2, we had an exceptional recovery. Adjusted -- nevertheless, adjusted by one-offs will progressively come to a more normal cost of risk considering our present balance sheet. We are around 70 basis points in the international operations, more or less the same as in Portugal. And as you see in terms of total provisions, there is a strong influence of the loan-loss -- of the provisions for the Swiss franc mortgages in Poland, as you see here. This is a graph that really shows the focus of the bank and the capabilities of the bank in reducing NPEs. As you see, the NPEs in Portugal around 11 years ago were above EUR 10 billion. Now they are below EUR 2 billion. And the NPE loan ratio is already below 5%, that, as you know, is a focal point or a benchmark in the European industry. So I would say the balance sheet and its quality has improved dramatically. And when we use the NPE ratio as calculated by the EBA, i.e., with all the exposures, including off-balance sheet exposures and securities, it is already 3.3%. So this is a massive evolution in terms of the transformation of the balance sheet of the bank. In terms of activity, very healthy activity. You see in terms of customer funds in Page 20 that they are growing 9% in consolidated terms, of which around 10% in Portugal and around 7% in the international activity. But I would like here to highlight the positive evolution of the off-balance sheet funds. So we had said in the past that we will focus a lot in off-balance sheet funds. Actually, this is one of the main levers for the evolution of the commissions. We are being able to do so with a lot of levers, helping our relationship managers to do a proper advice to the customers, making sure that in the app, the user experience is a good user experience for investments, and this is showing and we expect this to continue. In terms of the loan portfolio, we see that, in Portugal, the performing loan portfolio has increased more than EUR 2 billion, so in excess of 5% compared with the performing book. So that even after the reduction of NPEs of almost EUR 800 million in Portugal, we are able to show an increase in the portfolio of around EUR 1.4 billion. In the international operations, there is also a very healthy evolution of the activity, with an increase of EUR 850 million. As commented by Miguel Maya, there is a positive evolution on the quarter in terms of total capital ratio. We are reapproaching our 12%. So that effectively, based on the pro forma, considering the sale of our operation in Switzerland, we are already there. So we are already with a 12% fully loaded ratio, which is a value that is reasonably above the minimum requirement that we have. This is also like that for the total capital ratio, where we are at 15.3 comparing with a requirement of 13.3 as of today. The leverage ratio compares, as always, very favorably with one of our competitors, which is, I would say, a comfort when we consider the possible future evolutions of floors in terms of otherwise methodologies for new methods. So we do have, I would say, models that are quite conservative in terms of our wealth entity. Liquidity, it's a nonissue in the sense that we have, if anything, excess liquidity. We do not need cash, and we do not need liquidity for our business model. We are trying to evolve our balance sheet so as to increase the size of our off-balance sheet customer investments and to increase the credit portfolio we have. This is evolving in the right manner. But notwithstanding that, we do maintain a wide cushion of liquidity. I'll pass now the floor here to Bernardo.

So good afternoon, ladies and gentlemen. On Page 27 and starting with the Portuguese operation, net income increased 25% year-on-year to a level of EUR 115 million. Now with the strong operational trends, net income was impacted by the headcount adjustment costs of around EUR 87 million booked on the second quarter of 2021. Net operating revenues increased 7%, and recurring costs went down 1.4%, demonstrating the strong operation trends on a very challenged and demanding environment. On Page 28, NII in Portugal, as you can see, at the end of the 9 months of 2021, it stood at EUR 619 million, meaning almost 5% up compared with the previous year or EUR 28 million above the previous year. There were some favorable impacts of the expansion of the credit portfolio, supported on loans to companies and mortgage loans, as well as the positive impact coming from the wholesale funding, which includes the TLTRO and the repricing of deposits that were more than enough to compensate the negative effects of EUR 61 million arising from lower price on credit that is -- has been influenced by lower interest rates, lower yields on securities, the NPE reduction and the excess of liquidity. On Page 29, regarding spreads on term deposits, back book spreads stood at minus 57 basis points, the same level of the first half 2021, and almost aligned with the 3-month average Euribor, as you can see, that stood at minus 54 basis points. Customer rates on deposits went down 9 basis points from 11 basis points in September 2020 to 2 basis points in September 2021. Spreads on loan book were compressed year-on-year and can be explained by the guaranteed credit lines provided by the Portuguese government, although spreads were stable quarter-on-quarter. NIM stood at 1.45%, 10 basis points lower than September 2020, due to several effects, as I mentioned before, liquidity, the lower interest from the ALCO portfolio and the reduction of the average credit rate related, once again, as I commented, with the guaranteed lines. Moving to Page 30, that presents the evolution of fees and commissions and also other income, you can see that banking fees increased 12.7% due to the withdrawal of measures related to the lockdown that was in place in Portugal on -- in the beginning of 2021. And the most significant impacts came from cards and transfers that grew almost 10%, showing the increase on transaction ability and from customer accounts-related fees, with an increase of 7%, explained by the performance on customer acquisition and pricing optimization. Market-related fees registered a strong increase year-on-year of almost 13% as a result of the performance on asset management, where we have seen a significant move to mutual funds over the last quarters. All in all, fees and commissions went up 6.8% to a level of around EUR 377 million. Looking to other sources of income. On the first 9 months of 2021, there was a positive evolution of EUR 17 million on the net trading income from last year arising from positive impacts related with securities and lower negative impacts from loan sales. On equity-accounted earnings, there was a stabilization of the contribution from this line on the first quarter 2021. And the reduction from last year is related, as mentioned by Miguel, Mr. Miguel Braganca, with the one-off related with the insurance company. On other operating income, contribution is better than 1 year ago due to higher results from real estate sales, even taking in consideration that mandatory contributions increased EUR 7 million year-on-year. Going to Page 31 regarding costs. There was a reduction of 1.4% in terms of recurring costs. Total operating costs increased year-on-year. And as explained before, it was due to the impact of the EUR 87 million related with the headcount adjustment. In terms of employees, there was a reduction of almost 650 employees year-on-year. And to what regards to branches, there was a reduction of 42 branches, out of which 11 were closed on the third quarter of 2021. Moving to Page 32, which refers to asset quality. Even under the challenging environment, BCP was able to reduce almost EUR 800 million year-on-year of NPEs, meaning a 28% reduction. NPEs stood below EUR 2 billion at the end of September. And year-to-date, there was a reduction of EUR 433 million. Cost of risk stood at 68 basis points, but if adjusted by one-offs, stood at 79 basis points, which is, as you know, performing according to our estimates, but even better or slightly better than the initial estimates that we presented when the pandemic came. Let's move to Page 33, which looks at the NPE coverage breakdown. And as you can see, total coverage stood at 130%, above 118% registered in September 2020 and of 126% in June 2021, with the reinforcement of NPEs coverage by loan-loss reserves to 69% from 61% 1 year ago. Total coverage for individuals with high levels of real estate collaterals stood at 96% and for companies at 142% from 136% in June 2021; coverage by real estate collaterals on companies at 46%, 10 percentage points more than 1 year ago; and by loan-loss reserves, 9 percentage points more from the 71% 1 year ago. On Page 34, that shows the evolution of foreclosed assets and restructuring funds, there was a reduction year-on-year of 33% and 7%, respectively. In terms of property sales, there was a slight slowdown in the first 9 months of 2021 compared with the first 9 months of 2020 due to the restrictions in place in the first half '21 in Portugal. Number of properties sold decreased 9%, but the value of sales went up 5% compared with last year. Once again, it's important to highlight that sales values were above book value, and it has been happening over the last quarters. Now moving to Page 35. Total customers funds grew almost 10% to EUR 64.5 billion. The growth was more than EUR 5.7 billion and was supported by some increase on demand deposits, but also from the strong increase on off-balance sheet funds explained by, as I mentioned before, by the high level of subscription of mutual funds. In terms of gross loans, there was an increase of 3.7%, supported by an increase of 4% in companies and by 5% in mortgage loans. It is also important to highlight that performing loans went up 6.2% year-on-year, more than EUR 2.2 billion, and the NPEs were reduced by more than EUR 770 million or 28%. Going to Page 36, which is -- where it's possible to see our strong support to companies and the recognition of BCP as the main bank. The growth of the performing portfolio of EUR 2.2 billion mentioned before was strongly supported by companies, where this segment was responsible for 56% of the total performing loan growth. Let me also highlight the reinforcement of the agreement with the European Investment Fund signed last week of EUR 1.7 billion that will support small- and medium-sized companies affected by the pandemic. Going to Page 37 to what regards to moratoriums, you can see on the left-hand side that we have been monitoring moratoriums since the inception and to what regards to moratoriums that expired in September, which were the bulk of the moratoriums. And others that will expire until the end of the year, more than 90% are performing and almost slightly below 10% is already marked at stage 3 and is included, of course, on the NPE level that is now below EUR 2 billion. It means that there is no signs of major concerns, although it's still an issue that we are working close to our customers, providing them solutions if needed. From the experience that we have of the expired moratoriums between March and June this year, you can see the breakdown on the right side, where the breakdown by stages is aligned with the pre-exploration levels and better than the moratoriums that were expiring in September and until the end of the year. Moving to Page 39 regarding international operations, you can see that there was a significant reduction of the contribution from international operations to the consolidated net income. And the strong decrease is explained by the Polish operation that booked significant provisions during the first 9 months of 2021 for potential litigation risk. Bank Millennium had a loss of EUR 182 million, and Mozambique contribution was slightly better than the previous year to EUR 61 million. Combining contributions from international operations on the first 9 months, it represents a loss of EUR 55 million, that compares with the positive contribution of EUR 54 million in the first 9 months of 2020. Moving to Page 40. Net income in Poland was impacted by the CHF provisions that amounted EUR 313 million and costs associated to the conversions or early redemptions of CHF loans, with an impact of EUR 47 million. Excluding those factors and due to the excellent operational performance, net income from Bank Millennium should have stood at EUR 177 million, meaning 52% above last year, even considering the substantial decrease of the 3-month Euribor over this period. Looking to the operational trends, you can understand how strong the franchise is. Even with a strong interest rate decrease, net operating revenues were almost flat year-on-year. And it's important to mention the strong performance of new mortgage loan production and consumer loan production, that on the third quarter 2021, reached levels prior to COVID-19. Operating costs went down 9.5% due to the optimization process that was in place last year and by the continued implementation of additional measures. Common equity Tier 1 ratio stood at 15.1% and total capital ratio at 18.2% and well above the requirements. On Page 41, some detailed information about Bank Millennium. NII has been recovering and is almost flattish compared with -- to 2020. NIM stood at 260 basis points and improving quarter after quarter even though at a lower level than 1 year ago. Fees and commissions, increasing at double digits to EUR 136 million, and other income decreased 53%, explained by the lower trading results from -- related with the out-of-court settlements with CHF borrowers. Operating costs, with a decrease of almost 10% after the strong efforts taking place in 2020. Moving to Page 42, related with asset quality in Poland. NPL ratio decreased 30 basis points, and cost of risk continues the downward trend registered since the second quarter of 2020 and it's through, at the end of September, at the level of 36 basis points and aligned with the previous quarter. It is important to remind that the first 9 months 2020, the cost of risk was at 92 basis points due to the COVID provisions. Coverage ratio by loan-loss reserves at 128%, meaning an increase of 12 percentage points from last year and similar to the previous quarter. On Page 43, you can see how strong the franchise is, where customer funds increased 6% year-on-year. Major recovery was related with the off-balance sheet funds as the trend of subscription of mutual funds is evolving at a strong pace. In terms of loans to customers, gross book stood at EUR 17.3 billion or 6.4%. And it is important to highlight the increase of zloty mortgage loans of 28% and of 5% on consumer loans. Bank Millennium reached year-to-date market share of new mortgage loan sales of more than 12% and of more than 10% on new cash loan sales. On Page 44, regarding the FX mortgage portfolio, it now represents less than 13% of total loan portfolio. And as you can see, the reduction of the CHF portfolio has been accelerated. Bank Millennium, due to the increase of court claims and decisions more favorable to customers, made additional provisions of more than EUR 313 million in the first 9 months of 2021, increasing the coverage of the outstanding amount to 20%. Cumulative provisions for legal risks on the FX mortgage portfolio stood above EUR 505 million. It is also important to mention, as you can see on the bottom right-side chart, that Bank Millennium has been entering into extrajudicial agreements with CHF borrowers over the last quarters. And those amicable agreements have a cost of EUR 47 million in the first 9 months of 2021. On the second and third quarter of 2021, the number of extrajudicial agreements were above the new individual lawsuits. Turning to Page 45, which regards to Mozambique now, net income increased 3.4% to EUR 61 million. Net operating revenues increased 5.5% and operating costs, 3.7% higher than last year. Capital ratio at 48.7%. Moving to Page 46. NII went up year-on-year, 4%; NIM decreased due to the normalization of interest rates in Mozambique that are now on an upward trend; and commissions and other income increased 10%; while cost of risk -- cost to income was stable year-on-year at 43%. Moving to Page 47. Nonperforming loans 9 days past due, ratio decreased almost 10 percentage points due to a specific operation mentioned on the previous quarter, and the cost of risk stood at 141 basis points and coverage by loan-loss reserves at 76%, which is 5 percentage points higher than last year. Regarding volumes on Page 48, you can see that customer funds grew 7.5% and loans to customers decreased almost 15%, reflecting our conservative approach under the challenging environment of the country. And so let me thank you very much for your attention. And before we move to Q&A, I will return to Mr. Miguel Braganca for some final remarks.

Okay. As you know, when we presented our strategic plan, we have committed presenting to you exactly how we're evolving vis-a-vis the different ratios. And here is our commitment. So at September of '21, we are evolving well in the cost-to-income ratio and in the cost of risk. Unfortunately, this is not translating yet in our target evolution due basically to the influences of the Swiss franc mortgage book. In terms of capital ratio, we are on track, I would say. So we want to be above 12.5%. There were some one-offs in June, as we have commented, namely the provision for the restructuring and the evolution of the available-for-sale reserve, but we maintain a lot of confidence in achieving this target. In terms of NPE ratio, we are clearly on track. And in terms of the quality of the franchise and our positioning in terms of ESG, we think we are also clearly on track. So I would say, some months after the presentation of the strategic plan, we do think that we will deliver on it, and everything is pointing to achieving these ambitious targets by 2024. Thank you very much. We'll now open the floor to questions. Thank you.

[Operator Instructions] We have the first questions coming from the line of Ignacio Ulargui from Exane BNP Paribas.

I have 2 questions and one small follow-up, if I may. So the first one on NII, if you could give us a bit of guidance and color, how do you expect NII to perform in the coming quarters, particularly thinking on the impact from TLTRO from June '22 onwards? How do you expect that to offset that impact? The second thing is on credit quality, and given the positive trends that we have seen in the quarter, how do you see the cost of risk evolving in the coming quarters? And also, how -- I mean Bernardo has explained it in the call, but how do you think this is going to interplay with the moratoria that has expired in the end of September? And just one nitty-gritty question on the cost side. When we should start to see the benefits from the restructuring charges that you took in 2Q, it will be 4Q or it will be more into 2022?

Okay. In terms of -- starting with the last question, Ignacio. In terms of the restructuring targets -- charges, what we would say is that the total benefits from it will be above EUR 30 million as we had commented at the time, part of it is already flowing in the costs because the people are not going all at the same time. But I would say, in the first quarter of last -- of next year compared with the first quarter of this year, we will see the full impact. So not everybody goes out at the same time, but we will get this -- the run rate of the first quarter of last -- of next year compared with the run rate of the first quarter of this year will show the impact of the reduction of the headcount. In terms of the credit quality and the moratoria and how everything interplays. I mean since the beginning, we have been saying that this is a new situation for all of us. But all in all, we thought that our portfolio is structurally healthy, so to say, and that the companies that are adhering to the moratoria, most of them are companies with a healthy business model and with a healthy long-term performance and that can support more debts. And also, the fact that we had a furlough scheme in Portugal meant that many of these companies did not have a negative or a strongly negative cash outflow during the period, which meant that the level of debt did not increase that much. So if the companies go back to the same level of EBITDA that they had before and if there is not an increase -- material increase in the size of the debt, I think we should be comfortable with it. And this effectively is happening. So it is -- we have seen now with the moratoria that ended in March, that were the riskiest moratoria because these were mostly consumer loans, so -- and they are performing well, as Bernardo has shown. In terms of the other moratoria, mainly mortgages, let's say, to companies, what we are seeing in terms of early signs now in October is that the day past due -- the first impact in the past due, I mean, is not materially different from the clients that are not in the moratoria. So as of today, we have absolutely no indication that we should be particularly stressed about moratoria based on even early warning indicators, like customers that are 1 day past due or 2 days past due. The difference is not material. So in terms of the evolution of the cost of risk. We have a business model that is structurally, across the cycle, consistent with the cost of risk of around 50 basis points. That's why we want to get that at 2024. And as you know, right now, we are around 69 basis points, 70 basis points, excluding the one-off reversals. We expect next year, of course, to be below this 70 basis points that we have right now and with some convergence, I would say, towards the 50 basis points, exactly the pace of the conversions between '22 and '23. It's a little bit early to say exactly the speed that we could convert it. It's hard to say. But I mean, we are deeply convinced that we will convert in '22 and '23 to the 50 basis points in '24. In terms of NII, I mean, there are several factors affecting the NII and the revenues. The first point that I would like to make is that in this scenario in which we are, we really think that the main factor behind the growth in revenues will be more fees and commissions than NII. And that's why we are focusing so much in bancassurance, in asset management. And of course, as the activity normalizes, also the transactional fees and the credit card fees, they will also improve. So we think that the key driver for the top line will be more fees and commissions than NII. Having said that, we do not expect particularly, I would say, bad news in terms of the NII. We expect some growth in NII in spite of the TLTRO for a couple of reasons. One is that -- I mean, we have had in the last quarters some headwinds in terms of NII, as we have commented already, because of the NPE reduction. So as we approach our levels of NPEs, this has been -- will come down. Second, as we are also seeing, I mean, the production and volume increase in credit is gaining traction. Thirdly, as we -- the situation of excess liquidity that was there in the last quarters will, over time, we expect somehow, be reduced. And this, of course, will, at least we expect, to decelerate the reduction of spreads. So we will keep basically the positive effect of the volume growth in terms of credit without many of the headwinds that we are having in the past. Of course, it will not be something spectacular, but we think it is enough to compensate for the TLTRO so that we -- our view for the NII going forward is a low single-digit increase but an increase in spite of the TLTRO. And I think I've answered all your questions.

We have the next questions coming from the line of Sofie Peterzens from JPMorgan.

Here is Sofie from JPMorgan. My first question would be around the Swiss franc mortgage provisions. You have taken EUR 505 million already, which is around 20% of your portfolio. How should we think about the kind of potential provisions going forward? Yes, so if you could just share with us your thoughts here, how do you think about potential provisions? And on -- my second question would be on capital. You have the 20 basis points coming from the pending sale. Are there any tailwinds or headwinds in terms of core equity Tier 1 that we should be expecting a repeat next year or so? Any regulatory impacts? Any model approvals? Anything that we should take into account, in addition to the 20 basis points from the sale? That's it from my side.

Sofie, we had lost you after your question about the Swiss franc provision. You were asking a second question, I'm sorry, on capital, but could you pose the question again, please?

Yes. On capital, my question was just, in addition to the 20 basis points that you're going to get from the sale, are there any other kind of tailwinds or headwinds that we should be aware of? Any regulatory headwinds or any model approvals or anything we should be aware of in terms of your core equity Tier 1?

Okay. Okay. Starting with the second question, from now until year-end, we are not expecting any special headwinds or by the way, tailwinds also. In terms of capital, we have the normal activity of the bank, the normal activity of the bank that you know that typically has an evolution of around -- between depending on the quarter, between 10 and 20 basis points of capital per quarter. And that's what we would expect. Of course, a part of it depends also on the evolution of the federal reserve and so on. Sometimes, it's one direction, sometimes in the other. But over, I would say, over the quarters, we would expect it to be this type of evolution. So short answer is no special tailwind and no special headwind. In terms of -- but a contribution from the normal activity of the bank, as you would expect. In terms of the CHF provision, how to look at it. I mean the situation in Poland is complex, and we have this issue with the Swiss franc portfolio. That is a legacy issue. It is a closed issue. The bank in Poland has communicated to the market some time ago that the assumption of the whole impact of the KNF proposal would mean a gross amount at the time between PLN 4.1 billion and PLN 5.1 billion, so that's what the bank has communicated to the market. But we -- I mean, the judiciary system is not, I would say, deciding at the pace at which we would all like and expect. So what is happening is at the level of the Supreme Court. Consistently, the key decisions are being postponed and some very important decisions are being asked even to the European Court of Justice and so on. So how do we look at it? We think that in this period of high-end uncertainty, we have a methodology. And this methodology, we have to apply this methodology to the cases. And this methodology has some conservative elements also because, for instance, the way it treats the remuneration and so on is conservative. But as more cases come to court and as more negative decisions affect the banks, the pure impact of the methodology is a high level of provisions. So what I would expect is until there is some clarity on this issue, and I would not expect a lot of clarity in the next 2 or 3 quarters, I would expect this magnitude of provisions coming from Poland. So that's what I would expect. In any case, what I would like to highlight is that our Polish subsidiary is listed. It has a 50% free float. There are a lot of proficient investors that invest directly in our subsidiary. And in spite of these results, they look through -- the results, they look through the net income. They see that it's a closed issue. They value the bank with this issue. And the bank is trading in Poland above book value. I would also -- I mean, as you know, banks without a Swiss franc issue are trading significantly above book value so that the Swiss franc issue, of course, is hurting the valuation of the bank, as we would expect to. But still, the bank is driving above book value in Poland, okay, reflecting this risk.

We have the next questions coming from the line of Noemi Peruch from Mediobanca.

I have a couple of questions from my side, if I may. The first one is on moratoria. Can you share with us the amount of corporate moratoria expired at the end of September that asked for a further loan restructuring? And my second question is on capital, in particular, the pension fund. Long-term yields are increasing sizably in H2. So do you see the possibility of crystallizing the gain in common equity in Q4 unlike in Q2? And then on RWAs. We see that in the quarter, the reduction of RWA has played an important role to increase common equity. So my question is, how will you manage RWA vis-a-vis loan growth in the coming quarters? We see Poland pulling the brakes already on volumes to protect capital ratios. And my last 2 questions are on the provisions. Other provision in Portugal were quite high in Q3, but also in Q2. Did you start provisioning for the reassessment of the corporate restructuring funds? And if so, how much did you set aside? And last question is in Poland. And why didn't you use the provision you already had taken for FX mortgages to offset the cost of negotiations?

Starting with the last question. Of course, the provision is also, in Poland for FX, is always a decision that has to be taken together with the auditors so that everybody is comfortable and so on. But typically, the negotiations in most of the cases are not in the context of court cases that we negotiate with customers to a large extent, that have a high probability of going towards court, but they are not in court cases, while the provision that we are doing is for future court cases. And as you know, I mean, Poland has disclosed to the market an impact only of the KNF solution, that is one possibility of around EUR 5 billion. So I mean, we are still -- even if you look at the total cumulative return, we are still below this level. In terms of the other provisions and what we set aside for other provisions and so on. I mean the other provisions are for other risks in generic terms. A part of it is may be linked to the restructuring front. But as you know, this is a situation where no decision has been taken yet. And we're -- and we're -- I mean, I don't think it will be in the interest of the institution or of the -- and of its shareholders to say exactly what we would have provided for in the restructuring fund because we are exactly in the midst of a negotiation. So it would not be in the interest of the institution. So we are not disclosing this. What we can tell you is that we would not expect any -- should we decide to sell, we would not expect any important impact in terms of the P&L of the bank this year, okay? So that's what I can tell. And in terms of the loan growth, we are managing it otherwise in a very intense way. As you probably have seen, we have had high market share in government-guaranteed lines. We also have EIB lines. So all our strategy and all the incentive structure of -- even of the commercial network and so on is based on economic capital. And if you want -- I mean, the business areas have a much higher, I would say, economic result and compensation and bonus if they consume less capital. And if you see one of the reasons why we are having also less spread in the corporate portfolio, it's exactly because we are using a lot of these government-guaranteed lines, EIB lines and so on. So we expect to be able to grow this portfolio at a lower risk density than the average that we have right now so as to achieve our impacts. In terms of crystallizing the gain of the pension fund. In order to crystallize the gain -- the gain is there, first. In order to crystallize the gain in terms of the pension fund, we have to take the money out of the pension fund, okay? This is a -- it is possible when you have, for some time, excess of portfolio over the responsibilities, and we have it. It is possible. But we have not decided to take any of those decisions. We do not think it is necessary to achieve our targets, and we are in a period of some volatility. So we are not -- we know that we can do it. We know that the reserve is there, but we are not necessarily envisaging to do it right now because we do not feel pressure towards it. If we -- if at a certain point in time, we think it's in our interest, we will do it. But the money is there. It's not because we take the money out that the money disappears. So it is -- it has a bureaucratic process behind it. We know we can do it. But we -- in principle, we do not need to go to this resource right now. We feel comfortable that we can attain our objectives even without it. In terms of the moratoria...

[indiscernible]

[indiscernible]

Okay. Okay. We do not have the value here with us. The total portfolio that we have of corporate moratoria expiring is around -- or we had expiring around EUR 3 billion. There have been no, I mean, no signs of worries since they expired, this I can tell you. I don't have it here with me exactly the separation through stage 1, stage 2 and stage 3 of the corporate clients, but it should be similar to the one that we have presented for the total portfolio. In any case, we can then share this with you later. I don't think it's very sensitive. But the message that we'll give is that, up until now, even in terms of leading indicators, we are not seeing anything that was -- I mean, points to a red light.

We have the next questions coming from the line of Adrian Cighi from Crédit Suisse.

Adrian Cighi from Crédit Suisse. I have a few, one on capital and a few on net interest income. On capital, at 12% pro forma, the CET1 is now approaching the 2024 target of 12.5%. But on the total capital, can you give us more visibility on your plans for issuing and filling up your Tier 2 and AT1 buckets over the next few years and how you expect this to impact your earnings outlook and ROE targets, if at all? The second question on NII. It's a 2-part question. You're clearly making very good progress on lowering your NPE ratio. Can you help us think through how this continued deleveraging impacts your net interest income outlook? And in terms of the loan volume outlook in Portugal, how do you think the excess liquidity in the system is impacting corporate loan demand in the near term?

Thank you very much for your questions. And I mean over time, of course, it is in our objectives to fill the buckets of Tier 1 or additional Tier 1 and of Tier 2. We do not say in advance exactly when we will issue and how much we will issue because we do not think it is necessarily in the shareholders' interests. What we can tell you is that this is always a balancing act with not leaving everything to the last day, so to say, but also not penalizing the shareholders through P&L when we think that the spreads are too high. We do think that in terms of AT1 and Tier 2, the spreads are still very high, the market spreads, vis-a-vis our specific situation. Of course, we have to be realistic and not to leave everything to the last day, so we will not accelerate a lot the issues of Tier 1 -- of additional Tier 1 and Tier 2. But when we think that it's reasonable, we will issue. And probably because of the situation in which we are, that it penalizes even more the AT1 than the Tier 2, we would start by issuing the Tier 2 before issuing additional Tier 1. Of course, in our plan and in the data that we have disclosed to you, we have our own assumptions. And the ROE of 10% that we have there already reflects the issuance. But I would also like to highlight, that in our books, we have already issues that are at high spreads. So we would expect that the amount that we will issue will be larger than the stock that we have. So by the end of 2024, the total of Tier 2, so to say, will be higher than the total of Tier 2 that we have right now, of course. But the total cost may not be necessarily higher because we would expect the spreads to compress. This may not work out in any specific quarter. There may be some overlaps between the issues. But overall, the total cost with additional Tier 1 and with Tier 2 in 2024, we would expect it to be comparable to the total cost of additional Tier 1 and Tier 2 in 2020, for instance, okay? Just to give you an idea. We would say we would expect the spreads to compensate the additional amount. In terms of NII, and I mean, a lot of the loans that we have been -- of the NPEs that we have been reducing are loans that are unlikely to pay -- in loans that are unlikely to pay and not necessarily in default is unlikely to pay. Of course, we are still recognizing some NII, so that when we reduce them, and typically, these are higher NII loans, when we reduce them, of course, this has an impact in terms of NII, as Bernardo has explained in the presentation, for instance. In the presentation that Bernardo has shown in page -- of the evolution of the NII, there is one of the bars that clearly says what is the impact of the reduction of NII when you compare with last year. So you see here that this reduction of NII, impact of NPE reduction, was responsible for around EUR 14 million of reduction of the net interest income. And this type of rate is something that we will progressively -- this type of headwind is something that we will progressively have less impacting our P&L.

[indiscernible]

I mean in terms of excess liquidity, I mean, as you know, right now, there has been, I mean, there has been some political turmoil in Portugal, and it's difficult to say exactly which type of investments will be maintained or not in this type of situation. We personally think that because the intrinsic situation is positive, that many of the planned investments will continue. We do think that there are enough projects in Portugal to cope with the liquidity that there is in the market, that we are already seeing that some of the margin compression that happened last year for the same type of risks is already failing so that we are seeing some companies asking for projects, asking for investments, mainly as a secondary effect of the European large envelope that we have, I would say, a multiplicative effect in several investments. So we would expect the loan growth to continue at this low single-digit numbers, I would say, and -- but without so much margin compression at corporate level.

We have the next questions coming from the line of Carlos Peixoto from CaixaBank.

So a couple of questions from my side. One on other provisions, I was wondering what should we think about the -- or how should we look at other provisions, in part, for particularly, in the fourth quarter and then the last couple of quarters preceding this one [indiscernible] where other provisions were particularly higher and maybe unusual [indiscernible] in the quarter. They also [indiscernible] one of the main drivers for providing the growth [indiscernible] so I was wondering what type of growth you're expecting [indiscernible]

Carlos, Carlos. Carlos, I'm sorry, we are not being able to understand what you are saying. So the first question we understood, about other provisions. But the second question, if you can...

It will be -- sorry, the outlook on fees? For 2022, what type of growth you expect from there? And then a follow-up on the MREL targets that you discussed before. I was wondering what's the actual goal in terms of issuing and not signing that amounts to be issued. And when do you expect to see an official target in terms of MREL being expected? And if I'm not mistaken, it hasn't been announced yet.

Okay. Okay. Thank you very much, Carlos. Starting with the last point, as you may know, Poland took some time to transpose the MREL directive. And so we have not been officially informed of the MREL targets. We expect this to occur, I would say, over the next weeks. And once we are officially informed, we will inform the market. But until then, I mean, we cannot do it. So it will not be correct to do it. So in the next, I would say, 2, 3 weeks, that's our expectation, we'll receive the letter with official MREL targets and we'll communicate it to the market. But what I would say is that, I mean, based on all the interactions that we've had until now at BCP level, we are not expecting, I mean, these MREL targets to be particularly, I mean, difficult to achieve. So we think it's totally aligned with our funding plans and with the objectives that we have presented here in the strategic plan. So no news. It is aligned with what we need. And it's already incorporated in our own plans, and we will communicate it to the market briefly. In terms of fees, I mean, we will have here several levers for the fees, but the 2 most important ones will be the recovery of the economy with the increase in transactional fees that will come with it, I would say. For instance, credit card fees are very sensitive to international travel because, I mean, the fees that you make in local credit card transactions are totally different from the fees that you make in international credit card transactions, just to give you an example. And we expect international travel to start to pick up, so to say, next year. But also, in terms of investments and bancassurance because we have changed our model, this takes some time, I mean, to train the sales force to be able to sell funds, as you know, because it's your business to sell bancassurance products, to sell traditional insurance products. I mean all of these, I mean, have some time associated to it. But we are being very successful there, and it's picking up. What we are expecting for next year for fees is a level around mid-single digits. That's the level that we are expecting for next year.

Other provisions, Miguel.

The other provisions, I'm sorry. We would expect -- a part of these other provisions have to do with off-balance sheet exposures and with other contingencies. So the part they have to do with the contingencies are particularly hard to predict by definition, but I would model them going forward at least in line with the reduction of the cost of risk.

We have the next questions coming from the line of Benjie Creelan-Sandford from Jefferies.

A couple from my side, please. First of all, I did notice that the Portuguese sovereign bond holdings were down quite a bit quarter-on-quarter. So I'm just thinking, strategically, what's your view on the portfolio? Do you think you can rebuild or expand the size of that again going forward? Or is it a case that you don't see the current yield levels as attractive to rebuild that portfolio? And then I got 2 quick factual questions. First, can you just remind us of the interest rate sensitivity of net interest income in Portugal, if possible, please? And secondly, if you have the number to hand and what was the level of loans that were classified as stage 2 at the group level as of 3Q, please?

Okay. In terms of the sovereign bond portfolio and of the NIM sensitivity, as we have commented here several times, we typically have a general NIM sensitivity of around, I would say, between EUR 70 million and EUR 100 million for each 100 basis points of increase in interest rates, in -- or in parallel increase in interest rates, being that it is more sensitive, of course, to the short-term interest rates, to the Euribor, namely the 6-month Euribor, than to longer-term interest rates. But in a parallel movement, the type of impact that we have is this one. The second -- by the way, it's not -- it was not your question, but it is already public information. It has been disclosed in Poland for 100 basis points of increase, as I will recall that the interest rate in Poland went up 40 basis points. The impact on NII is around 11%. So it is also -- we are exposed but not too much to the interest rate movements. But in Poland, they are already happening, so to say, which I think is interesting. In terms of, I'm sorry, the stage 2 of...

Group level.

At group level, we are having now in June, of the 12% of stage 2 at group level, 83% of stage 1 and 5% of stage 3. And it's considering the COVID situation and so on, it has been relatively stable as you've seen also in Portugal.

[indiscernible]

In terms of Portuguese government debt, I mean, we are -- it is always a balancing act. So we are structurally confident that with the evolution that happened in Europe and with more countries taking on more public debt on one hand, and on the other hand, with this evolution -- with the steps towards a more European solidarity, there should be more convergence between the yields of the several European countries. So this is really a long-term view that we have there. Having said that, in terms of our own portfolio, we typically manage it. It's a part of our job. We manage it -- in spite of being structurally positive, so to say, in terms of the issue, we manage it dynamically within limits, where when you think, of course, that the spreads may go up, we typically shorten the maturity and shorten the volumes. When we think that the spreads may go down, we do the reverse within very strict limits of balance sheet coverage. So these are not trading positions. These are positions to hedge, so to say, the structural risk of the bank. As you may imagine, right now, I would not go into it, it depends on, I mean, on exactly what are we doing with the portfolio. But we have some flexibility within units. We do not look at it as a trading portfolio. And we look at it as a hedge of the current accounts and the debt we have and of the term deposits. The reductions, typically -- the higher reductions, typically occur more on treasury bills. They have more to do with the short-term liquidity than with the longer-term portfolio.

We have the next questions coming from the line of Maksym Mishyn from JB Capital Markets.

I have one small follow-up on Ignacio's question on TLTRO III. Could you just remind us what's the contribution you currently have to your NII? And then the second one is on the corporate restructuring front.

I think this line just got disconnected during the questions. We have the next questions coming from the line of [ Alvaro Reis ] from Morgan Stanley.

The presentation and all the reports are very good and very useful. And it's a follow-up question regarding your capital stack. As you said, you can print a larger Tier 2 bond on other than cost. The other coupon will be lower. But this is the same for your AT1 bucket. You have an AT1 call at the beginning of 2024. And I just want to make sure that you will follow the same approach if it is the case in 2023.

I mean what I'm -- one thing is to follow an approach and to decide. The other thing is an expectation. What I said is that our expectation is that as the bank improves its financial position and improves its situation in the market, as the market recognizes the huge improvement of our credit risk, that our spreads reduce. And this reduction of spreads will compensate boldly, so to say, the amount of that we will need to issue -- the excess amount that we need to issue. This is our expectation, so to say. Another thing is to say that we are taking a decision to issue a spread so as to compensate exactly the amount that we have. Of course, this is not what we will do. I mean we will -- when we need to issue, we will issue on market conditions because the issues will not be executed. So our expectation is the one I view first. The reality is what will happen, and I hope -- really hope that the investor base will recognize the huge improvements that our business model has. I mean we come from more than EUR 13 billion of NPEs in Portugal, and we are with less than EUR 2 billion. This should have a reflection in our credit spread. So what we are -- that's what we are thinking. I mean, of course, when we issue, we have to issue at market conditions, and we will try to issue in -- so as to -- not to harm our shareholders. We will try to avoid excessive penalizing market conditions. That's what I'm trying to say.

Yes. I mean it's very clear and makes total sense. I -- yes, this is based on the fact that you have improved your position, and you should issue at a lower spread than 3, 4, 5 years ago.

I agree, I agree. I agree to be right a lot. Really, really, I see. But I think we have to compensate, right? I count on you. I count on you. And now that we had talked to you, I count to you and the analyst community and so on to help us explain to the market the situation and the improving situation with the bank is. And if the market really sees through what is happening, I think this will be possible.

We have the next questions coming from the line of Maksym Mishyn from JB Capital Markets.

Apologies for the technical issues. I'm not sure which part you lost me, but I had 2 questions. So the one was on TLTRO and how much it contributes to your NII. And the second one was on corporate restructuring funds. Could you explain the...

We lost the connection from Maksym again. There are no further questions at this time. Please continue.

I think just -- I mean, our friend is having here, from JB, is having here a connection problem, but I would suggest to -- I mean, to end this call. And then, of course, we will be able to answer any of your questions as usual through me or through Bernard. Okay? May I finalize?

[indiscernible]

[indiscernible]

Okay. So I just would like here to highlight the strength of our business model, the evolution of our core income, the evolution of the NPEs that, for the first time in many years, is below 5%, and this together with a reduction in the cost of risk. So this was not done at the expense of excessive write-offs and the evolution also of the intrinsic franchise and of the core earnings in Poland that make it possible to have Poland leases in the market at a price above book value, even considering the Swiss franc risk. Thank you very much. And we are here at your disposal for any further questions. Thank you. Bye-bye.