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 2024 Earnings Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Miguel Maya, Vice Chairman and CEO. Please go ahead.

Good afternoon, Miguel Maya speaking. Welcome to BCP earnings conference call. As usually, I will mention the highlights of our performance, and then Miguel Braganca and [ Bernard ] Collaco will follow providing additional detail. This quarter, our net income went up more than 8% when compared with last year's first quarter, having surpassed EUR 234 million and confirming once again the quality of our franchise. Careful margin and cost management allowed us to achieve a sound core operating profit of more than EUR 584 million. The activity in all our 3 core markets contributed to this performance, notably in Portugal, where net income went up more than 18%, having reached almost EUR 204 million, supported by the leading position of BCP in multiple business fronts and confirming the profitability and efficiency of our business model. In Mozambique, Millennium bim is showing a steady profit level quarter after quarter, having achieved a net profit of EUR 23 million despite being influenced by the significant increase in the cash reserves maintained with the Central Bank. In Poland, Bank Millennium recorded its sixth consecutive positive quarter with a net income of almost EUR 30 million despite still effect by relevant costs related with legal risks of FX mortgage, which had a negative impact of EUR 191 million, of which EUR 117 million in provisions. The adjusted net income of Bank Millennium, excluding FX mortgage related effects, grew more than 6% year-on-year, supported on expanding business volumes, corporate stability and the strong NII, confirming the quality of our franchise. Still in Poland, we are prepared for implementing the credit holidays recently approved, whose impact estimated in the range between EUR 47 million to EUR 57 million, will be booked in the second quarter. The estimated value fits in what we have forecast for 2024. These quarter results confirmed the strong ability of our business model to generate organic capital, which has allowed for a substantial increase in our capital position. We have a strong capital ratios with the common equity tier 1 at 16% and total capital at 20.5%, having increased 246 basis points and 255 basis points, respectively, compared to the first quarter of last year. The quality of our retail banking business model supported on strong relationships with our customers led to an increase of 7% in customer funds year-on-year and is prevailing in a challenging competitive landscape for deposits on balance sheet customer funds grew -- our funds grew 7.5%, having grown up 12% in Poland. We also kept our trajectory of improvement of the quality of the balance sheet. Since March '23, we have managed to cut operative assets by additional EUR 326 million, including EUR 223 million in NPEs, EUR 60 million in foreclosed assets and EUR 43 million in restructuring funds. The NPE ratio stood at 3.4% and NPE cash coverage is above 81% and 121%, if considering real estate collaterals. The rigorous management of the balance sheet risks enable us to keep a controlled cost of risk despite the challenging environment in which we are operating. At group level, the cost of risk decreased 4 basis points since March '23, reaching 52 basis points with a reduction of 5 basis points in Portugal and 4 basis points in international activity. Overall, this was another quarter in which we further strengthen the franchise, the asset quality, the capital ratios and the operational efficiency of the Bank. In the symbiosis between excellent teams and distinctive digital competencies lies the backbone of our competitive edge. Individuals and corporate clients continue to choose Millennium as their preferred bank and our services were again awarded with prestigious distinctions recognized by the market. At group level, our customer base expanded 3% in the last 12 months, reaching EUR 6.7 million, of which more than EUR 2.7 million in Portugal. Most notably, mobile customers grew 11% during the same period, accounting for 69% of the group's customer base and 60% in Portugal, being a very good indicator of the success of BCP digital transformation. Customer recognition of our digital capabilities continues to be reflected in the use they make of our app. This quarter, customers carried out 70% more transactions through the app than on the same period last year with a significant growth in the number of transfers and payments. The number of sales through mobile has increased 63% in the same period with emphasis to savings solutions, which increased 55% and to the sale of personal loans, which increased 20%. The investment and priority we give to mobile solutions with a clear focus on customer-centric innovation means that our hub continues to lead the rankings and reserve top reviews on the most relevant platforms. We closed the first quarter of 2024 with a strong commercial and finish outperformance in our 3 core markets, namely Portugal, Poland and Mozambique, despite the context in any of these geographies have remained quite challenging. The evolution of BCP's share value has also been positive. And as a result of the journey undertaken, it reflects the bank's ability to generate a relevant return on invested capital. The growth of the customer base and their satisfaction indicators, both with the branch teams and mobile give us confidence and has to be optimistic about the future. Miguel, the floor is yours.

Thank you very much, ladies and gentlemen. Here you see in Page 8 the presentation of our income statement, showing a growth of net income of [ 8.4% ]. This growth is explained by some improvement at the level of the core income that increased 3.8% and a strong increase in operating costs, explained basically by the inflation in Poland. I would like to highlight, as you may know, that Poland has increased the minimum salary around 20%. As you see, in Portugal this increase was much more contained and aligned with the growth of the business. The core operating profit decreased so marginally around 1%. An important impact that we had last year was the sale of our insurance brokerage company, the Millennium Financial Services, that, of course, we do not have this year, and this is what explains the negative evolution of the operating net income because exactly of this extraordinary movement. In the same -- by the same token, as we are seeing a normalization at the level of the NIM, we are also seeing in different geographies a normalization of our loans impairment as a provision. So we are seeing a progressive decrease in the cost of credit. And at the level of Poland, we decreased also the need of the provision for CHF mortgages. As I commented last time, we are expecting this year to have a lower albeit substantial charge for provisions for CHF mortgage risk. The conjunction of all these effects together with a lower tax base partially explained, or largely explained by the possibility to deduct some of the CHF costs in Poland explains the evolution of our net income of 8.4% based on a year that was a very good year. So '23 was a very good year, as we all know, and we are being able to have a '24 that is even above the '23. The net interest margin, still as we see clearly about 3%, going from 3.25% to 3.12% and enabling us to show a growth of the NII of a very good '23, still growing around 5%. In Portugal, compared with the Q1 of last year, we are having a stability of the NII at the level of EUR 339 million, and the net interest income -- net interest margins still also above 2%, which is, I would say, over the cycle, good value to have in a mature market. When compared with the last quarter, this decrease is higher, and this is largely explained by the fact that the cost of the deposits and subsequent impact on margin increased substantially in the last quarter of last year, with a higher impact in the first quarter of this year. This impact was clearly already anticipated. As I commented in my last presentation, we are expecting mid- to high single-digit decrease of the margin in Portugal. We are confirming this view here. And what we also can say is that presently we are already seeing in terms of the front book of deposits the decrease in the deposit cost. Our deposit -- our customer deposit costs, including term deposits and demand deposits right now has a value in terms of stock of around 1%, and the front book is already decreasing. In terms of -- another important impact we've seen of our margin evolution is the fact that it has -- we have been very disciplined in terms of credit, in terms of credit concession, in terms of pricing of credit. This has translated in a good evolution in terms of RWAs, in terms of capital. But of course, the other side of the coin of this discipline in terms of credit is a somewhat negative impact in terms of margin. In terms of international operations, we see here a very -- still a very high net interest margin, both in Poland and in Mozambique, around 4.57% and the margin growing around 10%. Fees and commission stability with 2 types, I would say, here, everything that is related to market-related fees and commissions is growing both in Portugal and internationally. As you know, the asset management fees this year due to the performance of the market has been more beneficial than the year before. The daily banking fees and other day-to-day banking fees also because there is some trade-off between these fees and the demand deposits and the acquisition of clients of daily banking is showing a slight decrease. But all in all, a stability of fees and commissions. The other income in Page 12, as you see, shows the fact that we had last year this capital generation deal of the sale of Millennium Financial Services that was responsible for an impact of around EUR 127 million in terms of other income, in terms of trading gains. This year, of course, we do not have this impact. And so this explains most of the situation. Operating costs, as I had anticipated, this is a number that has to be analyzed carefully. As we see in Page 13, most of the increase comes from Poland that is increasing the cost base above 20%. And I have commented for 2 years in a row, the minimum salaries have grown -- the minimum -- the official legal minimum salaries have grown in 1 year, 20%, in another year, 19%. The salary inflation -- the average salary inflation in Poland is -- the last numbers I've seen was around 13%. But the economy is performing very well. And also, this is having also positive impact in terms of the cost of credit. In Portugal, from a low base what we see is an increase of 5.5%, which shows some contention, especially considering the inflation rate that we have in Europe. And a cost-to-income in the low 30s, which is, in absolute terms, I would say, that compares well with most European banks. Cost of risk, a positive evolution. In Portugal, below 50 basis points. I think this is a trend to continue. As I had anticipated for this year, we are expecting a normalization both of the NIM and of the cost of risk, so that in Portugal we are expecting, one to broadly, broadly in terms of large numbers, the cost of risk together with other provisions to compensate each other. And we are showing a cost of risk below 48 basis points in Portugal. In the international operation, it's somewhat higher cost of risk. And here, I would like to highlight the very profitable unsecured personal loans business in Poland that is very, very profitable with spreads that are a multiple of these 59 basis points. But of course, the cost of risk in unsecured personal loans is higher than in mortgages as we used to have in Poland. A continued decrease of NPE, as we see in Page 15, Portuguese is already below 3% in terms of the loans NPE ratio. And in terms of the total NPE ratio, i.e., considering non-balance sheet exposures -- balance sheet exposures and the portfolio of that is already at 2%. In the international operations, also this last ratio is also already at 2.4%. Still, in spite of these low numbers, we are still being able to reduce further our NPEs, while maintaining high coverage. As we see here, the total coverage around 123% -- 122%. The business activity, very, very healthy. We see here in terms of total customer funds growing 7%, where here, once again, the international operations showed a very important number of around 22%, but also in Portugal, a growth of 1.5% in spite of a very disciplined -- a very, very disciplined pricing of deposits. Of course, the issue of the pricing of deposits at the end of the day, because we are very much a daily banking franchise and the bank where most of our business comes from the liability side of the balance sheet, so we have a loan-to-deposit below 70% in Portugal. What we see is that the margin compression in deposits affects us more than banks that are more credit-based. Loan portfolio. In the international operations, a very healthy growth of the loan portfolio, around EUR 1 billion. In Portugal a decrease of EUR 1.3 billion. This is, as I was commenting, a tale of 2 sides, so to say. We are being very disciplined in terms of the credit. We always analyze the credit vis-a-vis alternative investments in terms of government debt or publicly traded securities with lower risk. So that's -- I mean, we price the credit accordingly, and always keeping in mind the economic result of the deal. This is having a very positive impact in terms of our capital as we see. Of course, this all sometimes means that we'll have to do some deals that do not make as much sense from a value-generation perspective. And this is basically the positive sign of this high discipline that we are showing. So the bank was able to grow substantially its common equity 1, as we see here of around 16% -- to around 16%, comparing with the last value, I would here like to highlight here 3 points, I would say. On one hand, we did a securitization that is responsible for capital generation of 16 basis points, and the remaining part of the capital accretion compared with the end of last year, around 40 basis points has to be separated in 2, I would say. Half --roughly half of the 40 basis points is linked exactly to the RWA decrease that, to some extent, is also linked to this credit discipline. So from the 40 basis points, 20 is around -- is, so to say, linked to lower RWAs in our balance sheet, and the other 20 have to do with our results generation and capital -- organic capital accretion. This 20 basis points of capital accretion after as we have already commented publicly that we are accruing a 50% payout ratio. So this 20% capital accretion -- this 20 basis points capital accretion means effectively 40 basis points pre-dividend is, so to say, to some extent, the new normal across the year. There is some seasonality along the different quarters. But I would say the new normal would be very close to around 20 basis points capital accretion per quarter, absent special extraordinary deals, 20 basis points after the deduction of the 50% of payout. Leverage ratio, very, very favorable. As you know, we have conservative model. So this means that for the same capital ratio, our leverage ratio is stronger than our comparables. And our RWA density still quite high, being still somewhat penalized by the history and by the long-term series that affect our PDs and LGDs. MREL, clearly above MREL. We want to maintain our relationship with the market. So we will continue to access the markets as long as they are there to maintain our relationship with investors. But in principle, right now, as you see, we are in a very, very comfortable situation and we don't need to. Liquidity ratios, it's not, I would say, a restriction. As you see an LCR of around 300% and the net stable funding ratio of 172%. So we are very comfortable in the situation. I would say what constrains more our credit activity is neither the capital nor the liquidity, is the capital discipline, and this is something that probably will be maintained for some time. I will pass now the floor here to Bernardo.

Thank you, Miguel, and good afternoon, ladies and gentlemen. So I'm starting on Page 25. Net income in the activity in Portugal amounted to EUR 203 million in the first quarter of 2024. That means that it stood 18.4%, above the EUR 172 million achieved in the same quarter of last year. This evolution of net income in the activity in Portugal benefited from the stability of net operating income, revenues, cost discipline and by the reduction of impairments and provisions. On Page 26, looking to NII in Portugal, net interest income stood at EUR 339 million, remaining in line with the amount that was recorded in the first quarter of the previous year. And this evolution, as we always try to explain, resulted from different dynamics. In one end, NII benefited from the higher income generated by the customer loan portfolio and from the positive impact arising from the active management of the securities portfolio. And on the other hand, there was an increase in the costs associated with the remuneration of deposits and costs also incurred with the issuance that we have done at the year-end of last year. Net interest margin decreased from 2.44% in the first quarter of 2023 to 2.34% at the end of March 2024. And as Miguel mentioned, quite above the 2.2%. 0Moving to Page 27. Total fees and commissions stood at EUR 141 million in the first quarter of 2024, remaining in line with the amount that was recorded in the same period of last year. The drop of EUR 3.3 million that was recorded in banking commissions was almost offset by the increase of market-related commissions. Net trading income with a negative amount of EUR 4.3 million in the first quarter of this year, that compares with EUR 10.2 million that was posted in the same period of last year, and it's mainly explained by some mark-to-market of some hedging activity. Other net operating income increased from EUR 1.7 million in the first quarter of 2023 to almost EUR 7 million in the first quarter of 2024. Going to Page 28. That's regarding cost. Miguel already provided some details on that. But it's also important to reinforce that the bank is continuing applying a strict policy in terms of cost management and the increase of 5.5% on operating cost was mostly determined by a growth of 7.5% recorded non-staff costs and by the increase of 4.5% on admin costs. Depreciations were stable year-on-year. The number of employees broadly stable, and there was a decrease of 9 branches within this period. Moving to Page 29, which refers to asset quality. The NPE stood at a level below EUR 1.1 billion at the end of March, showing a reduction of EUR 192 million compared with the first quarter of last year. Taking in consideration the continued efforts to reduce the NPEs, I should highlight that the NPE ratio as a percentage of total credit portfolio evolved from 3.2% to 2.8% at the end of March 2024. Cost of risk also evolved favorably from 53 basis points to 48 basis points and below the 54 basis points that was registered at the end of last year. Now let's move to Page 30, which looks at the NPE coverage breakdown. And as you can see, total coverage of NPE stood at 142%, and the NPE coverage by loan loss reserves at 89%. Coverage by loan loss reserves, of course, as I always mentioned, strongly in loans to companies, where real estate collateral usually more liquid and which a more predictable market value accounts for a lower coverage than in loans to individuals. So coverage by loan loss reserves was at EUR 121 million for companies at the end of March 2024. On Page 31, which shows the evolution of foreclosed assets and corporate restructuring funds. And as highlighted on previous quarters, there was a significant reduction. Net value of foreclosed assets stood below EUR 100 million. That compares with EUR 153 million 1 year ago, meaning a reduction of 39%. And just to remind you that at the end of December 2022, the foreclosed assets amounted to EUR 262 million. Regarding property sales, I mean, there was a relevant reduction in the previous years, although in [ 20 ] -- in the first quarter of this year, there was only 11 properties that were sold and -- 93 properties that were sold. But also, I should highlight that the sale value was higher than the book value. Now moving to Page 32. Total customer funds reached almost EUR 68 billion in March 2024, which compares with EUR 67 billion recorded on the same date in the previous year. And this evolution is justified by the positive evolution of on-balance sheet customer funds, and more specifically, due to the increase on deposits that went up almost EUR 900 million. Loans to customers stood at EUR 38.4 billion as of March 2024, below EUR 39.9 billion recorded in the first quarter of 2023. And the decrease in loans to customers results from a lower level of credit performing that was somehow associated with the decrease of credit lines that were provided to companies under COVID schemes and also from somehow some reductions in terms of nonperforming exposures. Going to Page 33, which shows the evolution of performing loan book in Portugal. Loans to individuals stood at EUR 21 billion, which is slightly above the amount recorded 1 year ago. If we look by segments, there was an increase in personal loans of almost EUR 200 million and a slight reduction in mortgage loans, around EUR 75 million due to the increase of amortization and direct repayments that were registered in 2023. Loans to companies amounted to EUR 16.5 billion at the end of March 2024, standing below EUR 17.9 billion recorded in the same period of previous year and is justified, as I mentioned before, for several reasons. And I should also highlight that the high level of interest rates also affect the increase on the performing loans to companies. Now moving to Page 35. So we are moving to international operations. Results on international operations were still impacted by the effects related with Bank Millennium, although it is important to highlight once again that Bank Millennium registered the sixth consecutive quarter with positive results. Net income of Bank Millennium stood at EUR 29.7 million. That compares with EUR 58 million 1 year ago, but it should be noticed that on the first quarter of 2023, Bank Millennium booked an extraordinary gain related with the sale of the Millennium Financial of -- 80% of the Millennium Financial Services. Mozambique provided a positive contribution of EUR 22.6 million. So in total, contributions from international operations after impacts from discontinued operations and noncontrolling interest stood at EUR 30.8 million, which compares to EUR 44 million in the first quarter of 2023. Once again, let -- and looking at the right-side chart, excluding specific effects from Poland, as mentioned before, costs related with FX mortgage and the sale of the 80% of the stake in Millennium Financial Services, total contributions from international operations stood 11% above results achieved 1 year ago. Moving to Page 36, which refers to Bank Millennium itself. Net income continued to be impacted by costs related with CHF mortgage. And as mentioned before, net income stood at EUR 29.6 million, which compares with EUR 58 million. Excluding specific effects, net income grew 6.3% compared with the previous year. Net operating revenues with a decrease of 31% and once again explained by the one-off related with the sale of 80% of Millennium Financial Services. Costs, as Miguel highlighted, went up, and total costs went up 14.7%, and this was mainly influenced by the strong wage inflation that was registered in Poland last year and also this year. CET1 ratio and total capital improved significantly and stood at 14.9% and 18%, respectively, and comfortable above the minimum requirements of 8.1% and 12.2%. On Page 37, some additional detailed information about Bank Millennium. NII increased 7.3% to EUR 313 million, that compares to EUR 292 million 1 year ago, and let me also highlight above the fourth quarter of last year. NIM stood at 4.36%, that compares with 4.58% in March 2023. Fees and commissions were stable and other income was strongly, as mentioned before, impacted by the sale of Millennium Financial Services. Total costs, excluding mandatory contributions, went up 14.7%. And as I mentioned before, this was mostly influenced by an increase of almost 18% on staff costs. Mandatory contributions that were booked by Bank Millennium already this year decreased from EUR 19 million in March 2023 to EUR 14.6 million in March 2024. Moving to Page 38, related with asset quality in Poland and should be also taking in consideration the high level of interest rates. Cost of risk stood at 63 basis points, same level as the first quarter of 2023, but it should not be seen as the current level for 2024, as Miguel has already mentioned on their earnings presentation. Nonperforming loans more than 90 days past due stood at 2.2%, which is slightly above the 2% registered 1 year ago. Coverage by loan loss reserves of nonperforming loans stood at 156%. On Page 39, and still in Poland, customer funds grew 13% year-on-year. Off-balance sheet grew 30% and total deposits grew 12%. In terms of loans to customers, gross book stood at EUR 17.7 billion, less 1.8% than the first quarter of 2023, and this reduction is mainly explained by the decrease of the CHF mortgage portfolio and also by some decrease on corporate loans due to the strict capital management policy that was in place by Bank Millennium during last year. On Page 40, regarding FX mortgage portfolio. It's important to start saying that there was, once again, a significant reduction of the CHF mortgage loan book and this was 16% on a yearly basis and 5% quarter-on-quarter. Bank Millennium reached an amount of provisions related with CHF litigation risk of almost EUR 1.7 billion. And it should be noticed that by the combination of these provisioning efforts and by the decrease of the CHF loan book through amicable settlements and of course, also through regular amortizations, Bank Millennium was able to bring the ratio of total provisions against legal risk versus the gross mortgage book to 91.5%. At the same time, Bank Millennium continued their efforts to reach amicable settlements with clients, both -- some of them already in court and Bank Millennium was able to achieve more than 1,100 amicable agreements in the first quarter of this year. And it should be also notice that after the peak in August 2023, the number of new claims are showing a downward trend. Turning to Page 41. And now some information related with Mozambique. We can say that Bank Millennium -- Millennium bim, sorry, even under a challenging environment continues to be an important and stable contributor for BCP results at group level. Net income stood at EUR 22.6 million, a reduction compared with the last -- with the same period of last year. And this is mainly due to the decrease on NII that was impacted by the reduction on interest rates as well as the strong increase in terms of mandatory reserves. Capital stood at 36.89%. Moving to Page 42. NII, and take it into consideration what I just mentioned before, went down 11.6% to a level of EUR 50 million and NIM stood at 8.1%. That compares with 9.5% in the first quarter of 2023. Costs went up 3.7% and cost to income stood below 50%. Moving to Page 43, and still in Mozambique. Nonperforming loans 90 days past due at 3.2%, which compares to 7.7% in the same period of last year. Nonperforming loans 90 days past due with coverage at 134%, that compares with a slightly more than 100% registered in March 2023. Cost of risk stood at 99 basis points. Regarding volumes on Page 44, you can see that customer funds registered an increase of 3.6% and loans to customers a decrease of 8%, meaning that the increase on loans to individuals of 28% was not enough to compensate the decrease on loans to companies of more than EUR 100 million. And so, 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.

We hereby present you in the last slide our key metrics. As we have been commenting to you, these were the key metrics of our last strategic plan. We are working on a new strategic plan that will be disclosed -- which targets will be disclosed with the results of September of this year. As you know, this strategic plan of 2024 has been broadly overachieved. And we expect, of course, to continue in this very positive trend in terms of customer satisfaction and shareholder value creation. Thank you very much.

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

I have 3. The first one is on NII. Then I have declined 8% quarter-on-quarter in Portugal. Could you please walk us through what happened? And what are your expectations for the coming quarters? Do you still reiterate your guidance for '24 and '25? The second question is on loan book. I was wondering when do you expect the decrease in corporate loans to slow down? And could you kindly share some more light on how much of stable guaranteed loans you still have in the loan book? And the last one is on deposits in Portugal. They grew strongly in the quarter, and the share of term deposits continued to increase. Could you please share some details on what is driving the growth? And why you want to increase your deposit base given that your loan-to-deposit ratio is well below 100%?

Thank you very much for your questions. In terms of -- starting with your last question, so why do we want to increase in deposits. In marginal terms, it is a good business because even if we invest in European government debt -- having deposits and investing in European government debt is a good business. Our average cost of deposits, considering term deposits and demand deposits, is around 1%. And the term deposits of individuals is around 1.7%, to give you an idea. So it is good business to grow in deposits. Of course, we would like to have more credit on our balance sheet, provided that this credit is better for our shareholder value creation over the short and long-term than investing in low-risk European government. [ That ] -- we are growing. We are growing our customer base. The sign that we are growing in deposits, a very clear sign of the strength of our franchise, of the quality of our service and the fact that we are really close to our customers, that the customers trust us for our day-to-day banking and for the small deposits. So a short answer, why do we want to grow terms deposits? Because we make money with growing term deposits, so it's as simple as that. The loan book -- we are disciplined. So the loan book is, what can I say, is a means -- is not an end. So we are very disciplined in terms of credit risk, in terms of pricing credit. So this is our core business. So how do we price credit accurately. So this is [indiscernible] -- so we could have grown more than what we had grown. But comparing with the alternatives that we have in terms of investment, this would not have been positive for capital generation and for shareholder value creation. In the present situation in Europe, as we all know, there is some decrease, so to say -- some general decrease in terms of the monetary aggregates related to the monetary policy. When we have a more restrictive monetary policy, it is normal. It is normal also to have lower loan growth and lower growth in terms of the monetary aggregates. Having said that, we do expect our loan book to start growing. Of course, a part of it will depend also on the competition because we do not have the monopoly. And we do not want to acquire a book -- a credit loan book that does not make sense in terms of shareholder value creation. So this -- I think this is a very important factor. In terms of the margin, the margin, as we have commented to you, we have our margin in terms of interest rate risk very much covered, in terms of what is the interest rate risk, in terms of the movements of the Euribor over the cycle. So our -- the sensitivity of our NII to movement in terms of Euribor is very low, as we have both in Portugal, by the way, or [ Santogal ] and in Poland. So our margin is basically -- is not so much influenced by Euribor movements. It's influenced by the spreads, so to say, both on the credit book and on the deposit book and on volumes. But the most important impact are on spreads. Volumes, we have already commented that we do expect slowly to -- the credit book to start growing, if not because of the new European funds that we are starting to flow in the economy, this will have a positive multiplier effect. In terms of deposits, we do have a deposit cost that is slightly lower than the one of our Portuguese competition. This is very important for us. As I have commented right now, our front book already has a lower cost -- already is decreasing the cost, and so to say, and the stock of deposits is having right now a stable cost. So the cost of deposits has ceased to increase, and the front book is already at a lower cost. And we are confirming our view that by the end of the year in Portugal, we will decrease the NII only by mid- to high single-digits, except if something very, very exceptional occurs, as always. So we are confirming our guidance in this regard. And by the way, we also confirm that we expect a large part of this normalization of the NII to be compensated with the normalization of the impairments and other provisions.

The questions come from the line of Noemi Peruch from Mediobanca.

I have several on deposits. So I would like to know your thoughts on the demand for term deposits in Portugal.

The connection is very poor, if you could either speak a little bit up or closer to the mic? I'm sorry.

So do you see the switch to term continuing in the next quarters in Portugal? And then I would like to understand what's the level of your back book term rate always in Portugal? And if you have in mind a kind of steady state beta on term deposits based on your past evidence? And lastly, how do these kind of dynamics impacting your NII in the next quarters? Do you see a further decline in Q2?

Starting with the -- your last question. So the way we see it is that -- a lot of -- contrary to what happens often when we speak about pure interest rate risk management where we model the risk based on the market interest rate, we are not speaking here about the sensitivity to the market interest rate. We are speaking here about the sensitivity to competitor movements and to the commercial spreads in the market, which is, by nature, much more difficult to anticipate because as we all understand, we do not coordinate our movements with the competitors, which would be not be legal, as we all know. So it is much more complicated to anticipate what our competitors will do and what the trend will be. Having said that, as I commented right now, our front book is already decreasing the cost. Our average cost of deposits, including demand and term deposits, is stabilizing. The ratio between term deposits and demand deposits is in individuals very close to 50%. So I think we have to separate individuals from corporates because the logic is different. But in individuals, it's close to 50%. In corporate it's more opportunistic. So you can get more -- it's more volatile because they are 2 different products and 50% of demand deposits, I would say, for individuals is, when you compare with other countries in Europe is not a bad number, especially taking into consideration that the demand deposits in Portugal are not remunerated. So we do think that we are reaching a steady state. I mean, give or take 1% more here, 1% last year, but we are reaching a steady state. In terms of the evolution of the margin, we would highlight that we expect -- I mean it's difficult for me to give you a projection by month, but I would say we expect the second half of the year to be better than the first half of the year. So we are in stabilization. And almost by this token, we expect the second half of the year to be already an improvement vis-a-vis the first half of the year, reaching at the end of the year a mid- to high single-digit decline in the NII. I think I've answered your question.

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

So first question would actually be, switching a bit to costs. I was wondering whether the pace of evolution and costs in Portugal that we saw this quarter could be a reference for the pace of growth throughout the year? And the same question -- and I would like to extend the same question to the group cost level, whether you could give us some additional visibility on that? Then secondly, on the cost of risk, both for Portugal and the group level, basically the same question, whether the cost of risk we saw now in the first Q could be a reference for year-end or whether you actually expect it to go down throughout the year or actually increase? And then just a bit of a follow-up on the NII questions that were posed before, particularly on the deposit costs. Just trying to understand here, you mentioned -- or I believe you mentioned that the cost of deposits has already stabilized. So I was wondering whether the overall cost of deposits in the first quarter was in line with that of the fourth quarter or whether with that you mean that in the last months you already witnessed that stabilization, just to understand and what basically -- just to understand here the trend and what was behind the drop in NII, because I believe part of it must be related with cost as well? Just trying to understand that a bit better.

When I speak about the front book stabilizing, actually -- when I speak about the front book coming down, I'm speaking about the March front book vis-a-vis the December front book. So the cost of the new deposits in March is already around 20 basis points below the cost of the front book in December. When I speak about stabilization, I'm speaking about what's happening in the last months, February, March and so on. So this is the most recent number. In terms of costs, what we -- the guidance that we are giving for the full year in Portugal, that we always have been giving is mid-teens, so aligned with this -- but is mid-teens, as we have already given in the beginning of the year in the last presentation, and for Poland also. So this is more or less where we are in terms of costs. In terms of cost of risk, we are presenting in Portugal -- what -- I'm sorry, what I'm saying is that not mid-single digits. So in Portugal, it's mid-single digits and Poland mid-teens, okay? So just for [indiscernible], an issue here of English. So Portugal mid-single-digit as exactly in the first quarter, the 5.5% is a good guidance for the year. And in Poland, mid-teens, so decreasing somewhat from the level that they are having now, just to make it clear. In terms of cost of risk, we are presenting a cost of risk in Portugal 48 basis points. We think that this cost of risk between 50 and 40 basis points is a good level of cost of risk for the business profile that we have. I think I answer your 3 questions.

The questions come from [indiscernible] from BNP Paribas Exane.

I have a couple of them. I mean, the first one is on capital. I mean, you said Miguel, that you expect to have 20 basis points buildup -- organic buildup, but this quarter has been much stronger. And you have also said that you expect [indiscernible] start to stabilize a bit. Should be the 20 basis points like a floor for the quarter, organic capital generation? The second question is, what should we expect about Basel IV impact in 2025? And the last one, if you could come back a bit on provisions, how do you see the cost of risk and other provisions performing in Portugal? I couldn't hear you very well.

Of course, our activity, -- we are not a fixed yield bond. So there is some volatility in our activity, and we will have some quarters that are better, some quarters that are worse. As you know, because you follow us closely, you know that the second quarter has some regulatory charges that will be worse, that will affect the result that it won't affect the first quarter as it happens every year. So when I speak about the 20 basis points buildup after 50% of payout, so before it will be 40 basis points buildup, I'm speaking, I'd say, an average across the cycle, absent inorganic growth issues like securitization or like, as you see here or absent, I would say, a reduction of the RWAs linked to the credit portfolio because our -- I mean, over the long-term, we do not expect our business to decrease. So we do expect our credit portfolio to increase in the high single-digit area. So the normal, I would say, is not to have the RWAs decreasing. Absent the securitization, the normal will be a decrease. So I would say the 20 basis points per quarter, i.e., 80 basis points per year is something that will be a normal absent, I would say, activities that are not on the normal course of organic capital generation, so to say. So Basel IV, what -- we do not expect any material negative impact associated to credit risk, so to the credit risk, to the floors, to everything. In terms of the others, we will still analyze in detail all the other impacts. But at least in terms of credit risk, we are not expecting any material impact. In terms of cost of risk and other provisions, as I commented, we expect the cost of risk this year to be between 40 and 50 basis points and the other provisions to decrease materially vis-a-vis what happened last year, so that we expect this line to broadly compensate the evolution of the NII.