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

Good day, and thank you for standing by. Welcome to the Millennium BCP First Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Miguel Maya, Vice Chairman and CEO. Please go ahead, sir.

Good afternoon, Miguel Maya speaking. Welcome to BCP's Earnings Conference Call. As usually, I will mention the highlights of our performance, followed by Miguel Braganca and Bernardo Collaço, who will provide additional details. We have achieved a net income of EUR 215 million in the first quarter, increasing 90% year-on-year, although still influenced by significant effects coming from Poland. Costs related with the FX mortgage loans reached almost EUR 206 million, including adjustments to the provision model with more conservative assumptions that led to an amount of EUR 61.6 million in additional provisions this quarter. Bank Millennium took another important step forward in the strategy of the bank in Poland by concluding the bancassurance partnership with an insurance company that belongs to a German insurance group and which included the sale of 80% of Millennium Financial Services with a positive one-off effect of EUR 127 million, combined with the 10-year agreements that will enhance future value creation in the Polish market. All 3 core markets, Portugal, Poland and Mozambique have contributed positively for net income in the first quarter, notably Portugal with a profit of almost EUR 171 million, which corresponds to an increase of nearly 59% year-on-year. As we have been underlying, we have a sound and effective business model and high-quality franchise that provides growing income levels in our main markets, even in challenging context like the one we are going through. Core income grew more than 30% year-on-year, reaching EUR 860 million, driven by the growth of net interest income and our rigorous management of operational costs, which have increased just 5.3%, revealed crucial to contain the growth of operational costs below inflation in all our operations. Our discipline in managing capital and the capital measures undertaken fostered the significant improvement of the capital position in the previous quarter which has been further improved this quarter. Besides the incorporation of the positive impact from the approval of the waiver under the Article of 352 by the ECB, our business model continues to consistently generate capital, which altogether led to an increase of 205 basis points in common equity tier 1 and 245 basis points in total capital, since the first quarter of 2022. Therefore, capital ratios were significantly reinforced this quarter with common equity tier 1 ratio standing at 13.6% and total capital ratio at 18%, a very important improvement that gives us confidence to tackle the uncertainties of the current macroeconomic context. Our robust capital position is complemented with a strong liquidity situation. We have liquidity indicators, clearly above regulatory thresholds, a conservative loan-to-deposit ratios I would say, a very conservative loan-to-deposit ratio and EUR 25.3 billion of eligible assets to discount at the ECB. The quality of our retail banking business model, supported on strong relationship, established with our customer base is prevailing in the challenging competitive landscape for deposits, which has been driven by Swiss changes in monetary policy. On balance sheet, customer funds grew 4% since first quarter last year, driven by an increase of 5.1% on deposits, of deposits in Portugal in the same period. Of the top 5 banks operating in Portugal as far as I'm aware, BCP was the only one in which customer funds grew compared to the first quarter of 2022. Meanwhile, we didn't deviate from our trajectory of steady reduction in non-productive assets to keep improving the quality of the balance sheet. Since March '22, we have managed to reduce almost EUR 1.1 billion, namely EUR 506 million in NPEs; 216 million in foreclosed assets; and EUR 372 million in restructuring funds. On the first quarter, we reduced EUR 30 million in foreclosed assets and EUR 82 million in NPEs with the NPE ratio standing at 3.8%. The rigorous management of the balance sheet risks enabled us to keep a controlled cost of risk despite this challenging environment in which we are operating and the demanding provision level in Poland due to the Swiss franc mortgage loans. At Group level, the cost of risk decreased 6 basis points since March '22, reaching 56 basis points, driven by a significant improvement in Portugal, where the cost of risk came from 68 basis points to 53 basis points. Overall, this was another quarter in which we further strengthened the franchise, the asset quality, the capital ratios and the operational efficiency of the bank. The symbiosis between the top quality service provided by the bank's excellent teams and digital competencies lays the backbone of our competitive edge, which is highly valued by customers and reflected in the consistent organic expansion of our customer base. Individual and corporate clients continue to choose Millennium as their preferred bank and our services are awarded with prestigious distinction recognized by the market. At Group level, our customer base expanded 5% since March '22, overcoming the threshold of EUR 6.5 million, of which more than EUR 2.6 million in Portugal. Most notably, mobile customers grew 16% during the same period, accounting for 65% of the Group's customer base and 54% in Portugal which is a very good indicator of the success and acceptance of our digital transformation journey. Our digital capabilities are widely recognized by customers, which make us the bank they most recommend in Portugal and one they most continuously nominate as the best digital bank. The investment and priority we give to mobile solutions with a clear focus on customer-centric innovation and permanent improvement means that our app continues to lead the rankings and deserve top reviews on the most relevant platforms. The customer-centric orientation of the app is reflected in the use they make of it, having gained increased relevance as their preferred way to interact with the bank. This quarter, customers carried out 32% more transactions through the app than on the first quarter of '22, with a significant growth in the number of transfers and payments. The number of sales through the mobile app has also increased 32% in the same period with emphasis to savings solutions that increased 34% and which is a particular relevant figure in the current context of greater demand for these kind of products, meaning customers use the app, not only for their daily basic transactions, but also to find updated solutions to match their most important financial deals. The result achieved in this year, first quarter, in which the main targets that we set in the strategic plan for the end of 2024 are already well framed, signal and recognize the deep transformation that we have undertaken at the bank. BCP has excellent professionals in all business areas, and we are quite confident that the bank is well prepared for the future. Miguel floor is yours.

Now in Page 9, explaining a little bit here the income statement. What you see is a very healthy growth in the NII, growing almost 43% year-on-year, which reflects in a 31% growth of the core income. The operating costs, very contained, in spite of the inflationary environment, growing 5.3%. And here, we have to split the situation in Poland from the situation in Portugal because in Poland, the inflation is higher than 15% right now. And the core operating profit grew 47%. Other income had also very good evolution. As my CEO just explained, mainly reflecting the partnership related to the Millennium Financial Services, which contributed with EUR 127 million. Thereby, the operating net income grew 64%. And then impairment and other provisions, mainly with a very strong increase in the coverage for the Swiss franc loan risk in Poland grew 25%. This then reflected in the growth of more than 100% in terms of income before tax, which after taxes and of course, non-controlling interest, which became more relevant because our Polish operations had a positive net income reflected in the net income of around -- growing around 90.5%. In terms of the main group variables. We see the NIM at a very healthy 3%, which reflects the 2.4% that we see in Portugal, more or less aligned with the NIM in some other European countries and the NIM in Poland reaching almost 5% due to the higher interest rates environment and high inflationary environment that I just commented. The fees and commissions, stable, as we see growing around 1.3%, reflecting on one hand, the growth of 3.8% in Portugal, and some decrease in the international activity, mainly in Poland. Other income reflects the sale of the Millennium Financial Services, which was [ tandem out ] to getting the evolution of the capital ratio in Poland. The other areas in terms of equity and earnings and dividends relatively stable. The net trading income due to the high -- the evolution of the interest rates, relatively a small number when compared with last year. The mandatory contribution is still high at EUR 17.8 million. What I would like to comment is that this is mainly due to the international operations because as you know, the mandatory contributions in Portugal because they are due on Q2, they are reflected in the Q2 numbers, as it happened last year. Operating costs, strong, strong discipline with the cost-to-income reaching 31% in consolidated terms, 29% in Portugal and 33% in the international operations. Here, a strong containment in the different areas where we see that the staff costs grow very slightly in spite of the high inflation and the other administrative costs, more aligned with inflation. Cost of risk. In spite of the environment, the more challenging environment, we were able to decrease the cost of risk to a more normal cost of risk to going from 62 basis points to 56 basis points, of which 53 basis points in Portugal and 63 basis points in the international operations, mostly reflecting the Polish activity. What we see in terms of the other impairment and provisions, we see very clearly a strong increase in the adjustment for the provisioning model in Poland which has to be separated in 2 parts. One part more aligned with what was Q2, the more -- I would say, the more recurring part and some adjustments to the inputs of the model that we did also taking advantage of the strong capital buildup in Poland linked to the insurance deal. So there is EUR 100 million more or less aligned with what was the more normal provision for Swiss franc in previous quarters and the EUR 72 million as communicated by the bank in Poland that was an additional provision to reflect the changes in some of the inputs of the model, mainly the probability of remuneration getting very close to 0%. In terms of credit quality. Very good evolution, as you see, in spite -- in Page 16, in spite of the situation -- of the challenging situation. We see that the past due 90 days ratio. So the real default, the legal default is already close to 1%, so 1.3%. The NPE ratio, including securities and off-balance sheet according to the EBA definition at 2.6%. And if we use only loans, so no securities and no off-balance sheet at 3.8%. Still reducing at EUR 500 million with a 30% reduction, almost 30% reduction year-on-year in Portugal and some stability in the international operations. I will pass the floor now to Bernardo. I'm sorry. I will continue here with the customer funds. Customer funds relatively stable if you include off-balance sheet and on-balance sheet spending growing at 0.8%. Customer funds in Portugal growing 0.5%, but of which on-balance sheet funds growing 5%, which is important considering the present situation. In the total -- in the international operations, what we see is an increase of 1.4%, but excluding the FX impact, the evolution of customer funds in local currency was higher than 2%. The loans reasonably stable with the NPEs reduction being partly compensated by growth in the performing assets in Portugal and some decrease in the international operations also linked to the effort that has been done to optimize the capital ratio levels. In terms of capital, a strong capital buildup going to a level of 13.6% in terms of common equity tier 1, which is more than 4 percentage points above the minimum ratio. And in terms of total capital ratio, the evolution was 18%, which is also 4 percentage points above the minimum ratio already including the O-SII buffer. The leverage ratio continues to be a very healthy leverage ratio at 6.2%. And this, together with a quite high RWA density, which gives us comfort in terms of evolutions of RWA floors and so on. MREL requirements. We are already above the last number that was communicated to us -- formally communicated to us for 1st of January of '24. So we are at 27.7%, whereas this number is 27.3% in terms of TREA. We are executing our funding plan, as you see here. So we are very disciplined in terms of this execution. The last market transaction that we had was the exchange offer in December of '22. In principle, we -- in terms of our funding plan in spite of being already above the requirement we are considering the benchmark issue of senior preferred notes for this year. In terms of liquidity ratio, we are above 200% in spite of repaying totally the TLTRO. We still have eligible assets of EUR 25 billion. So we could have immediate access to liquidity of EUR 25 billion. Just for you to have an idea, this is substantially in excess of all, including term deposits and demand deposits, non-guarantee deposits that we have in our balance sheet. The net loans to deposit ratio is also a very conservative ratio with 74% value. Now I'll pass the floor here to Bernardo.

Good afternoon, ladies and gentlemen. On Page 26, starting with Portugal. Net income increased 59% from EUR 107 million to EUR 171 million. This positive evolution was driven by stronger net operating revenues that went up more than 19% and strict cost management that went up just 2.3% compared with first quarter '22. It should also be noticed the positive contribution to net income arising from the reduction of 22% of credit impairments. On Page 27, there's a detailed information of NII in Portugal. And at the end of the first quarter '23 NII stood at almost EUR 340 million, meaning 60% up year-on-year or EUR 128 million above previous year. The favorable performance of NII in Portugal largely reflects the higher income generated by loan book and the positive impact from the securities portfolio, both resulting from the increase in interest rates. On the other side, the rise in interest rates had an impact on the remuneration of deposits and at the same time, the bank had to support higher costs with its own debt. It should also be noted that NII in Portugal was also influenced by the impact associated with the funding obtained from the ECB through TLTRO recorded in the first quarter of 2022. NIM stood at 244 basis points, 103 basis points higher than 1 year ago and 67 basis points above Q4 '22. Moving to Page 28, which shows the evolution of fees and commissions as well as other income. Banking fees and commissions increased 5.2%, with most significant impacts coming from cards and transfers that grew 27.6%, driven by the increase on transaction ability. Market-related fees reduced to a decrease of 3.4%, and that was influenced by significant maturities of insurance products and the negative impact from financial markets. All in all, fees and commissions went up 3.8% to a level higher than EUR 140 million. Looking to other sources of income. Other operating income provides a small positive contribution on Q1 results that compares with more than EUR 10 million in the first quarter of 2022. Equity accounted earnings contributions stood at EUR 12 million in the first quarter of '23, that compares with EUR 16 million one year ago, and trading gains were much lower than in the first quarter '23 than in the first quarter '22, mainly driven by lower results from sovereign debt trading activity. All in all, other income, including equity accounted earnings, trading and other operating income was much lower than 1 year ago. Going to Page 29, regarding costs. Bank continues to apply a strict policy on cost management and costs grew only 2.3% compared with the first quarter 2022 and at a much lower level than inflation. So with regards to branches, there was a reduction of 13 branches since the first quarter of '22, although it has been stable since last quarter of 2022. Moving to Page 30, which refers to asset quality. And as highlighted over last quarters, there was a significant reduction of NPEs. NPEs were reduced by 28.5%, meaning more than EUR 500 million in just 1 year. In the first quarter of '23, there was a reduction of EUR 82 million, clearly showing that the bank is still committed with the reduction of the NPEs. As you can see on the top left chart, reduction occurred mostly on non-performing loans 90 days past due, that reaches the reduction of EUR 370 million, and that's been the main driver taking in consideration the write-offs for the higher cost of risk compared with peers. NPEs at March '23 stood at EUR 1.28 billion compared with EUR 1.8 billion a year ago. Cost of risk stood at 53 basis points that compares with 68 basis points showing the convergence of the bank to a normalized cost of risk. Now let's move to Page 31, which looks in more detail to NPE coverage. And as you can see, total coverage of NPEs stood at 129%, NPE coverage by loan loss reserves stood at 74%. Total coverage for individuals with high levels of real estate collaterals stood above 100%, and for companies at 136%. Coverage by loan loss reserves on companies at 87% and coverage by real estate collaterals at 47%. If you look at the top right chart coverage of our non-performing loans 90 days past due related with companies, you can see that it stood at the level above 240 basis points. On Page 32, which shows the evolution of foreclosed assets and restructuring funds, there was a strong reduction year-on-year on both of them. net value of foreclosed assets stood at EUR 153 million that compares with EUR 369 million in the first quarter of 2022. Meaning a reduction of more than 58% or if you want, a decrease of EUR 215 million. On the first quarter '23, bank achieved also a reduction in terms of foreclosed assets of more than EUR 30 million. Regarding property sales, there was a significant reduction in the number of transactions compared with the first quarter 2022. And regarding restructuring funds, there was a reduction of 47% year-on-year that was explained in the previous quarter, and it's related with the sale of a significant amount of restructuring funds. Now moving to Page 33. Total customer funds were stable year-on-year at around EUR 67 billion. Off-balance sheet funds decreased more than 12%. And as I said before, it was influenced by market conditions and the significant materials of insurance products. It's worth mentioning the increase of more than 5% on total deposits compared with first quarter 2022. In terms of gross loans, there was a decrease of less than 1%. Loans to companies went down 4%, strongly influenced by the reduction of EUR 500 million of NPEs. Mortgage loans went up 2%, but were not sufficient to compensate the decrease on loans to companies. Going to Page 34, analyzing the evolution of the performing loan book by segment and also the recognition of BCP as the main bank for Portuguese companies. Performing loans in Portugal went up EUR 200 million year-on-year, supported on the growth of mortgage loans of EUR 400 million. It is worth mentioning that as of the end of first quarter '23 guarantees provided by the European Investment Fund and the Portuguese entities represent around 30% of loans to companies. Let me also reinforce the leadership of BCP in SMEs, in the SME program for the fifth consecutive year as well as in the Inovadora COTEC program for the third consecutive year and the recognition as the best bank for companies from Data-E. Now moving to Page 36, representing -- providing some information about international operation. And as mentioned before, results were, again, impacted by specific items related with Bank Millennium. Although it's important to highlight that Bank Millennium registered for the second consecutive quarter, positive results after several quarters with losses. Net income of Bank Millennium stood at EUR 53.6 million, that compares with a loss of EUR 26 million, 1 year ago. Mozambique contribution increased 14% compared with first quarter '22. And it's also worth mentioning that contribution from this international operation has been quite constant over last quarters. In summary, contributions from international operations stood at EUR 44 million, which compares with EUR 5 million, 1 year ago. If we exclude the specific items from Poland, as it was already mentioned, costs related with the FX mortgage and the sale of 80% stake in Millennium Financial Services International, contribution from international operations would have increased 24% to almost EUR 90 million. Moving to Page 37, which refers specifically to Bank Millennium. As you can see, net income in Poland continued to be impacted by costs related with CHF mortgage loans. It is important to highlight in first quarter 2022, Bank Millennium was already profitable after several quarters with losses and in the first quarter of 2023, net income in Poland was aligned with the fourth quarter of 2022 and reached EUR 53.6 million. If we exclude specific items, and as I said, meaning on a comparable basis, Net income would have stood at EUR 143 million in Poland that represents almost 37% more than first quarter 2022. Net operating revenues increased 77%, excluding the impact of credit holidays on NII. Operating costs, excluding mandatory contributions, went up 9.5%. The CET1 and total capital were at the end of first quarter '23 above regulatory requirements and stood at 11% and 14.1%, respectively. It should also be -- also -- it should be also remembered that Bank Millennium was able to bring back capital requirements at the end of '22 and prior to what was initially estimated. On Page 38, some detailed information about Bank Millennium. NII increased 31% to EUR 268 million, that compares to EUR 204 million, 1 year ago. This movement was mainly driven by interest rate hikes since the fourth quarter of 2021. NIM increased from 377 basis points (sic) [ 3.77% ] to 458 basis points (sic) [ 4.58% ] and was slightly lower than in Q4 2022 where it stood at [ 4.63% ]. Fees and commissions decreased 9% year-on-year to EUR 43 million, and other income was strongly impacted by the positive results arising from the sale of 80% of Millennium Financial Services that -- most of this was booked on the trading line. Operating costs, excluding mandatory contributions, increased 9%, but at a much lower pace than inflation. Regulatory contributions were down 50% as Bank Millennium is still under the recovery plan. Moving to Page 39, related with asset quality in Poland and taking in consideration the high level of interest rates and high levels of inflation, cost of risk stood at 63 basis points underlined with Bank Millennium's estimate for this year. Increase on cost of risk was mainly driven by consumer loans. Non-performing loans more than 90 days past due decreased 20 basis points to a level of 2%. Coverage by loan loss reserves of non-performing loans stood at 159%, meaning an increase of 22 percentage points compared with first quarter '22. On Page 40, customer funds grew 2% year-on-year. Off-balance sheet funds decreased significantly due to market conditions and high interest rates on deposits in Poland. In terms of loans to customers, gross book stood at EUR 16.6 billion, less 4% than 1 year ago. But it's also important to highlight the significant decrease of mortgages in foreign currencies, that deducted by provisions, for legal risk, went down 38%. These reductions strongly influenced the decrease of more than EUR 700 million of gross loans compared with last year. On Page 41, regarding FX mortgage portfolio, it's important to start saying that Bank Millennium have continued efforts that has been in place for a long time of reducing the weight of the FX mortgage portfolio. In Q1 '23, there was a reduction of 4% and year-on-year of 16%. At the same time, Bank Millennium increased provisions against legal risk and at the end of March reached an amount higher than EUR 1.2 billion. It's also important to mention that in the first quarter '23, Bank Millennium made an extraordinary adjustment on the provisioning model of EUR 71 million in anticipation of some deterioration of some parameters against legal risk versus the gross mortgage book to close 56% at the end of the first quarter. At the same time, Bank Millennium continued the efforts to reach amicable settlements with clients and even in a smaller number than in previous quarters, Bank Millennium was able to achieve 806 extrajudicial agreements. This slowdown was somehow expected because during last quarters, Bank Millennium was able to close more than 18,000 amicable settlements. The lower number of amicable agreements in this quarter brought lower cost of such settlements, which stood at around EUR 15 million. Now moving to Page 42, with regards to Mozambique. We can say that Mozambique, even under a challenging environment continues to provide an important contribution for the group P&L. Net income increased 13.9%, mainly due to higher net interest income. Net operating revenues increased almost 15% and operating costs were 12.6% higher than 1 year ago. Capital stood at 37.6%, meaning 100 basis points above the level of the end of 2022. Moving to Page 43. NII went up 20% year-on-year to more than EUR 56 million and was influenced by higher interest rates. NIM stood at 9.5% that compares with less than 8% at the end of first quarter '22. Commissions went up 22% to EUR 11 million from EUR 9 million and other income decreased 24%. Costs increased at a lower pace than revenues and cost to income stood at 41%, similar than 1 year ago. Moving to Page 44. 90-days past due below 8%, which compares to 11%, 1 year ago. Coverage by loan loss reserves or non-performing loans 90 days past due above 107% compared with 83%, 1 year ago. And cost of risk stood align with the first quarter of last year. To finalize and regarding volumes on Page 45, you can see that customer funds registered a small reduction and loans to customers increased 9%. And so, let me thank you for your attention. And before we move to Q&A, I will return to Mr. Braganca for some final remarks.

Dear ladies and gentlemen, as we do all the time in every presentation, we aim to show our commitment with the strategic plan that we presented to you in 2021. We show here our progression towards our 2024 target. I want here to highlight that our objective in 2024 is in financial terms to really be the reference bank in terms of what are the excellent financial ratios that we deserve to be, as also an excellent bank that we are in terms of customer franchise and customer service. As you see, we are ahead of the plan in most of the metrics. I would here like to highlight the franchise transformation in terms of share of mobile customers and growth of customers that together with the cost to income and improvement in the quality of the assets is allowing us to generate the ROE that we intend to have. Of course, the ROE in this quarter is not the totally sustainable ROE because -- even because there are some regulatory costs that came in Q2. So we have to take a full year's view. But when we take a look here at the evolution of the common equity tier 1, the healthy ROE that we are presenting, the cost of risk in the current situation, we feel very comfortable that we will meet the 2024 targets and probably most of them, we will be even anticipating their delivery. Thank you very much. I'm ready here for the Q&A.

[Operator Instructions] The questions come from the line of Maks Mishyn from JB Capital.

I have 3 on Portugal. The first one is on NII. Your guidance for 2023 has been low teens and the first quarter results imply upside risks to this figure. And I was wondering if you could update us on your expectations and what kind of quarterly evolution should we expect for 2023? And the second is on loan book growth. Performing loans fell slightly quarter-on-quarter. And I was wondering what are your expectations for loan demand in 2023 per segment in Portugal? And the last one is on other provisions. I was just wondering if you could guide us what to expect for the whole year. Macro scenario for Portugal seems to have been improving? And do you think we could see any releases?

So thank you very much for your questions. Effectively, what is happening in the Portuguese market is that the evolution of the deposit rate has been somewhat slower in the market than what we were initially projecting. So the guidance that we gave for the NII for the full year of the low teens, today is probably too conservative. So the guidance that we are closer today -- to the 20s and to -- value between 20% and 25% growth than to the low teens. Exactly because of these dynamics of the deposit rate that is being more, I would say, inertial than what we were originally anticipating. In terms of the loan book growth, we are expecting the loan book growth to pick somewhat up not least because of the funds from the European resilience program that will then, of course, have a multiply effect in the companies. So what we are here expecting is a growth in most of the segments in Portugal on the low single digits in terms of loan growth. The other provisions, as you correctly point out, have to be seen across the year. There is some volatility in these numbers. We would be expecting values between, I would say, between EUR 80 million and EUR 100 million per year, that's what we -- I would say, a normal scenario. What we have in this quarter was probably in terms of run rate somewhat above it, of course, I'm speaking about numbers related to Portugal. Thank you.

The questions come from Noemi Peruch from Mediobanca.

I have 3. One is a follow-up on NII. What deposit beta are you assuming in your new guidance? If I remember correctly, it was 30% with the previous guidance. My second question is on deposits in Portugal. We see a switch from a deposit to sovereign bond for certificate by customers during the quarter. Do you expect this trend to slow down in the future? And can you give us some color on your strategy on deposit retention. And as we have seen that you have managed to retain more deposits than competitors in Q1. And my last question is on capital deployment. Clearly, you now have a more comfortable capital position with a buffer also on the pension fund. So I was wondering what's your strategy here? Where is your priority? Is it higher dividends, buybacks, M&A picks in Poland maybe, or just increasing your common equity target? Some color here would be very much appreciated.

Thank you very much for your questions, Noemi. Exactly, we have the view of deposit beta of around 30% for term deposits that we would reach quite quickly. So we are maintaining the deposit beta of around 30%, but instead of reaching this beta almost in the beginning of the year, our idea is that this will be much closer to an average beta of the term deposit rate during the year than something that would be reached on the beginning of the year. So the end rate, more or less, the same, but getting to it at a slower pace than what we were originally envisaging. In terms of the deposit and funding strategy. So this has a lot to do with our franchise as a bank. So as a bank, we clearly try to differentiate ourselves through service, through relationships, through cross-selling, through an integrated approach to the customer more than the mono product price-sensitive strategy. And this has allowed us to maintain more deposits than the ones of our customers because we somehow compensated also through service. On top of this, what we try to do is go through the strong commitment of our relationship managers, but also through sophisticated CRM and so on to differentiate the value that we offer to each customer so that it makes sense for both parties. This has allowed us to maintain this view. Another point that, of course, helps us a lot is a very comfortable liquidity situation in which we are, and the fact that we foresaw somehow this evolution of the interest rates already last year. So we create a very strong liquidity buffer last year that allows us to be comfortable and to take the decisions that we have to take during this year. Going forward, exactly given these liquidity question and so on, our view is that we will continue to gain market share. Probably the full system will lose funding to the -- if you want -- to do the national savings products, we expect from now on, to be reasonably at 0. So we are not expecting to grow, but we are expecting to grow market share. In terms of capital deployment, we want to be a reference bank in Europe. Not only in terms of customer service, in terms of franchise, in terms of innovation and in terms of products, but also in terms of financial ratios. So we will present last year -- next year, our new strategic plan. Of course, the capital ratio that we want to have is a capital ratio that is aligned with what other banks in Europe have. So here, we will look at our comparables. And the capital ratio that we will set with which we feel comfortable, will depend a lot in what the market, the investors, our competitors also -- has to be the reference capital ratios for the banking industry. So I think that this is a reasoning that we still have to do as a company and in the appropriate governance bodies. But what I also would like to highlight, independently of the level. What we think right now is that on a steady state, a bank with more than 10% ROE that we probably will be growing RWAs at 4%, 5% a year at most. Should we able to have a payout on a steady state between 40% and 50%. So once we get to the steady capital ratio, that's what we would expect once we get to this level. Exactly what this level will be is a process that we will have to go through. Based on what we think objectively, a bank such as ours that is a pure retail bank that has more than 50% of mortgages, that has a very resilient business model, we think that a capital ratio around 12.5% should be enough. But it's not enough to see what we think, we need to see what investors think. We need to see what equity investors think. We need to see what fixed income investors think. And we need to see where the other banks in Germany, in France, in Spain are.

The questions come from the line of Carlos Peixoto from CaixaBank BPI.

So I actually have 3. So first one would actually be a bit of a follow-up on the previous question, but I was just wondering whether there was any dividend being accrued against common equity tier 1 in the first quarter, and if so, what type of [ growth ] was done? Second question would be more on the ALCO portfolio. So basically, what's the strategy here? Are you comfortable with the current size? I was also wondering whether you could shed some light on the average yield on the portfolio and also -- and yes, the size of potential unrealized losses on the hold-to-collect portfolio? And then finally, the third question would be on the interest rate hedge. Basically if you could update us on the size of the hedge, how much portfolio is covered by it and what type of impact should it have throughout the year?

Okay. And in terms of dividend being accrued, yes, there is a dividend being accrued, but I don't think it is public information or exactly what the size is. So because this was -- this could create here an expectation, there is a dividend being accrued that we think could be a possible decision by the Board of Directors. But I don't think it's public information right now. In terms of the -- of our interest rate management. What we have right now, we manage the bank with basically 2 types of indicators for ALM. We have the margin sensitivity, I'm speaking now about Portugal and then speak about Poland. The margin sensitivity and the EVE sensitivity. In terms of margin sensitivity, what we have is, if there is an immediate shock of 100 basis points up or down in terms of margin, and if we assume a power shock, the impact would be broadly around EUR 100 million in terms of margin. And another indicator that we use is the indicator of the EVE, so the enterprise value sensitivity, which we also use as a level whereby if the interest rate goes up, the equity, so to say, the equity fair value would also go up by around EUR 100 million per -- what's -- 100 basis points of a -- 100 shock. In terms of the different hedges that we use. We use these hedges exactly to model this. What we can tell you is that in terms of the mark-to-market of the -- if we were to do the mark-to-market of our diversified demand deposits, so to say, the mark-to-market of our diversified demand deposits are substantially -- it would be substantially higher in the current interest rate environment, so in terms of EVE than the mark-to-market of our hedges, which as you comment, have to lag -- have a lag that is the -- the lag of the hold-to-collect portfolio and the lag of the cash flow hedge. Then -- and still, I would say, we have these margin sensitivity that I was commenting. In terms of the unrealized, if you want hold-to-collect net losses, if we were to -- they would be around EUR 450 million in terms of net value. And what I would like to highlight is that they are much more than compensated by the increased value of the franchise of the demand deposits. In any case, I would also here like to highlight that the hold-to-collect portfolio is materially lower, materially lower than the value of the uninsured deposits. Our insured deposits around 60% of our deposit base. So we have a deposit of EUR 50 billion. So our uninsured deposits are around EUR 20 billion. So the ALCO portfolio in terms of early on, the part that is fixed rate is around half of it. So in terms of our balance sheet structure, it is very conservative. This is what I can say at the moment. And of course, as you see, our bank is positively exposed to the interest rate movement as we are just seeing because with the present interest rate movement, what I'm commenting is that we will grow probably between 20% and 25% vis-a-vis the margin of last year.

The questions come from Ignacio Ulargui from BNP Paribas Exane.