Bankinter, S.A. (BKT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Bankinter Fourth Quarter 2021 Results Presentation. Our CFO, Jacobo Diaz, will guide you through the presentation, and we will follow up with the usual Q&A session afterwards. Thank you.

Good morning to everyone, and welcome to Bankinter's earnings presentation for the fourth quarter and full year 2021. The related financial statements were posted on the website of the CNMV before market opens. All documents can also be found on our corporate website. Let me start with a view at a glance of the main achievements obtained during 2021. It has been a record year, commercial performance with individuals driving volume growth in balance and off-balance sheet products and services becoming the driving force of the strong growth in our pre-provisioning profit to 14% up, all this together with maintained solid asset quality and capital levels. Even excluding the impact of segregation of Línea Directa, we have been able to post a strong growth in our net profit. We view this as a remarkable performance in a particularly challenging year and with interest rates at the bottom for another year. Having said that, we are fully committed to achieve our 2023 targets pursuing the net income of 2019 when Línea Directa was part of the group. Let me be more specific about 2021. We have been able to close the year with continued growth in our loan portfolio despite the stability of the corporate loan book and a limited consumer finance activity in most part of the year. This has been somehow offset by strong mortgage production all year around and in all geographies. Also, retail deposits and assets under management, the largest contributor to the growth in recurrent fees continue to post a stunning growth in the size of our businesses, mainly thanks to the strong customer acquisition in an unprecedented year. Second, the resilience shown in our net interest income through the year and the increased growth rate of our fee income resulted in an increase of our operating income by close to 9% and above our guidance at the beginning of the year. Third, since the year has been good in income growth as we have always anticipated in previous guidance, operating costs grew clearly below our income, but slightly more than our beginning of the year guidance, mainly in this last quarter with a seasonal increase in personnel expenses due to the second half year variable pay linked to our strong commercial and financial performance. Despite this, improved efficiency has allowed pre-provisioning profit of the group to grow strongly by 14% year-on-year, well above last year growth and our beginning of the year guidance. And fourth and final point, asset quality continued to show stable NPLs in the year with a reduced NPL ratio and increased provision coverage from last year and our solvency maintains comfortable levels of CET1 above 12% despite a small reduction in Q4. These are the key financial indicators for 2021 comparing with 2020 and 2019, as we've shown in previous presentation. Group's total loan book grew 6% to EUR 86 billion, thanks to the strong mortgage production in all geographies that more than offset the slowdown in corporate and consumer loan book growth. Loan growth from September 2021 is close to 4% or EUR 2 billion. Gross operating income at EUR 1,855 million grew by 8.6% with respect to last year and by 12.5% from 2019 showing improved resilience in income come from our customer recurring business. We firmly believe efficiency and thus operating cost remains under control, making possible 1 more year, pre-provisioning profit trend to improve growth rate to 14% from 4.5% last year, reaching EUR 1.1 billion new record. NPL ratio came down in the year in line with our asset quality indicator of 2.24, helped by the usual reduction in the last quarter from the sale of NPLs in consumer finance. Coverage ratio after the extraordinary provisions of 2020 has kept growing reaching a comfortable 64%. Group's net profit reached a record of EUR 1,333 million. Like-for-like, that this excluding the Línea Directa transaction, net profit would be EUR 437 million, growing by 38% from a year ago and only 11% below that of 2019 with full Línea Directa contribution and excluding EUR 57 million extraordinary badwill from the EVO Banco acquisition. Our CET1 fully loaded capital ratios remained above 12% at 12.1%, even with a 50% dividend paid and the risk-weighted asset growth in the last quarter. It stands 24 basis points below last year and well above our long-term guidance of 11.5. Our return on equity adjusted by the extraordinary income reflects the improved performance of the year and stands at 9.6, 3 full points ahead of last year and again above cost of capital. We now go through the usual agenda of our presentations. First, our full year and Q4 results than risk management to end up with a brief review of the difference in 2021. Moving on to the full year income statement and with the last quarter with no extraordinary items of size apart from the guarantee fund annual contribution, the group's income statement showed strong growth in all revenue lines. Net interest income maintains its growth trend after a quarter with more positive seasonality, particularly in corporate business. It is up by 2.3% from December 2020. A positive financial market environment and a strong commercial activity supports our fee income. It grew by 21.5%, excluding the 3Q one-off in extraordinary fees from investment banking, growth would be 12.4% with respect to the previous year. Other operating income and expenses at EUR 23 million were EUR 11 million lower than a year ago due to good trading and dividend income in the year. Total gross operating income at EUR 1,855 million, went up almost 9% from 2020. The diversification of this income remains very high with increased contribution from Portugal, EVO and Avant Money and from our investment banking business, as we will see later in the presentation. Group operating cost, as we have been anticipating in our previous presentations went up below income growth despite the seasonal fourth quarter increase, mainly in personnel expenses, as we will explain later. We firmly believe they will remain under control in Spain, Portugal and Ireland for 2022 and of course, 2023. Group's total costs grew in the quarter mainly due to personnel expenses that went up in the second half year variable attribution after a good year in commercial activity. This very positive income and cost performance makes PPP to increase by 13.9% above the growth rate of 2019, and we think this is a remarkable performance. Loan loss and other provisions went down 28% from 2020, mainly due to the EUR 243 million extraordinary provisions booked in 2020. Without this effect, the provision of NPLs increased in line with our reviewed forecast for the cost of risk of the year. Like-for-like that excluding the front-loading provisions, it went down 23%, in line with our guidance for the year. After taxes, group net profit, excluding Línea Directa spin-off were EUR 437 million, 38% up and only 11% down comparing to 2019, excluding the bad will. Adding the positive result of Línea Directa, total net group reached a historic record of EUR 1,333 million. After closing what we think is a very positive performance in the year, we continue to feel optimistic and see 2022 as a challenging year in our way to recover the pre-COVID and pre-Línea Directa spin-off group net profit by 2023. On a quarterly P&L comparison, we can see continued resilience in our net interest income almost flat year-on-year and with 1.4% seasonal increase in the quarter, also a very positive growth pattern in fee income, up 16% in respect to last year, an almost 10% reduction from previous quarter extraordinaries. As we have mentioned before, operating costs increased by 7%. Pre-provisioning profit shows an increase of almost 10% in respect to the same quarter last year and a reduction from the previous one. After credit risk and other provisions, net income, excluding [indiscernible], has been EUR 82 million, 15% down in comparison to previous year quarter and down from the third quarter of 2021 due to the extraordinary fees and guarantee fund annual charges booked in the third quarter. The group's loan book grew by almost 6% from a year ago, bringing over EUR 3.7 billion in new net loans to reach EUR 68 billion. Growth in the year have been driven by our mortgage business in every region, Bankinter and EVO Banco in Spain, Bankinter Portugal; and Ireland, Avant Money. After a very weak third quarter in corporate lending during the last quarter as every year, working capital activity has improved and our loan book grew by over EUR 1 billion in the quarter to end the year almost flat. Also, consumer loan books start growing again by close to 7% in the quarter, mainly in personal loans in Spain and mortgages in Ireland. In Spain, thanks to strong mortgage lending production growth in the year has been 3.9%, always gaining market share since the sector has contracted by 0.3%. In Portugal, lending is up 4% from a year ago are almost EUR 380 million to reach EUR 6.9 billion and in line with our business plan. EVO was also able to grow their loan book by EUR 635 million year-on-year, thanks to strong mortgage production. Retail deposits continued to perform strongly in all geographies, growing 11%, bringing EUR 7.5 billion to reach EUR 72.5 billion as a whole. More important, close to 75% of this growth comes from new customers of the bank. Deposits were up 11% in Spain, while the market grew by 4.8%. Net interest income continue to show the positive trend over the last 5 years. It grew by 2.3% over a year ago and 9.2% from 2019. This clear net interest income resilience is a consequence of being able to grow our loan book every year while maintain customer margin, as we can see in the right-hand side chart. I will emphasize the contribution of EVO that stands at EUR 27 million and growing 4% in line with its business plan. Also, Portugal, net interest income grew by 5% due to the loan book growth in all our activities. And finally, in Avant Money, our net interest income reached EUR 53 million, growing at 6%. As for the quarterly customer margin, it increased by 2 basis points from previous quarter and is only 2 basis points below that of the previous year. All this is reflected in the yearly customer margin with only 6 basis points drop in 2021, improving 13 basis points reduction of 2020. Credit yields dropped 8 basis points mainly due to the Euribor repricing, a shift in asset mix with more mortgage growth than corporate and consumer lending in the year. At the same time, our cost of deposits dropped 2 basis points at the low end of interest rates. This cost does not include the income -- the revenue charges of institutional and large corporate clients in the year. For 2022, we will finish the impact of the negative repricing on the variable rate loan book, mainly mortgages. At the same time, we would start to see some asset mix improvement with corporate lending, improving, growing trend and consumer finance growing again in less risky personal loans. Moving on, the ALCO portfolio remained almost flat in the year. The portfolio's metrics remain strong with an average maturity of 8.8 years with an average duration of 4.5 years and an average yield of 1.7%. After another stable year and realized gains of the portfolio amount to approximately EUR 430 million, less than 20% of them on the fair value portfolio with limited impact in capital. Over the few years -- the next few years, maturities of the portfolio are minimal except for 2023 were EUR 1.1 billion will amortize or managed to renew. Next, moving into fees. Fee income enjoyed a very strong performance and ahead of our guidance for the year, amounting to EUR 603 million, even excluding the extraordinary fees of the third quarter. It went up by 12% to EUR 603 million over the previous year due to a strong growth in assets under management and increased activity with customers. The largest contributor to fee income with EUR 204 million is asset management, up 30% year-on-year and increased commercial activity brings assets under management to record levels at the end of the year as well of the fees. Second contributor to fees is payments and collection from corporates and individuals growing 17%. Performance has been clearly recovering in the year, in particular in the second half with a pickup in economic activity. Third, we see the fees from trading and custody grew 16%. Then we have FX business with customers, went up 6% due to the strong trading and third-party mutual fund subscriptions and risk-related transactions and life insurance and pension fund sales brings their fees up 12%, 13%, improving their previous rate of growth. In the other operating income and expenses, main components are EUR 95 million of trading income plus dividends that compares very well from last year to a good trading activity, plus EUR 13.5 million more of Línea Directa dividends. The 6% increase in regulatory charges or EUR 7.1 million together with a small miscellaneous impact weighted and the other income expenses negative difference in the year. Gross operating income for the year stood at EUR 1,855 million, an increase of EUR 8.6 million from 2020 and more relevant to us, 13% up from 2019. In Portugal, gross operating income at EUR 152 million, grew by 10% in Ireland, EUR 59 million grew by 3% in a difficult year for consumer finance, but offset by a strong mortgage production. And in Luxembourg, gross operating income at EUR 17 million grew by 30%. And Finally, EVO Banco, gross operating income at EUR 24 million grew 14% due to a strong increase in mortgage origination. Moving into cost. Group operating costs in the year totaled EUR 853 million. They are up 2.9% from previous year and due to the extraordinary of the last quarter, up 7% from third quarter. Operating costs from EVO were reduced by EUR 10 million or 16%. In Portugal, costs are EUR 3 million or up 4% over last year, while incomes grew by 10%, meaning continued efficiency improvement to 56.8% cost-to-income ratio from over 60% in the last year. And in [indiscernible] costs were up EUR 1.7 million or 5% due to the launching of the new mortgage business. Group personnel expenses are up close to 6% over last year due to the one-off increase of staff variable pay following the strong commercial activity and general and administrative expenses remain under control. Then efficiency continues to improve in the group. Cost to income dropped 250 basis points from 2020 to 46% and 290 basis points from 2 years ago. We plan to manage the long-term cost to income in the 43 level, thanks to the improved efficiency in our new businesses and geographies. In Portugal, our efficiency stands below 57%, Ireland stands at 58.6% and EVO improving its negative efficiency. Our very efficient, Spanish business stand-alone runs an efficiency ratio of 42%. Without this, pre-provision profit show EUR 1,002 million, a standing 14% increase for 2020 and more relevant 19% ahead of 2019. Let me highlight now the growth rate of our provisioning profit is multiplied by 3, showing the strength of our customer business from 4.5% in 2020 to 14% in 2021. Moving to the cost of risk. Cost of risk finished the year at EUR 283 million or 39 basis points of total credit exposure, 7 basis points up of 2020, probably showing a peak from the ad work trend started in 2019. However, the cost of risk, if we include the 2020 extraordinary credit provision stays well below that of last year. The increase in cost of risk in 2021 had to do almost with Stage 2 increases in the corporate business and diversifies in the rest of countries and businesses. Looking ahead, we are somehow optimistic after all the moratorium book has matured and less than 40% of the EVO liquidity lines for corporates and SMEs has been extended with almost no impact in credit quality nor in early indicators as delinquency in less than 90 days. In Portugal and after the maturity of moratoriums in October no deterioration of NPL ratio has yet occurred and includes SME lendings as well as mortgages, thanks to the quality of our customers. As we see things today, after a contained year in 2021, we expect cost of risk to be similar around 40 basis points for the full 2022. On the other provisions for future litigation expenses, the downward trend expressed in our guidance in the range of 20% reduction every year was outperformed with a reduction of more than 20%. This is excluding the extraordinary front loading that occurred in the third quarter. This front-loaded together with a downward trend is in provisioning will produce an additional positive effect in the reduction of the run rate for 2022. Moving on after the provisions and the LD spin-up results, group net income stands at EUR 1,333 million, a new record figure. Without the extraordinary profit, it would be EUR 437 million and still below the 2019 that I did mention before, it includes EUR 57 million of value from the acquisition of EVO. Still, the compound average rate of growth over the last 9 years shows a strong performance and promising recovery after 2020, the year of the COVID. Group's return on equity stands at 9.6%, still with only a 4-month contribution of Línea Directa in the year and excluding the extraordinary from the spin-off. If we group them, it should be at 29%. We expect for 2022 to obtain return on equity over 10% with only dividends as contribution from Línea Directa and clearly in line with our target. As every year in the last quarter, here you can see the annual total return to the shareholders of Bankinter in this special year adjusted for the spin-off of Línea Directa. As you can see in the chart, the Bankinter share price adjusted return has been 38%. Should you add the dividends paid by both now separate companies, EUR 0.23 for Bankinter and EUR 0.07 for Línea Directa, total dividend yields at 5.3%, adding both total return for our banking to shareholders in 2021, over 43%. And bear in mind, the total dividend increase of 31% over comparing to 2019. I will now go into the credit risk, liquidity and solvency management section. Nonperforming loans continued their stable trend with total NPAs at EUR 1.69 billion, just up only EUR 8 million from 2020 and down from September due to the sale of EUR 90 million portfolio of NPLs in consumer finance as every year. The group's NPL ratio has bottomed at 2.24%. It decreased 16 basis points from last September due to the mentioned sale of consumer finance and the increase of the loan book. In Spain, NPL ratio stands at 2.36, 6 basis points below last year and 70 basis points from September. This ratio continued to be way down from the sector average. Portugal, NPL ratio declined to 1.72, 42 basis points down from a year ago. As shown in the chart on the right, the NPL ratio in Spain went down to 2% for households and up 1 basis point to 2.8% for corporates. Total provision of nonperforming loans after the extra provision built in 2020 stands at EUR 1.1 billion, up EUR 56 million from last year. All this has a relevant impact on provisions coverage, which is at 64% from 61% of last year. Next slide, the group's foreclosed assets portfolio is 25% smaller than a year ago. It decreased by EUR 56 million from previous year. This small portfolio now accounts for only EUR 171 million. The coverage also improved to 53%, an 8% increase and clearly above the average discount of our assets. Moving into capital. Our fully load CET1 ratio finished the year slightly down at 12.05, a decrease of 20 basis points from last quarter and 24 basis points below December 20. In the year, our return earnings contributed with 67 basis points taking into consideration the Línea Directa spin-off. Capital consumption of risk-weighted assets growth from the business has been 62 basis points. Valuation adjustment also brings 12 basis points negative due to market volatility. The IRB deficit and the implementation of new regulatory parameters took 15 basis points. And finally, the insurance participation decreased by 2 basis points. With all this, total capital ratio went up 15%, a very comfortable level over the minimum regulatory requirement and the leverage ratio stands at 4.9 Finally, the year-end 21.16 ratio of risk-weighted assets for MREL remained well ahead of the regulatory requirement for 2022. Liquidity. Our funding gap continues to nose down since 2016 from EUR 5.7 billion 5 years ago to a negative EUR 5.3 billion. This negative gap in Spain more than offset the ones coming from Portugal and Ireland where lending is larger than deposits from -- for the time being. As a result, loan-to-deposit ratio achieved record levels of 92.2%. Let's review now the performance of the different business lines. Here, we can compare the diversification of our income in the last 5 years, well balanced between the main contributors, corporate and commercial banking, together that represent 59%, 130 is now coming from our costume or finance subsidiary is slightly impacted by the business contraction in the year. In 2021, our Investment Banking unit, strong incomes represent 10% of total. Then Portugal income represent 8%, Ireland, 3%; EVO and Luxembourg 1% each. Last year, 4% of total income comes from noncustomers ALCO and TLTRO contribution inside. Moving into the corporate banking business. The loan book increased by EUR 0.3 billion or less than 1% in a very difficult year for corporate loan demand. It remained flat in Spain, while the sector was contracting their loan book by almost 2%. This would make our corporate market share in Spain to grow again this year from 5.2% in November '20 to 5.4% this year. In Spain, thanks to the last quarter increase, like every year, it reached EUR 26.7 billion or EUR 19 million more than in December. And again, a quick review on the relevant sources of income. International trade and supply chain finance enjoyed another good year and continued to grow its activity in working capital financing, in international trade, et cetera. Transactional business with corporate recovery levels of 2019 after a very stagnant 2020, for example, financial risk guarantees and similar grew by 13% and the contribution to income went up 4% to EUR 128 million for the year. Regarding the EVO liquidity financing for corporate and SME granted in 2020, the outstanding at year-end 2021 was EUR 6.5 billion from a total EUR 8.7 billion granted mainly to mid and small corporates. From this total, 40% of them have asked extension either the maturity or the grace period of the loan, also extending the guarantee and improving rate conditions. Out of this amount, the NPL ratio stands at 1% today. After a very good year in 2021, Investment Banking now has its own section in the presentation. Here is the increased contribution to revenues coming from the corporate and private banking products and services. This business is creating a recurrent and stable fee income flow with a strong valuation on its own. Their operating income reached EUR 187 million, growing 61%, including the extraordinary freeze from Línea. Even without this growth -- even without this extraordinary growth, we would have been 22% in ordinary fees and net income. As you can see in the key indicators of Bankinter investment, they manage 16 different vehicles of alternative investment for over EUR 3 billion of our private for -- sorry, for over 3,000 of our private banking customer with a total capital committed of EUR 3.2 billion. More relevant, they have distributed to investors of already over EUR 680 million in returns. Activity that continues to be strong in our structured finance team, managing over EUR 4 billion loan book growing at 5%. Prudence and transparency are especially relevant in the marketing of this type of products since not only a scrupulous level of regulatory compliance being shared by also an adequate customers profiling is needed, identifying those who are potentially suitable for this type of amendment and placing limits to them. Here, you can see a snapshot of the different vehicles for alternative investment in the following slide. Okay. Moving on. New wealth management, customer assets under management had continued to grow, thanks to the strong commercial activity and an increased number of customers. Adding both businesses, private and personal banking, assets under management increased by 16% to EUR 79.7 billion in patrimony under management, speak between almost EUR 50 billion in private Banking and almost EUR 30 billion in personal banking. Track record of the last 5 years is a 60% growth in AuMs. The strong commercial activity can be measured by net new money in the period that shows a record EUR 6.4 billion increase, is split EUR 3.6 million in Private Banking and EUR 2.8 million in Personal Banking. Activity in our retail banking continued very strong. In fact, customer acquisition in Spain set a new record and grew by 17% from the previous year. In products, salary accounts balances in Spain grew by EUR 2.2 billion in 1 year, totaling EUR 14.9 billion, close to 3x the balance 5 years ago. Mortgage strong origination in the year of EUR 5.9 billion represent an increase of 58% from 2020, where EVO contribution doubled its year production to 0.7 and Avant Money reached 0.4. 72% were fixed rate and the average loan-to-value ratio is at 54%. Market share in new mortgages during the last 12 months ended in October has reached 9%, which is a remarkable record. Our total mortgage back book keeps growing in the 3 different markets, which reached EUR 31.3 billion. In Spain, the increase was 8.6%, while the rest of the market only grew by 1.3%. Our everyday more relevant asset management business improved strongly in the year and clearly increased its growth trend in all categories. Mutual funds were up 30%, year-on-year, pension funds 16% and patrimonial services and CCAP management 20% up. In total, EUR 8.4 billion in new balance sheet managed funds 27% growth. In mutual funds, all managed and third-party growth in the period has been very strong. And together with the positive market effect, brings EUR 6.9 billion new money to reach a total of almost EUR 30 billion, 30% up a new record. Now let's move into Portugal, where they have closed again, a very good year. Loan book grew by close to 6% to almost EUR 7 billion and retail funds almost reached EUR 6 billion. Growth in loan book was balanced between corporate banking, EUR 2 billion, up 6% and retail banking almost EUR 5 billion to increase 5%. Like in Spain, our balance sheet, strong performance reaches EUR 4.4 billion with a standing 22% increase from last year. As for the income statement, operating income grew by 10% with very small contribution from extraordinary recoveries. Cost shows contained growth of 4% in line with cost control plans for improving efficiency now below 57%. All of the above brings PPP up by a very strong 20% in 2020. Finally, after EUR 15 million of normalized loan loss provisions, profit before taxes reached EUR 50 million, a strong 11% from last year. This is -- we share a very positive evolution of the efficiency ratio, our cost to income over the last 5 years from high 70s to mid-50s and is expected to continue to trend down to the mid-40s in the coming years. Moving into consumer finance. In Spain, Portugal and Ireland, including their mortgage reduction, they reached a total book of EUR 3.5 billion, EUR 219 million, up from September and 35% up from a year ago, helped by the mortgage origination in Ireland and despite contraction in credit card outstanding in Spain. The breakdown of the loan book by geography is now EUR 972 million coming from Avant Money, growing 97% from last year and EUR 311 million from Portugal, growing 24%. The rest is Spain where the loan book grew by 5%, mainly in personal loans to Bankinter customers despite a reduction of EUR 84 million in revolving credit card outstanding. The breakdown of the loan book by product is on the right hand. Personal loans represent 54%, growing by 50%, transactor credit cards, mainly in Spain and Bankinter clients represent 23% of the total or EUR 800 million with a 13% growth. What we can call open market revolving credit card is now only 14% of total loan book and less than EUR 500 million in outstanding after a decrease of 15% in the year. Also, the new home mortgages in Ireland reached over EUR 400 million and represent now 11% of loan total book coming from only EUR 20 million just a year ago. Total new credit origination term loan, mainly in personal loans in Spain and Irish mortgages represent EUR 1.5 billion and a total number of customers grew by 6% to EUR 1.8 billion. NPL ratio has been reduced to 5% from 6% a year ago or EUR 171 million in total NPLs and cost of risk at 3.5% lower than the 5% in 2020. We continue to see good opportunities in this profitable business where we feel comfortable with the degree of control of asset quality indicators and with a very high efficiency of the business, cost-to-income ratio is below 30%. After just 1 year in Ireland underwriting mortgages under the name of Avant Money, this activity has been able to increase the loan book by EUR 430 million in the year to almost reach EUR 1 billion in total loan book or 97% growth, all this growth while maintaining very good asset quality ratio with NPLs at 0.6 and cost of risk of 1.2 with a coverage of provision of EUR 284 million. We aim to keep growing in 2022 to grow our current 3% market share of drawdowns in mortgages as well as after a very good last quarter of the year in new personal loans and credit cards outstanding. Let's move to EVO. EVO has been in a steady development of this business plan with expected a slowdown in credit cards and personal loans during the year, but with all their focus in the strong increase in the mortgage underwriting. New mortgages granted in the year were a record of EUR 729 million. This is almost over 2x the origination of previous year, making the loan book to EUR 1.8 billion. As for liabilities, EVO has EUR 3.7 billion in retail deposits, up 8% from last year and EUR 291 million in off-balance sheet funds, up 11%, including investment funds, pension funds, equity and unit links. Client acquisition has been over 36,000 new customers. As for asset quality, NPL is now below 1% or only EUR 17 million with a coverage of 63%. This steady reduction of the negative results of EVO is in line with our plans to return to profitability based on increased customer acquisition, robust mortgage lending and a good prospect for consumer finance, all with a strong cost control. And to finish here, you can see some achievements on our ESG strategic plan 2023, a resume of the measures taken in relation to the bank's ESG performance, our signature of the initiatives, net zero Banking Alliance led by the UN and under which the bank has made the commitment to be net zero by 2050. We are already carbon neutral in relation to the scopes 1 and 2 as our electricity is 100% green. Some steps have been taken towards business product lines. We already manage and distribute funds under ECG criteria up to EUR 8 billion. The bank has also signed several agreements to finance projects related to development of green hydrogen for EUR 800 million, and we keep investing in renewable energy finance approach. Now we have a recap. Strong commercial activity reflected in record volume growth in all geographies. We remain best-in-class in asset quality and managing our coverage for potential risk. The strong customer business performance allow us to increase growth rate in our pre-provisioning profit to reach a new record of over EUR 1 billion. A very successful spin off. Even excluding those results, the group net profit stands at EUR 437 million, growing 38% and a strong set of management ratio with return on equity at 9.6% efficiency at 46%, which continue to be best-in-class. And let me share with you what we expect for 2022. We expect growth in all geographies. In Portugal, in all 3 commercial, corporate and consumer finance loan books, we expect growth. In Ireland, with increased production in mortgages and personal loans and promising growth in credit cards, we also expect growth. In EVO Banco, in mortgage production, personal loans and recovery of consumer finance business, we do expect growth. And for Spain, we continued to expect loan growth in mortgage lending and in other non-mortgage retail lending with corporate loan book to recover from flattish 2021 after the impact of the ICO lines. For 2022, our guidance in net interest income. We believe we should be expecting a low single-digit growth in a continued rate difficult environment. The increase in activity in stable markets will keep fee income growing at double digits, excluding the third quarter one-off, that is mid-single digit in a like-for-like situation, thus operating income in the mid-single-digit range. The group cost will grow in a low single digit, meaning keeping growing below income. That means improving efficiency 1 year again. And finally, cost of risk after an improved 2021 year and with a comfortable loan book going forward, we do expect to maintain 40 basis points level. And I think that's a good moment to finish this presentation and take your questions. Thank you very much.

Thank you, Jacobo, for that thorough explanation. We have received quite a few questions now, and we will try to address all of them. Let's start with the more specific questions in the quarter performance. So for example, we had a few questions about the fee performance in the quarter, whether there are any extraordinary fees in this quarter and how much of the accounted fees are related to success fees? And how much that -- how that compares with 2020?

Okay. Thank you There is no extraordinary fees in this quarter. There are no extraordinary fees. Regarding the success fees, which is something that is -- it happens every year. This year, we have been -- we have recorded an increase in those success fees comparing to the past year in around EUR 6 million figure. EUR 6 million, sorry increase. That is the only extraordinary comment that might be mentioned because the rest of the fees, as we have shared are a result of the ordinary commercial activity with clients.

Thank you. In the same line, we have some questions regarding the cost increase in Q4. And also you can explain in more detail the moving parts of that.

Okay. You mean the expenses? Okay. So in this quarter, We, as I did mention, we have increased our expenses comparing to previous quarters to last year expenses in personnel expenses. And this is a result of the outstanding commercial performance that we had in the second half of the year. So basically, the increase in expenses is focused on personnel expenses. Related to the general and administrative expenses. This figure is below, it's 5% lower than a year ago. As you know, there is some exceptionality. The third quarter of the year in Spain is summer, there is very little activity with clients. So the exceptionality of the third quarter in terms of expenses, normally is very low. And normally, the fourth has much more exceptionality, which is normally a little bit very high. But even with that, we have produced in the fourth quarter, 5% our cost comparing to last year's same quarter. And in addition, for the entire year, we have been able to finish flattish in general and administrative expenses. Having said that, and as a result of the good performance of the good commercial activity, we have been performing marketing activities in this fourth quarter that might be the reason why you feel that increases in general expenses have been high in this fourth quarter. But again, this is related to variable remuneration of the company and general and administrative expenses, we think that it has been a very good year as a whole.

Two more questions on the specific of the quarter performance. The fall in the CET1 ratio?

Yes. Very easy. We have grown EUR 2 billion in the loan book. And this is the main reason of the reduction of this CET1 ratio. Once again, the third quarter tends to be a very low quarter in terms of stationary just bear in mind that our book was reduced by EUR 1 billion in the third quarter. And this quarter, we have been increasing by EUR 2 billion. So this is the reason why there is a data reduction.

And also, if you can explain what happened to the tax rate in the quarter?

Yes, I think the tax rate has improved a little bit during this quarter, and this is a result of our tax initiative and our tax list. Basically because some of the tax incentives that we should -- or that we could apply in 2020. We were not been able to apply them due to the low level of returns or profits in 2020. So those tax incentives, what we call the capitalization reserve, was not able to be applied at a full level in 2020 and has been applied at the end of this year.

Now moving on to the -- looking forward on '22 guidance and. expectations. Probably we'll start with the loan growth. What is your outlook for '22 and also what will be the main moving parts?

Okay. So as I did mention, we expect growth in all geographies and in all the businesses. As a whole, I will say that we expect a mid-single-digit growth in the loan book. This is a similar focus as the one that we've seen this year. That means that we do expect good levels of mortgage production, similar to the ones that we've seen this year. And in parallel, we do expect recovery from the consumer finance business. And of course, an improvement in the corporate banking loan book due to the recovery of the activity of the economy and also of the European funds that we do expect more impact in 2022 than the one that we've had in 2021, which has almost been negligible.

We will now go through the guidance for 22 years, and we will reconfirm most of the P&L lines, obviously. Starting with the NII, what are the drivers for '22? And what we expect from obviously the contribution from the different moving parts, mainly TLTRO and ALCO contribution?

Okay. In terms of net interest income from the -- for the following year, as I did mention, we expect -- first of all, we expect a loan growth, which is basically the main driver. I want to remind you that the way we record the TLTRO is that we accrued the TLTRO. That means that we do expect a stable income from the TLTRO facility across the entire year. So there's no volatility in that point. We do expect a slight recovery in the [indiscernible] reference. That means that overall in 2022, we do not expect any negative repricing effect. That means we expect some stable effect in the repricing of your labor compared to almost EUR 25 million of negative impact that we had in 2021. So from that side, we do expect that the client margin remains stable or even a slight recovery across the year. We know that the first quarter will still be with some negative effect from the repricing, but the following quarters, we should see the recovery. We do expect that a better mix in terms of fixed rate mortgages, once again, with corporate banking, more production and consumer lending, more presence. And that's -- we think that this will drive our client margin to be stable or slightly positive in the coming months.

Specifically on the ALCO contribution, do you expect any increase in the portfolio?

Not for the time being, the ALCO contribution in 2021 has been slightly below 10% of the total -- of the total net interest income. And we expect stable income from ALCO in 2022. And therefore, we do expect similar figures slightly below 10% of net interest income contribution.

Very clear. Fee income, what do you expect for 2020?

As we have said, we expect -- including the extraordinary income from Línea, we expect a mid-single-digit growth. And the main drivers will be, again, assets under management, which, as you have seen, has performed very, very well in 2021. We have seen the increase in assets under management of EUR 8.4 billion, but also remind that we have increased our deposits by EUR 7 billion. That means that overall, we have 15 billion more resources, and we have a lot of potential of bringing new assets under management in the future. The recovery of the activity is also driving the increase in payments and collections. Fees related to credit cards are increasing during the past 2 quarters, and we do expect that trend to continue over the following months. In addition to that, we have shared with you the banking -- the investment banking activity and how they've been growing their contribution across the past years. We do expect to continue to increase the volume of activity of this business line. Therefore, we do expect more income in the coming quarters. And of course, insurance, which is another business that we like since we don't perform anymore any business in some insurance since Línea Directa left the group. We do expect insurance to start becoming a new great business in 2022 and potentially much more in '23 and onwards.

Thank you, Jacobo. In terms of expenses, again, you can repeat the guidance for '22.

Yes. In expenses, we do expect a low single-digit growth. We do expect growth of cost below the growth of income. You know that this is very serious for us, and we try to perform that mantra every year. Expenses. We do expect increase in personnel expenses. And this is basically because we think that will be a salary review. I want to remind you that in 2021, there has been no salary review in the group. And we do expect in 2022 to perform a salary review. And there might be a slight increase in some specific commercial staff. But apart from that, we should see some sort of a stable staff in the company. And in general and administrative expenses, whatever is linked to inflation, we will try to compensate. The inflation, of course, is something we need to take into consideration. But whatever impact it will be compensated or will be managed in order to avoid that whatever increase in costs related to inflation will remain under control below this guidance of the mid-single digit.

Thank you. We have one specific question in Portugal, where did you see the cost to income for that unit?

Yes. And I did mention cost to income in Portugal will drive or converge to the 40s. So -- If today, we finished the year around 56%, and we've been reducing somewhere between 4 or 5 points every year, this is the trend that we need to follow. And I would expect that Portugal will be in the 40s in 2 years' time.

Thank you. Moving now down to cost of risk. What are your guidance, your expectations for '22?

Yes. Cost of risk, as you know, it's been a very difficult item to forecast. We did start 2021 with a range around 40 to 50, then we said 40 -- more or less 45 and then the low range of 40s. So it's been always improving our guidance. For 2021 -- sorry, for 2022, we like -- we want to maintain this 40 basis points cost of risk. And the reason is there is still some uncertainty about the maturity of the ICO lines that will start in April. We feel comfortable with the way. I mean the quality of our clients -- but I think it's quite prudent to start the year with this guidance, which is exactly the same figure that we had in 2021. And that is basically the reason we do expect very low, let's say, delinquency in the retail or commercial banking business, and we have more uncertainty on the corporate loan book. However, I mean the increase in our deposits from the corporate banking activity is very high. That means that we have a very safe position on that in addition to the high level of guarantees of our loan book in the corporate banking world.

Just one clarification. This 40 basis points guidance, is that for the cost of risk, credit risk alone?

Yes. Credit risk alone, 40 basis points. I guess that your question might be litigation costs are included in there? The answer is no. We have presented 19 basis points of litigation costs during 2021 of recurrent litigation costs. And as I did mention, we do expect a decline in the litigations cost in 2022. We've been sharing with you that we do expect reduction every year around 10% to 20%. This is something which has happened in '21. It has happened in 2020. So in 2023 -- sorry, in 2022, we do expect an additional reduction of 20% plus in the recurrent level of other litigation. That means excluding the anticipation of provisions that we had last year, we do expect at least a 20% reduction in litigation risk.

Thank you. Two more questions on cost of credit risk to finish the one-off. When do you see our normalized cost of risk rate?

Yes. I think we've shared with you the normalized cost of risk would be somewhere between 30 and 35 basis points for the entire group.

And also, we have questions regarding whether we have any plans to release some of the provisions that we have for colons after the grace period ends? And also what percentage of colons are repaying principle already.

Sorry. This the last question about the ICO lines.

Yes, how many of the ICO loans already repaying principle?

Okay. We have just -- I mean, we have received a request to extend of the ICO line. So that's the figure. So there are 60% of the ICO lines that have not required an extension of terms or increase of the grace period. Sorry, what's the question?

Whether we're planning to release any of the...

Oh, sorry, about the provisions. Yes, sorry about that. No, we're not planning to release anything for the time being. And I hope that you understand that even if current circumstances seems to be more benign, we need to wait until the second quarter, as I shared with you in the past quarters. I think until we don't have clear information about the impact the end of the maturities, which is something that will start in the month of April and May, we should be prudent. We have seen in the past, a good example is Portugal that moratorium have finished in corporate and in commercial banking. And basically, for the time being, we have no impact on our cost of risk, which is our -- I mean, excellent news. But we prefer to be prudent. I don't know if other thinks differently. But the way we think in the bank is we want to be prudent. There is time enough in the future to release anything if it's not required. But for the time being, we want to be prudent.

Okay. Moving now on to capital. Analysts are asking us what is the guidance for '22 and also the guidance for dividend payouts.

Okay. The dividend payout will stay at 50%. I mean there is no changes in our dividend policy. And regarding the capital ratio, we do expect -- we do not expect any more regulatory impact in the future. I mean the next milestone would be Basel IV potentially in 2025. I mean that's far, far away. And related to more short-term impacts, I would say that a part of the growth of our loan book, this is going to be the driver of our capital ratio. So we do expect, of course, the review of our operational risk models, and we are always updating our capital models of the credit risk portfolio. But apart from the growth of the book, that should be the impact. So in overall, what do we expect? We may see a slight reduction in our capital ratio. Just bear in mind that our guidance is 11.5%. And before the pandemia, we were at levels of 11.7%, 11.8%. So I would say that we should be somewhere 11.8% or 12% in the coming quarters. We will see. Of course, there is plenty of seasonality during the year. As you have seen in 2020 and 2021. But we are, let's say, quite comfortable with the level of buffers of capital that we do have. And of course, just I remind you that we have the minimum rep level in the industry.

Okay. We have a few left questions regarding our business units and also business trends. So let's address, for example, consumer finance. How do you see the trends there? And also more specifically, you can confirm how much was the sale that we did of NPL sale in Q4.

Yes, the NPL sale in Q4 was around EUR 90 million. This is a figure that every year goes somewhere between EUR 75 million and EUR 100 million. So this is a recurrent sell that we will perform every year. And this is from -- positions in Spain. As you know, in Ireland, we sell everything in much recurrent way. And in consumer finance business, we need to understand that there are 3 countries. We have Portugal, we have Spain, and we have Ireland. Ireland is recovering very well in the past quarters due to the opening of the country and starting much level of mobility. So the level of growth in loans and credit cards is recovering, which is a very positive new for the book, but also for the net interest income. And obviously, the mortgage business is behaving very well. We do expect probably slightly increase in the new production compared to what we've seen this year. This year, we have seen EUR 400 million new production in mortgages. So the following year, we should see something a little bit higher. So that would be the performance I would expect for Ireland. I must say that they are achieving outstanding results. And there is nothing that makes us think that things will change. So we are very optimistic. In terms of consumer finance in Portugal, they are behaving very well. They start with a small book a couple of years ago. Now they're going steadily. So there's more focus on credit cards and focus on personal loans. And Spain, we do expect again growth, similar trends like we've seen in the past quarters with much more focus on loans than in credit cards and much focus on Bankinter clients versus non-Bankinter clients. So the non-Bankinter clients will start to grow a little bit across the year, but we expect positive figures for the consumer finance business during this year. I mean, definitely, this year will be a much positive feeling in the consumer finance as there is a good correlation with the economic recovery. So we should expect the book to grow somewhere between 10% and 20% over 2022.

Thank you, Jacobo. Regarding retail and private banking, we have questions whether we are planning to accelerate seed from deposits into balance sheet.

Well, I guess that is the target. I mean, that's what we've been doing. We -- and I guess that the result was not bad. We brought new -- I mean, we brought assets under management with EUR 8.4 billion of increase. And as I mentioned, we brought also on board EUR 7.5 billion of new deposits. So we have the opportunity to bring much more volumes into the assets under management world and to bring them into more added value product. I remind you that it's not only assets under management in terms of mutual fund and investment fund, but also -- we do have equities, we do have insurance products and as a whole, this is something that we need to consider. Just I want to remind you that we have under cost year of EUR 60 billion -- 6-0.

Thank you. Also, if we are planning to be more impressive in charging for deposits.

As you know, we do not charge for deposits for individuals. And this is something that we have share with you, and this is something that we do maintain. Indeed, we do charge for large corporations and institutions. And of course, we will be -- continue that policy in the future.

Okay. Regarding EVO Banco, they're asking us if you have any comments regarding the contribution to the P&L of this unit? And also, when do you expect it to turn to profit making?

Pre-provisioning profit of EVO Banco has had an outstanding results in 2021. Incomes have grown and costs have declined. So this is exactly what we do expect from EVO. They are building a great loan book. You've seen the new production of mortgages of EUR 700 million. The target for 2022 is going to be similar or slightly higher again. So the book will continue to grow. And there will be more focus on personal loans and credit cards and all these consumer finance business and of course, in the assets under management business. So from the income perspective, 2021 -- sorry, 2022 should be another good year. And in terms of cost, a very tight cost control. That means that PPT will be again very, very -- I mean, in a good trend of growth. And we do expect in 2023 to start having specific months in the year already in break even.

Regarding the alternative investment vehicles, are we expecting any success fees for '22?

No, this is something that it is not planned because, as you can imagine, this is very unlikely. Things happen that it takes many, many months and quarters to plan those type of execution of operational transactions, but it is not in our plan to execute any transaction in 2022.

One last question. Do you expect any changes to the contribution to the single resolution fund, to the Spanish local warranty funds?

No. Unfortunately, for the Single Resolution Fund, we do not expect any changes. That means that it continued to grow the level of charges that we received from the Single Resolution Fund. From the guarantee fund, we do expect a more table contribution, although the increase in our resources will make that the invoice in 2022 might be again higher.

Thank you, Jacobo. Thank you all for joining us today. We remain at your disposal in the Investor Relations team for any further information you may request from us. Goodbye.

Thank you very much. Goodbye, and keep safe.