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

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

Good afternoon, Miguel Maya speaking. Welcome to BCP Earnings Conference Call. As usual, I will mention the highlights of our performance, followed by Miguel Braganca and Bernardo Collaco, who will provide additional detail. The profit of EUR 423 million on the first half of this year was based on a strong operational performance from the activity in our main markets, all having contributed positively, notably in Portugal, where the net income grew 118% and stood at EUR 354 million. The strong increase of the consolidated net income this half was also influenced by some one-offs in Poland to last year's first half and in the first quarter of this year. However, these one-offs were not a determinant factor of our strong performance in this first half. What I would like to underline is the significant improvement on the recurring core operating profit, which stood at EUR 1.2 billion, having increased more than 40%, a figure that highlights the quality of our business model and the increased relevance of our franchise in the main markets where we operate. The core income evolution has been driven by the positive jaws dynamic with NII growing above 28%, combined with a lower increase of operational costs below 9% achieved, thanks to a very rigorous and strict cost management that has been crucial for containing the growth of operational costs in a high inflation environment. Our earnings are still heavily influenced by the legal risks in Poland, costs related with the FX mortgage loans reached EUR 399 million this half, including provisions of EUR 332 million, that already incorporate more conservative assumptions in the provision model, therefore, increasing the FX portfolio coverage to 65%. Moreover, Bank Millennium performance have been showing the resilience of the business model of the bank and the potential of the franchise in the Polish market, having recovered the capital position what was planned. On a consolidated level, our capital position has been improving consistently for some quarters now. Our strong capital build-up has been achieved through a very strict discipline and rigorous implementation of specific measures, such as securitizations, but most importantly, because of our business model proved resilient and capable of steadily generate capital. In the last 12 months, common equity 1 increased 268 basis points and total capital increased 304 basis points, standing at 14% and 18.3%, respectively, having achieved a strong capital position that gives us confidence to successfully steer the bank throughout the still challenging macroeconomic context. Also important in the current context is the fact that our robust capital position is complemented with a strong liquidity situation. We have liquidity indicators clearly above regulatory thresholds and the conservative loan-to-deposit ratio and the high level of eligible assets to discount at ECB in the amount of EUR 24.2 billion. Monetary policy changes were the trigger for a new competitive landscape in deposits in which our relationship-based business model has been standing out. On balance sheet, customer funds grew 2.9% since June last year, stable in Portugal being the increase mainly driven by the activity in Poland. We remain committed with our trajectory of reduction of nonproductive assets. Since June 2022, we have managed to reduce more than EUR 900 million, namely EUR 361 million in NPEs, EUR 162 million in foreclosed assets, and EUR 400 million in restructuring funds. On the first half, we reduced EUR 59 million in foreclosed assets and EUR 76 million in NPEs, continuing the downward trajectory of the NPL ratio, which stood at 3.7% and with nonperforming loans past due for more than 90 days, representing 1.4% of the loan book and less than 40% of the NPEs on the stock. The rigorous management of the balance sheet risks enable us to reduce the cost of risk despite the challenging environment in which we are operating. At the group level, the cost of risk decreased 11 basis points since June during last year, standing at 50 basis points with a significant improvement also in Portugal, where cost of risk came from 69 basis points to 53 basis points. At the group level, our customer base expanded 4% since June 2022, reaching almost 6.6 million, of which nearly 2.7 million in Portal. Most notably, mobile customers grew above 13% during the same period, accounting for 66% of the group's customer base and 55% in Portugal, which is a good indicator of the success of our digital transformation journey. Our digital capabilities are also widely recognized by customers, which make us the bank they must spontaneously nominate as the best digital bank. Customers' recognition of our digital capabilities is also reflected in the use of they make of the app, which has gained increasing relevance as their preferred platform to interact with the bank. On the first half of this year, customers carried out 30% more transactions through the app than on the first half of 2022 with a significant growth in the number of transfers and payments. The number of sales through the mobile app has increased 26% in the same period with the emphasis to cards and saving solutions, which increased 28%. The investment and the 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 of the most relevant platforms. Overall, in this year's first half, we had solid earnings that further strengthened the franchise, the asset quality, the capital ratios and the operational efficiency of the bank. With rigorous planning and bold actions, we have managed to achieve the main targets set out in the strategic plan more than 1 year in advance. We are confident that the options we have taken and the results that we are consistently achieving quarter after quarter, contributing a very positive way to the valuation of the bank, which is evident in the evolution of the share. Miguel, the floor is yours.

Thank you. Thank you very much, ladies and gentlemen. So focusing now on the consolidated income statement, what we can see is that the NII has grown -- at consolidated level has grown 40% -- almost 40%. And the core income, 28.3%, whereas the operating costs that, of course, were influenced by the high inflation environment that is seen mainly in Poland, have grown 8.8%. These very positive jaws made core operating profit increased 40%, which, coupled with some extraordinaries that we have last year and some of them this year, namely the sale of Millennium Financial Services, allowed operating net income to grow almost 70%, 7-0. In terms of the loan impairments, we -- in spite of the challenging macroeconomic environment, we were able to show a decrease of the cost of risk. We have used all these very, very sound operational performance to be additionally prudent in terms of the CHF risk in Poland, namely following the decision by the European Court of Justice that basically pointed to the no remuneration in case of an element of the contracts to the bank. This made it possible to grow our net income that was very, very marginally positive last year to EUR 423 million in the first half of this year. In terms of the group evolution, what we can see is that the net interest margin has grown almost 40% -- 39.5%. I'm sorry, the NII grew 40%. The net interest margin grew from 2.29% to 3.34%, and it has done so in the -- both in Portugal and in our international geographies. In Portugal, we are able to show a NIM above 2.5%, coming already from levels that are quite high and growing 64%. This is not totally, I would say, sustainable in this NIM and reflects the fact that the repricing of the deposits, as I have commented here in the previous quarterly presentation, is following at a slower pace than, of course, the almost immediate repricing of credit that are in excess to the Euribor. As time goes by, we expect this to normalize. In terms of the international prices, we also have seen a positive evolution of the net interest margin when compared with last year so that the NIM grew 20%. In terms of fees and commissions, I would say stability with a small growth in Portugal and the small decrease in the international operations. In terms of other income, a lot of moving parts. First, I would here highlight the strong decrease in terms of regulatory contributions mainly because we had, last year, some extraordinary regulatory contributions in Poland, but also because of the contribution to the European Resolution Fund, and I would say, to some balance sheet management and balance sheet shrinkers that allowed us to decrease our mandatory contributions in the international operations, more than EUR 110 million. And in Portugal, more than EUR 16 million. We -- the net trading income is marginally positive, as we see here in Portugal. It's normal in this low interest rate environment. This net in the -- trading income is ancillary to our business model. So we are not a trading house. So we don't take significant positioning views. And in terms of the equity earnings and dividends that we show here mainly a stability. In terms of costs, cost to income in the low-30s, as you see, both in Portugal and in the international operations with costs growing significantly below inflation in the several geographies. Impairment charges in total, stability, however, with a specific composition, the credit risk impairment charges showing a decrease, which is -- which are more recurrent and which is healthy, relatively to the consideration of our business model. The cost of risk went down in our consolidated accounts from 61 basis points to 50 basis points, and in Portugal, from almost 70 basis points to 53 basis points. On the other hand, as it was already communicated to the market, our provision for the CHF legal risk increased materially in the first half of this year for reasons that I've already commented. In terms of credit quality, I would highlight here our NPE ratios, including the EBA criteria, i.e., all the securities and off-balance sheet criteria and off-balance sheet positions that is already at 2.5%, considering only loans, it's 3.7%. However, in terms of composition, it's, I would say, a better composition than what it used to be in the past because most of our NPEs are not 90 days past due loans, but unlikely to pay loans. So it is -- that are typically healthier than the 90 days past due. If we only consider the 90 days past due, of course, with attached capital, our ratio is only 1.4% at consolidated level, which, for a bank of our size and with our business model, is already an important achievement. Then the NPE stock is continuing to reduce in spite of the challenging environment in which we are in, namely due to the high interest rates. As you see in Portugal, we have been able to reduce EUR 373 million year-on-year and international operations basically stable. In terms of business activity, at consolidated level, we have been focusing more on the income statement and on capital generation. You see here that customer funds have grown year-on-year 1.5%, which, when you compare with what happened with several of our competitors, is clearly accretive from a market share point of view. And in terms of deposits and balance sheet items, which are more stable because they are not affected by the mark-to-market, we have here a growth year-on-year at consolidated level of 3%. In Portugal, what we see is a stability in terms of the deposits year-on-year, which compares very, very favorably with the data from our main competitors that show a decrease. In terms of the total customer funds, international operations, here we show a very, very healthy increase of almost 10%. Loans. As we all know, this more restrictive monetary policy is shrinking the monetary aggregates. So this makes it more difficult and more challenging to grow in healthy loans. What we see in Portugal in terms of year-on-year, we see, I would say, stability. So we see a slight decrease in terms of the performing credit, but it's really not material, EUR 320 million in a portfolio of EUR 40.6 billion and the same in international operations. So the message here is a message of stability. In terms of capital and liquidity, we were able this quarter, once again, to increase substantially our capital ratio so that our common equity Tier 1 reached a level of 14%, which compares very favorably with our Iberian and French counterparts. And I would highlight here the special dynamics, considering that 1 year ago, we were at 11.3%, and we were able to achieve this value without any type of demand to the shareholders. Leverage ratio, as always, very, very positive and quite conservative RWA density that is still influenced by a more, I would say, conservative or by more conservative data that influenced our models due to the economic history of Portugal in the last 10 to 12 years. In terms of MREL, we were communicated a new MREL requirement. We clearly have the present nonbinding MREL requirement that is 24.9%. So we are at 27.9%. In terms of 1 January of '24, we are basically on top of it. So we are marginally below, which is easy to fill the gap only with the result generation. However, as it's here pointed out, in spite of not needing it, we have the intention if the conditions are right to do a senior preferred issue in the second half of this year. In terms of pension fund coverage, I would here highlight that the discount rates of the pension fund came down from 4.17% to 4%, which made, of course, which has a negative impact in terms of the liabilities that grew 3%. At the same time, the fund's profitability grew 3%. So this shows the quality of our ALM strategy within the pension fund, which makes it possible for us to still keep an excess of EUR 568 million that is not considered in our own fund calculations. I mean, we could afford, so to say, to have another shock on the pension fund on the liabilities or the assets of this value without having an impact, so to say, on our capital ratio. This is another side of the coin, if you want, of the reduction of interest rates that we had over the last year. So another side of the coin -- I'm sorry, of the increase in interest rates that we had in last year. So other side of the coin was the reduction of the present value of the liabilities of the pension fund that really constitutes the kind of hidden reserve to absorb possible shocks. Liquidity ratios, after having fully repaid the TLTRO very healthy ratios. The liquidity coverage ratio is at 214%, the net stable funding ratio at 155%. And on top of it, we have eligible assets that we can discount without any stigma, without any problem in excess of EUR 24 billion in Portugal. Just for you to have an idea. So our total deposits are EUR 50 billion. Our demand deposits are 60% of it. So our eligible assets almost cover all our demand deposits. I'll pass now the floor here to my colleague, Bernardo Collaco.

Okay. Thank you, Miguel, and good afternoon, ladies and gentlemen. And starting from Page 26, that related to Portugal. Net income increased 118% from EUR 162 million to EUR 353 million. This positive evolution was driven by stronger net operating revenues that went up more than 30% and strict cost management, allowing cost just to go up 4.4% compared with the first half '22. It should also be noticed the positive contribution to net income arising from the reduction of 24% from credit impairments. On Page 27, which we have a detailed information of NII in Portugal. At the end of the first half '23, NII stood at EUR 707 million, meaning 64% at year-on-year or EUR 277 million above the previous year. The favorable performance of NII in Portugal largely reflects the higher income generated by the loan book and the positive impact from the securities portfolio, both resulting from the current interest rate environment. On the other side, the rise in interest rates had a negative impact on the remuneration of deposits and the higher costs supported by the bank on wholesale funding. Moving to Page 28, which shows the evolution of fees and commissions and other income. Banking fees and commissions have a slight increase of 1.4%, driven mostly by the higher transaction ability over this period and market-related fees were flattish year-on-year. Total fees and commissions were EUR 3 million higher than 1 year ago. Looking to other sources of income. Other operating income went down around EUR 5 million and is mostly explained by the reduction of mandatory contributions to the Single Resolution Fund as well as to the Portuguese Resolution Fund. Equity earnings contribution stood at EUR 28 million in the first half of '23. And trading gains were much lower than in the first half of this year compared with the first half of last year, mainly driven by lower results from sovereign debt trading activity. All in all, other income, including equity accounting earnings trading and other operating income, stood at minus EUR 36 million, which compares to EUR 22 million positive in the first half of '22. Going to Page 29. Regarding costs, bank continues to apply a strict policy in terms of cost management and total cost grew 4.4% compared with the first half '22 and at a much lower level than inflation that was observed during this period. It should also be noticed the nonrecurring cost that includes mainly the compensation for the temporary reduction of the remuneration in the period 2014, 2017, that reached the final reimbursement. So it must be seen as a one-off that will not be repeated. Branches and employees stay at the same level than 1 year ago. Moving to Page 30, which refers to asset quality. And as highlighted before by Miguel, there was a significant reduction of NPEs. NPEs reduced 23%, meaning more than EUR 370 million in 1 year. In the first half '23, there was a reduction of EUR 9 million, including showing that the bank is committed with the continuation of the reduction of the NPEs. As you can see on the top left chart, year-on-year reduction occurred both on nonperforming loans 90 days past due and other NPEs. The NPEs at June 23 stood at EUR 1.26 billion compared with EUR 1.6 billion 1 year ago. Cost of risk stood at 53 basis points, that compares with 69 basis points, showing the convergence of the cost of risk to normalization. Now let's move to Page 31, which looks in more detail to the NPE coverage. And as you can see, total coverage of NPEs stood at 131%. NPE coverage by loan loss reserves stood at 75%, and it should be highlighted that total coverage for individuals with high levels of real estate -- of real estate collaterals stood at 100% and for companies at 142%. Coverage by loan loss reserves on companies at 92% and coverage by real estate collaterals at 48%. If you look at the top right chart, coverage of nonperforming loans 90 days past due related with companies stood at a level above 255%. 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 124 million, that compares with EUR 286 million in the first half of last year, meaning a reduction of more than 56% or a decrease of more than $162 million. On the first half '23, bank achieved a reduction of more than EUR 60 million in terms of foreclosed assets. Regarding property sales, there was a significant reduction in the number of transactions compared with the first half of last year. And so with regards to restructuring funds, there was a reduction of 47% year-on-year. That, as explained before on the previous quarters, it was mostly related with the sale of a private equity entity and the funds that were managed by them, although there was a slight reduction as well on the second quarter of this year. Now moving to Page 33. Total customer funds decreased slightly, driven mostly by the decrease of off-balance sheet funds as balance sheet funds were stable year-on-year. Off-balance sheet funds decreased 11% and still influenced by market conditions and the significant maturities of insurance products. And it's worth mentioning that -- it's worth mentioning the stability of deposits of the Portuguese operation. In terms of gross loans, there was a decrease of 1.7%. Loans to companies went down 4%, and this is somehow influenced by the reduction of EUR 500 million of NPEs. Loans to individuals almost flattish year-on-year. Going to Page 34, analyzing the evolution of the performing loan book in Portugal by segment. And once again, it's also highlighted in this slide, the recognition of BCP as the main bank for Portuguese companies. I should say that performing loans in Portugal went down less than 1%, supported by the stability on loans to individuals. It is worth mentioning that as of the end of the first half of this year, guarantees provided by the European Investment Fund and Portuguese entities represent around 30% of loans to companies. Let me also reinforce the leadership of BCP in this SME program for the 5th consecutive year as well as 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 regarding international operations. And as mentioned before, results were again impacted by specific effects related with Bank Millennium, although it's important to highlight that Bank Millennium registered for the third consecutive year -- for the third consecutive quarter, sorry, positive results after several quarters with losses. Net income of Bank Millennium stood at EUR 77 million that compares with a loss of EUR 56 million 1 year ago. Mozambique contribution more or less at the same level of the first half 2022, and it should also be highlighted the quarterly contribution that have been stable over last quarters. In summary, contributions from international operations stood at EUR 69 million, which compares to EUR 2 million in the first half of last year. In the first half of last year, as you know, it was also registered the impairment of Bank Millennium goodwill that had a negative impact of more than EUR 100 million in the second quarter of '22. Excluding specific effects from Poland, mostly related with costs associated with the FX mortgage portfolio and also excluding the sale of 80% of the stake in Millennium Financial Services, and of course, the goodwill impairment. Contribution from international operations would have stood at 41% higher than 1 year ago. Moving to Page 37, which refers to Bank Millennium. Net income in Poland continued to be impacted by costs related with CHF mortgage loans. And once again, let me also reinforce that this is the third quarter that Bank Millennium had positive results. In the first half of 2023, net income in Poland stood at EUR 77 million, which compares with a loss of EUR 56 million in the first half of last year. And as mentioned before, excluding these effects, the net income, which stood at EUR 313 million, meaning 50% above the previous year on a comparable basis. Net operating revenues increased 43% and operating costs went up -- went 17% down due to lower mandatory contributions that were suspended since the activation of the Recovery Plan in July '22. Operating costs, excluding these mandatory contributions, went up 15%. So with regards to capital in Poland, CET1 and total capital were at the end of the first half of this year above regulatory requirements, and the CET1 stood at 11.7% and total capital ratio at 14.8%. And also -- it should also be remembered that Bank Millennium was able to bring back capital above requirements at the end of last year and prior to what was initially estimated. On Page 38, some detailed information about Bank Millennium, NII increased 21% year-on-year to EUR 561 million, that compares with EUR 462 million 1 year ago. This movement was mainly driven by interest rate hikes since the fourth quarter of 2021. NII was 9% above the first quarter '23. NIM increased from 4.14% to 4.71%, and it has -- and it was 13 basis points above previous quarter. Fees and commissions decreased 5% year-on-year to EUR 87 million, and other was strongly impacted by the positive result arising from the sale of 80% of the Millennium Financial Services that was mostly booked on the trading line. As mentioned before, mandatory contributions in the first half of this year were much lower than last year due to the activation of the Recovery Plan and the one-off registered in the first half of last year related with the Institutional Protection Scheme. Moving to Page 39, related with asset quality in Poland and taking into consideration the high level of interest rates and still high inflation. Cost of risk stood at 45 basis points and at a lower level than it was initially projected by Bank Millennium for this year, taking into consideration market conditions. Nonperforming loans more than 90 days past due steady year-on-year at a level of 2%, and coverage by loan loss reserves of nonperforming loans stood at 159%, meaning an increase of 12 percentage points compared with the first half of '22. On Page 40, customer funds grew almost 5% year-on-year. In terms of loans to customers, gross book stood at EUR 17.3 billion, 6% less than 1 year ago. But it is important to highlight the significant decrease of mortgages in foreign currencies that deducted by provision for legal risk went up -- went down significantly. This reduction, of course, influenced the decrease 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 the efforts to reduce the waste of the FX mortgage portfolio. On a yearly basis, there was a reduction of 15% and 4% quarter-on-quarter. At the same time, Bank Millennium increased provisions against legal risk, and at the end of June, reached an amount higher than EUR 1.37 billion. It is important to mention that, in the first half of this year, Bank Millennium made some extraordinary adjustments on the provisioning model, incorporating a more conservative approach on the model. Most important is that by the combination of creation of these provisions and the decrease of the loan book, Bank Millennium brought the ratio of total provisions against legal risk versus the gross mortgage book to close 65% at the end of June this year. At the same time, Bank Millennium continued the efforts to reach amicable settlements with clients. And in the second quarter of this year, Bank Millennium was able to achieve 924 amicable settlements. Now turning to Page 42, and that's -- and regarding Mozambique, we can say that Mozambique even. And that a challenging environment continues to provide an important contribution for the group. Net income increased 3.3%, mainly due to higher NII. Net operating revenues increased more than 8% and operating costs were 13% higher than 1 year ago. Capital ratio stood at almost 42%. Moving to Page 43. NII went up 13% year-on-year to more than EUR 105 million and was influenced by interest rates. NIM stood at 8.9% that compares with less than 7.8% in June '22. Commissions went up 6% to almost EUR 20 million from EUR 18.5 million and other income decreased 25%. Now moving to Page 44. NPLs 90 days past due stood at 7%, which compares to almost 10% 1 year ago. Coverage by loan as reserves of 90 days past due stood at 117% compared with slightly less than 100% 1 year ago. And cost of risk stood at 153 basis points, which compares with more than 210 basis points 1 year ago. Now as a final slide and regarding volumes, you can see that customer funds registered a reduction and loans to customers an increase of 11%, although the level of the total loan to customers, it's about slightly more than EUR 700 million. And so I will thank you very much for your attention. And before we move to Q&A, I will return to Mr. Braganca for some final remarks.

Thank you very much, ladies and gentlemen. As always, I present here exactly where we stand vis-a-vis the strategic plan that we presented to the market 3 years ago, 3.5 years ago. And as it's clear, the target that we have set for 2024 are basically already met. This shows the very strong franchise and execution capability of the bank, and we really would like here to highlight that, on top of meeting these targets, the bank now is in a materially different position than where it was 10 years ago. What always made BCP different is the strength of its franchise, the customer relationships, and the ability to generate value for customers, employees, and shareholders. However, this very strong flow of value creation was being absorbed during many years, effectively to improve the financial situation of the bank and to improve the balance sheet of the bank. Once we get to a normalized status, and our plan was to get there in 2024, we are basically there. Now what we see is that this capability that the bank has of generating pre-provisioning profit and recurrent results is showing already in terms of capital creation in terms of net income generation. This is a quantum change -- a quantum leap change in what BCP is, and we expect this to continue for the future for the benefit of our employees, our clients, but also our shareholders. Thank you very much. We open the floor to Q&A. Thank you.

[Operator Instructions] We will take our first question. Your first question comes from the line of Ignacio Ulargui from BNP Paribas Exane.

This is Ignacio Ulargui from BNP Paribas Exane. Just have a couple of questions. I mean, the first one is on NII. Absolutely strong performance that you have delivered so far in the first half of '23 at a group level. What kind of expectations can we have for Portugal, particularly in Poland for '23 and if you feel comfortable as well for 2024? The second question is, while were saying at the end in terms of the ROE, the bank has achieved so far is 16.8%, have a target of the year around 10%. You have said during the call that NII has been very strong. But as deposits remuneration goes up, that will fade a bit. What kind of level of profitability you think BCP can deliver in the medium-term long run with the current level of rates? And a final small question. When should we expect Bank Millennium to exit the Recovery Plan status? Just trying to understand when all the contributions could come up.

I'm sorry, Ignacio, I have not fully understood your questions. Okay. So thank you very much. Thank you very much. So in terms of the NII for Portugal and Poland, starting with Poland. Poland, right now, is in a very complex moment with, I would say, high volatility and high uncertainty about the future evolution of interest rates. And this affects the bank very materially. And of course, as you know, in Poland, we also have a listed bank. So we have to be very careful in terms of the management of expectations there. What we can say and your expectation in terms of future interest rates is similar to ours. But what we can say is the sensitivity of the NII to interest rate movements that is quite low, that is that, even if interest rates go down by 100 basis points, the Polish NII goes down by 2%. So now it depends exactly on what is your expectation of the future evolution of interest rates. And here, the volatility is particularly high and the uncertainties particularly high, but I will not go further into it. In terms of Portugal, we are speaking about the Eurozone interest rates, there is also some uncertainty, but I would not say that the current uncertainty is out of normal, and we feel more comfortable in terms of giving guidance. And we have been quite conservative, as you know, in terms of giving guidance in terms of how fast would the market converge to a more normal level. We expect the market to converge to a more normal NIM in 2024. And for 2024 -- so 2024 vis-a-vis 2022, we expect to have a growth of low 30s, low 30s for the margin of 2024 vis-a-vis the margin of 2022 based on the current forward rate curve. This year, we expect the margin, the NII to be above that because of these different speeds at which the deposit rates for customers and the asset rates have moved. And this year, we are reviewing our expectation from the last value that we have given you to a value that is on the high 30s, so vis-a-vis last year. So comparing with '22, this year, we would expect, based on the current information, to have a growth of the NII on the high 30s. And then '24, not vis-a-vis '23, but also vis-a-vis '22, we would be seeing on the low 30s, which we will then see as a normal level from which we will then grow more or less in line with the credit growth, which we expect to be low-single-digit from '24 on. And in terms of the profitability, we feel very comfortable that after, I would say, the Swiss franc saga, so to say, we will have an ROE in the mid-teens after everything that has to do with Swiss francs has been digested. So we feel very comfortable with that. In terms of forecasting exactly when it will occur, it depends on how we anticipate and whether these provisions are more or less anticipated. So it is difficult to say what will be the specific ROE in any quarter until we reach, so to say, this steady-state scenario. But I would say in steady state, which in any case, I would expect to be there by mid-'25 and '25 at least. We expect clearly to be on the mid-teens or above, okay? We will be presenting to the market a new strategic plan with new strategic objectives once this plan ends actually a little bit before. So in this context, we will also be presenting new ROE targets, which will, I can say, surely be above these targets and new targets also in terms of the other variables that you see here. In terms of the Recovery Plan, this is still being analyzed exactly when we will exit the Recovery Plan. We are discussing this with the authorities. In any case, we would expect it not to be this year. So in any case, it will be next year exactly in which quarter of next year or whether it be exactly at the beginning is something that will have to be negotiated with the authorities. Of course, once we are in a Recovery Plan and which -- and once we took, so to say, the hit of being in a Recovery Plan, we are also benefiting from these savings in terms of the cost that you have referred. So we are not particularly in a hurry, so to say.

The next question comes from the line of Maks Mishyn from JB Capital.

I have 3. The first one is on the outlook for loan book growth. In the second quarter, the growth in corporate loans in Portugal have been somewhat weaker than expected. And I was wondering if you expect this to reverse and whether you reiterate the guidance of low single-digit growth for 2023? Then the second question is a clarification. I was just wondering why the tax expense in Portugal was lower than expected in the quarter? And what should we think of for the rest of the year? And then the last one, apologies for coming back on this, but I just wanted to ask you about capital. It keeps on growing. You have a 150-basis-point buffer over your medium-term target, which is around EUR 600 million. How can we think of potential ways you will deploy this capital? And when should we expect some news on the deployment?

Thank you very much for your question. In terms of loan book growth, effectively, the loan book, mainly on the corporate side, is not growing at the speed at which you were initially expecting. This has a lot of causes. One of them is that the European funds that were expected to come into the country and have, I would say, a multiplying effect in the investment of several companies are not having this multiplying effect at the speed at which we were expecting, so to say. Another fact is that we were extremely successful in some of the special lines and some of the COVID lines with government guarantees. Some of these companies took the lines without actually needing them so much. So they are repaying, they took them for caution -- for precautionary motive. So they are repaying this. And as we have a higher market share at the time, we are probably having a disproportionate impact in our case. We think that year-on-year, probably this year, the less biased, I would say, estimate would be probably 0, but it may still be low-single-digit, maybe low-single-digit growth, but it would be close to 0, I would say, except if there is some acceleration. In terms of tax expenses, the tax expenses depend a lot on a quarter on which expenses are booked and mainly which impairments and which provisions are booked in this specific quarter and whether these expenses are considered deductible or not. What happens sometimes is that when you have a provision that's not considered deductible for a certain reason, but then it becomes deductible, so to say. You have a provision for some assets that when you do the provision, it's not deductible, but when you sell the asset, the capital loss is actually deductible. These transfers from a provision to a capital loss, of course, create here some volatility, I would say, on a quarter-by-quarter basis in terms of the tax rate. But I would say, across the year, I think that having 31% to 33% tax rate in Portugal makes sense because this is the normal rate. Of course, you'll have some -- you may have there some timing differences that then influence the bank, so to say. In terms of the capital and how it grows and so on. Of course, this is a good problem to have this. And of course, we are very proud of having achieved, in such a short period of time, a 14% ratio probably. This was one of the fastest capital accretion situations that you've seen in the last year, and it was done with a lot of work from all the team. Looking forward, as we have commented here several times, we want to be seen as a reference, investment-grade bank in Europe. So a lot of our target capital ratio, and this capital ratio was fixed as a target 3 years ago. So we have not changed the target. But actually, what we want really to be is be investment-grade, which we are already by 2 of the rating agencies, but not by all, but want to be by all to give confidence for our equity, but also for our bond investors. And to have a capital ratio that's appropriate to it, and fortunately or unfortunately, this is, to a large extent, also relative. So it will depend on when we will communicate to the market our target ratio within the context of the new strategic plan. We will look at our competitors, we look at the market, and we will fix a new capital ratio. My personal view, but that it's quite irrelevant in this situation is that probably the banks in Europe are having capital ratios that are well in excess of the risks that they have. But this is not what the market is saying. So the market is actually demanding this type of capital ratios and higher capital ratios from the banks. So I would not take a lot of focus on this target that was fixed 3 years ago. I would put our focus in what is the capital ratios of banks that are investment-grade with -- that are considered excellent within the European context. And most probably, this will be -- of course, this will be discussed with the Board and so on. But most probably, this will be our new capital ratio. Then looking forward we think we will be able to -- if we have an ROE on mid -- once we get to an ROE of mid-teens, so to say. And we find opportunities to grow risk-weighted assets between 5% and 6%, let's say, it is reasonable to expect that we will have a payout that will allow our capital ratio then to be constant. So it is reasonable to expect to have a payout around the type of payout that we see in other excellent European banks. That is, I would say, around 50%, but this is something that we will communicate to the market. And it will be -- in a steady state, it will be something that will be then agreed by the Board. This will be presented to the market. What I can tell you as a general guideline is that our benchmark are the best banks in Europe in all of these dimensions. And we think that by being close to this benchmark, we will be able also to remunerate the investors with dividend in an appropriate way.

Your next question comes from the line of Noemi Peruch from Mediobanca.

I have a few on NII and a follow-up on capital. So I assume, let's say, 40% increase in NII this year, this kind of implies a 12% decline in H2 vis-a-vis H1, which looks harsh. So could you please share with us your assumptions in terms of deposit beta and rate within this guidance? And also, what is the deposit beta in Q2? And then I would like to ask you about your -- what you're seeing and also what you expect in the deposit market. How do you see competition behaving? And are you seeing customers still moving funds into govies? Or are you seeing a higher demand for term deposits. And when it comes to capital, I would like to ask you if you could share with us the payout you are incurring in the first half of the year? And when do you see the payout to move into the benchmark level? Could be this year already as you have already, let's say, achieved a normalized status.

Okay. Okay. Okay. Starting with the payout. As I commented here in our last conference, when we presented the plan to the market, we said that 2024 would be, I would say, the steady state year. And relatively to 2024, we would expect them to have, I would say, a more normalized payout. And I also said that this year is a transition year, so 2023. So the dividend is a year to go exactly to this new normal. This is what I can say at the moment. Whether this year goes so well, so well that we can accelerate and whether we will stay exactly within the normalized level and the last level that we have here interest rates, I think it's too early to say. And I don't think also that, from a valuation standpoint, this is particularly important whether the dividend in one specific year will be very, very different. This is clearly a consensual decision. It's something that will be taken -- a decision that will be taken at the Board with several, several inputs. And I don't think it's correct from my side to try to anticipate this decision right now. But what I can tell you is that I would almost say there will be some dividend this year, important. And this dividend will be probably between the dividend that we had last time that was a low payout and the 40%. Exactly where it will be in this interval, I think it's going to be something that will be decided at the appropriate forum, I don't want to anticipate. In terms of the deposit beta, effectively, what we are seeing right now is that the deposits are having more dynamics, I would say, in terms of their remuneration, mainly the term deposits. What is implicit in our assumption is to get to the end of the year with -- to a beta of 40% by the end of the year for time deposits and for total deposits around 20%. If we do the numbers this way, you will get -- I mean, the 40% and the decrease of 12%, it's what you are saying. So I said high-30s this year and low-30s last year. And the difference between high-30s and low-30s, I mean, can be very different from the value that you are -- it's between 40% and 30%, so to say. So I said high-30s this year, low-30s next year. Exactly where we will stand, of course, it will depend on these dynamics. What we clearly are seeing is more competitiveness in terms of the time deposits as expected because it's normal that Portugal converges in this issue as well as in other issues, to what you see in other countries of Europe. So we are [ converging ] countries in many dimensions. If you do this with these details, you will get more or less to this type of numbers that we are saying. Of course, I would here highlight -- to highlight, we are not pushing hard for an increase in remuneration at system level, we are not starting any type of deposit war. So we do what we have to do. We are competitive. We want to preserve our clients and preserve long-standing relationships with our clients. We try to compete more through service and generate through our service and through a series of other products, the client loyalty. But of course, we have to offer balanced and good products to our clients also.

And could you please share the starting point of deposit beta in Q2?

Right now, this is not public information, okay?