CaixaBank, S.A. (CABK) Earnings Call Transcript & Summary

Good morning, and welcome to CaixaBank results presentation for the third quarter of 2026. As usual, we are joined today by our CEO, Gonzalo Gortazar; and our CFO, Javier Pano. We will spend about 30 minutes with the presentation, followed by the Q&A, which is live, and you should have received instructions by e-mail on how to participate. In terms of the timing, we have the press conference immediately afterwards, so we'll have to be mindful. But as always, my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours.

Marta, thank you. Thank you, everybody. It's a sad week for all of us in Spain, given the tragic accident, the train accident we had. And first is for the relatives and associates of the victims of this tragedy. Having said that, we move into our results and highlights of the results, as you can see from the title, I think our profitability and growth. And we are yet once again, combining pretty solid growth with an improvement in profitability as shown by our close to 19% return on tangible equity, which is really what we want profitable growth. You see the increased number of clients, close to EUR 0.5 million in the last 12 months. This is net clients gains. It's a much larger 1.2 million if you locate it on a gross basis. Performing loans growing pretty much in line with the previous quarter, 8%. Customer funds, 5.6%. Here, we have a slight slowdown. I'm sure we'll talk about it during the presentation and the Q&A session. Very strong performance on insurance premium, plus 12%. So I'd say, frankly, very good commercial activity. NII is growing. Obviously, our rates start to be a tailwind for us and volumes are helping -- and I think it's worth highlighting that the customer spread adjusted for hedges has really reached an inflection point. It's up 2 basis points in the quarter. This is obviously the beginning of a trend -- we also saw -- we've also seen NIM net interest margin up 3 basis points. So it's not just customer spread, but it's the overall balance sheet and just inflecting at this point. Revenue from services, as it has been the case this year, very strong growth, 7.7% year-on-year. and obviously, very well sort of broad-based, as we will discuss later on. Asset quality continues to improve. We have reduced nonperforming loans, nonperforming assets and improve ratio despite the fact that in terms of lending growth, third quarter is, as always, seasonally negative. So quite good. coverage at 82%, frankly, levels that we haven't seen for decades. And all that obviously is leading us to set the interim dividend at the highest standard of preannounced range and also increasing our guidance in services. to about EUR 205.6 billion and return on tangible equity from above 18% to around 19%. Moving into the -- as always, first, the economy despite the risks and environment that is obviously volatile. The reality is we continue to do very well. We're expecting 2.6 growth in Spain, around anytime now always in the GDP numbers for this quarter. I think what actually -- what I've been told is that the growth this quarter is very much in line with our projections. So that 2.6% appears even more robust. Portugal, we have increased recently, a pretty good level, then Obviously, looking into the near term, we also see continued outperformance vis-a-vis the euro. So yet there is downside risk looking at the Middle East situation. But the reality is we have had downside risk for quite some time, what we have ultimately achieved is higher growth than expected. So it's a bit of a part, I would say, at this stage, I think our numbers show a continued and positive environment. You have the fundamentals there. I'm not going to go through them because you know them well. And obviously, one of the big differences has been the increase in inflation. It's close to 5% at the end of September. This is obviously resulting in higher rates. Higher rates obviously help us, as you know, but they do slow down the growth in household savings. The savings rate, as you can see there is expected to come down by approximately one that -- from that 12% to 11% region, and that is resulting in overall in the system. Slower growth of customer funds and particularly side deposits. As you can see, the system figures have moved from 7.1% to 2.5%. As you will see later, we are again outperforming the system precisely where there's a lot of value to be created, the nonrebate side deposits. So we are obviously very happy and satisfied we continue to take the better part of the market. The 3-year plan goes on well. You see that growth as a key target for us and how that's evolved in terms of client acquisition, almost 800,000 since the beginning of the plan. payrolls and other income deposits flowing nicely, business volume. And I think when you look at market shares, it client penetration, payroll, business volume, savings, life risk, we see, honestly, a machine that is firing on all engines. Imagine yet another good quarter for margin business volume, EUR 24 billion, up 18%, increased number of clients, and again, as you know, well, Imani is still the leading bank in that sort of age 16 to 34 million and is not just a leading bank in terms of penetration in the market, but it's particularly so in terms of the broad range of products is a real universal bank compared to very narrowly focused neo banks, which, as you can see, have a much lower business volume than we do. Transformation, the other big part of our 3-year plan. Continuous powering ahead. You have a number of highlights in this year. I think in the quarter, it's relevant will basically rebuilt and relaunched the app for businesses, which is actually going down very well. We have launched [indiscernible] and Pay also as soon as it was possible. It's obviously early days, but yet another interesting initiative, again, done by the system as a whole here in Spain. AI continue to apply throughout the business. I think the highlight this quarter actually, is early October when we finally deployed massively to 16,000 commercial people in our commercial network, the AI agent that allows to prepare and to close interviews with our customer meetings which is actually having a very quick and very successful adoption and which because it's sort of aiming at a big, big process for us. We actually do 4 million of commercial interviews a year. So we're trying to make sure that we direct AI changes to the places where it's really relevant. This is obviously very transformation, and you have some data down on the page that I will not -- I will skip for the sake of time. Numbers on the lending book, 8% year-on-year. It's up much more than what we had expected. Actually, lending growth has been fairly resilient residential mortgages up 7% consumer lending. You have here some acceleration from north of 10% to slightly south of 10%, but actually, very good numbers. And business lending is doing very well. obviously, that 11% growth includes some international numbers. You look at the overall growth in the domestic portfolio is 6.4%, as you can see, domestic in this case, including and Portugal in our core markets. So it's very, very solid, very solid growth and an increase in market share. I'd say that increase is particularly relevant when we look at SMEs, where we are gaining market share on a consistent basis. And we're obviously -- we see potential growth. It's also the case in consumer lending, which, again, indicates -- the basic of our growth strategy, we're growing and gaining market share where we want. And you can see this on this page, looking at our customer funds and you look at the right-hand the upper side, we are gaining market share on household side deposits. We've called the jewel of the crown. So yes, there's a slowdown, but we are still growing and growing faster than others which is a good proof of strategy and also our competitive positioning. And then we're growing also in Wealth Management as a whole, if you had pension fund savings and pension plans we gained yet another 15 basis points year-on-year, which is what we like. We're going to be seeing small but positive gains in market share. That's what's consistent with sort of a solid retail banking trajectory. So very positive, again, the same way we're gaining market share on the SME or consumer lending. Again, we pick our spots, and we're doing the same on the high value add of the customer funds side, see Wealth Management growing up north of 10% and deposits, as I said, it's on that 2.7% year-on-year. And if we just look at the private sector, it's growth is, as you can see, across all categories. And to highlight what I said before, looking at the slowdown in the growth of side deposits for the system at 2.5%, our growth is 3%. That is what makes for that 11 basis points of market share gains in the last 12 months. So also the noninterest-bearing deposit balances growing at 4% year-on-year, keep, I guess, doing the best of us in this market. Wealth Management, further detail on growth. As you can see, pension plans, 8% mutual savings above 11%, net inflows increasing 17.9%, pretty good rate that has stayed the summer and in this month of October. And again, nice gains in market share sustained over a long period of time, and yet a big opportunity because this is the reality in Spain we still have plenty of growth ahead of us. Protection insurance has been an outstanding quarter. You see growing at 12%, it over 12 for life risk, a bit below 12 for [indiscernible] but very good numbers that you can see on this again, it's not just 1 quarter. You have the figures now for the last 10 years how the differential growth rate of cash bank versus the market is allowing us to gain market share and actually grow the market. Nonlife is actually quite impressive when you look at health, household and auto. It's clear that our distribution strength is continuously leading us to growing faster than the market. banking market and the insurance market. And finally, obviously, this is all turning to value creation, value for shareholders. If you look at return on tangible equity, earnings per share, book value per share, dividend per share on an interim basis, it's all moving in the right direction. And to be honest, in the current circumstances, the stars are pretty aligned for this to continue for quite a while. So I end up with that upbeat message and pass it on to Javier.

Okay. So thank you, Gonzalo, and good morning. From my side, the usual additional details on net -- sorry, on P&L and balance sheet. Let's start with the consolidated income statement. You already may see a net income at EUR 1.759 billion. So this is up by close to 22% year-on-year. If we move further up, you may see that revenues are also progressing up by close to 6% year-on-year. More details on revenues. NII, as you already know very well, up by 4.6% year-on-year, 2.5% quarter-on-quarter, basically sustained by strong business volume growth. Then revenues from services, where we are quickly having a better performance than our initial expectations, up by 8.3% year-on-year. on the back of a strong wealth management and a strong protection insurance, as Gonzalo was commenting. On revenues, not nice to say, equity accounted, we have the usual seasonally positive for the third quarter from [indiscernible] Caixa Adeslas. Then on operating expenses, we are up by 4% year-on-year, fully on track to meet our guidance for the year. Comfortably, I would say, and then below loan loss charges, cost of risk, 24 basis points, also fully on track. We have again some positives on gains and losses from real estate gains continue to dispose at a good pace and good margins on that portfolio. And then finally, on taxes, we have a write-up [indiscernible] and a one-off related to the settlement of the fiscal year corporate tax. With that, we continue with Portugal. We have, for the first 9 months, a net income of EUR 339 million. You may see that business volume continues to do pretty well in Portugal also up by 7%, clearly outperforming the industry since we took control of BPI. Market shares also gaining. I would remark everything related to wealth management where we are progressing and also this is having quite a positive impact on fees in Portugal. Profitability is good, ROTE 16.6%, strong balance sheet, NPLs 1.6, coverage 80%. And as a reminder, the agreement reached to sell the remaining 33% stake in BFA expected to be closed later this year or early into next year. With that, we go to the usual NII details on the central reach. You may see the quarterly evolution, you may see quite a positive contribution in the quarter from client NII from yields and also volumes. We have a negative on ALCO, on Alcoa a few things going on. So we have a positive from the fixed income portfolio, as we have rolled over part of our -- well, all maturities we have had during the quarter at better yields. Actually, the average air for the portfolio has clearly improved. But then on the other hand, we have a negative from higher rates on hedges, on deposits and also on wholesale funding, exactly a quarter where clearly very short-term rates have moved upwards, hence, we have this short-term negative impact. When you take a longer-term view, and this is upper left, the view for the same bridge, but with a year-on-year view, you may see that the still rates are having a negative impact on the commercial side of the balance sheet. Business are clearly adding and then ALCO is also a clear positive with a longer-term perspective. Below, you have the evolution of margins would remark net interest margin. Gonzalo already mentioned it, it's already progressing quite significantly. The inflection point being 1 year ago. That means that it's not only customer spread that is progressing, but also the rest of the balance sheet. The customer spread ex hedges, we think is the correct way to look at it to really realize what's going on commercially speaking, is up by 2 basis points this quarter. Clearly, the second quarter being the inflection point and it's standing now at 298 basis points and set to clearly progress in coming quarters. And that is a result of a back book yield of the loan book at 350 basis points, plus 7 basis points in a quarter, and client fund costs that are also progressing, obviously, is the pass-through of higher market rates up by 5 basis points ex hedges. Zooming into the -- our deposits, our customer deposits, this is the usual quarterly average quarterly evolution. You may see that overall deposits are up by 3.5%, some slowdown, as Gonzalo was commenting, but the good part is how it is doing about noninterest-bearing deposits up by 4%. So we are -- as you may see that there is like a relentless progression on that front. On the right-hand side, you have the yield of interest-bearing balances up by 17 basis points to 178%, mainly driven by index deposits that, as you know, it's approximately 50% of our remunerated deposits and mainly indexed to the overnight rate. Hence, the overnight rate has moved upwards. So we have an impact on that front. But anyhow, you may see on the right-hand side, how we compare with Spanish peers and our cost of deposits is clearly below the peer average. And those are already figures for the third quarter. We moved to revenue from services, clearly outperforming our initial expectations. For the first 9 months on the left, you may see that are up by 7.7% clear outperformance on wealth management and protection well into double digit. On banking fees, we are able to start stabilizing that part of the business. You may see here a negative, slight negative, minus 0.9%. But if you strip the increased SRT activity, which is impacting on that part of the P&L, that would be slightly positive. You have additional details on that front on the footnote. When you combine Wealth management, protection insurance and CIB fee revenues, we are progressing well into double-digit year-on-year. On the central chart, you have the quarterly evolution, not much to say despite the fact that you can realize that it's a steady progression almost every quarter, a trend that is expected to continue. And as already said, revenues from services guidance improved now to more than EUR 5.6 billion. Costs, everything on track. Bottom left, you may see the evolution year-on-year for the first 9 months, up by 4.3%. The message is that we are going to be meeting the guidance for the year comfortably. Cost-to-income below 40%, which compares pretty well with a peer average of Eurozone banks. A few words on asset quality. NPLs trending down additionally by EUR 100 million in the quarter, EUR 7.7 billion. The NPL ratio 176%, also well below the peer average. You may see the breakdown across the different loan segments. Nothing to worry about we are quite, let's say, a bit on the evolution. Below, you may see that the NPL coverage continues growing now at standing at 82%, a quarter where we have not assigned the overlays. So those continue to be stable at EUR 271 million. And well, on the right-hand side, you may see the cost of risk at 24 basis points. So fully on track to meet guidance. Liquidity, always a hallmark robust liquidity sources over EUR 200 billion. Liquidity coverage ratio end of period, 178%, NSFR, 139. That compares extremely well with peers. Those are 12 months average, which is what is public. But in any case, we are in a much better place, which is something really important in the current environment. And this is on the back of really stable retail deposits and operational corporate deposits. A few words on capital. This quarter, we have a capital accretion of 66 basis points. we are investing into the business, new lending 8 basis points, minus 44 basis points for dividends and T1s. On markets and others, we have minus EUR 15 million basically the impact of higher yields on our fixed income fair value OCI portfolio. And with that, we are ending the quarter with a CET1 ratio of [indiscernible] On the right-hand side, just to recap the interim dividend. We are paying in a few days, EUR 1.281 billion. This is a payout of 40% on the first half results 1.44. That's up by 10% versus last year. And a final wrap-up on guidance, what we are upgrading today, revenues from services now expected to be over EUR 5.6 billion this year and ROTE, as we have, obviously, better visibility into year-end fine-tuned to circa 19%. So thank you very much. I'm ready for questions.

Thank you. Operator, please, we are ready for Q&A.

We will now take our first question. from the line of Marta Santa Romero from JPMorgan.

My first question is on NII. So earlier this year, you guided to around EUR 2.5 billion for 2027. And consensus has since moved up to about EUR 1.7 billion. Are you comfortable with where the Street is? And is the slowdown in deposit growth to around 3% this quarter temporary or a new run rate? What's a reasonable growth rate to assume for [indiscernible] And my second question is on the ALCO book. You didn't increase the size of the bond portfolio or your receiver swaps this quarter. What was behind that? Was it your liquidity position or a view on the curve? And given the recent steepening, have you started adding in the fourth quarter so far, how should we think about duration and the structural hedge in terms of size going into 2027?

I'm afraid, you're going to have more than the first.

The only point is the second question was about the run rate on deposits on what?

No. On NII, right, Marta?

Yes. So it's like how comfortable do you feel about the EUR 2.7 billion? Is the slowdown in deposit growth to 3% just like the new run rate and then the outcome.

Okay. On NII guidance, we are today reconfirming our guidance, specifically for '27, we believe that is still a well-balanced reference point, considering a more uncertain environment, generally speaking, on everything, but also on rates and to what extent rates are going to be in '27 where the market is pricing today or not. So I think that is -- there is a certain degree of uncertainty on that front. So we believe that is still valid I'm not going to be fine-tuning consensus expectations. We are talking about difference of EUR 200 million, as you say, on an NII of EUR 12.5 billion, I think that probably when we are closer to the date, we may fine-tune if this is necessary. On deposits, well, on the [indiscernible] side, I already flagged this issue on -- at the conference in September. Gonzalo already mentioned it, and you have some figures on the initial part of the presentation. The question is that there is more inflation. So inflation is running circa 5% in Spain. Personnel consumption continues to do pretty well over. So what is happening is that the savings rate is now expected to be lower than initially expected, not much by approximately 1 percentage point from [indiscernible] 12% to slightly, let's say, below 11% and this is already a some impact on the pace of deposit growth is happening across the system. And obviously, it's somehow affecting ourselves. So that -- I already flagged that question like more than a month ago. So we are expecting this year to end the year more or less at the same pace that we are now. So I think that it makes sense to look at the pace of deposit growth for the private sector, excluding the public sector because the public sector is always more volatile. As we disclosed our deposits have -- are growing over 3% year-on-year. we expect that, that pace can be sustained until the end of the year. For next year, we expect some recovery because precisely that inflationary negative impact probably will fade. Hopefully, inflation will be better controlled. Also, households will recover some income. So salaries will probably, will be revised, taking into account that additional and pensions, that additional inflation. And probably that pace of growth will improve a little bit next year. So probably too early to be more specific, but we are working with the hypothesis that the deposit growth pace will improve slightly next year. In this environment, we are doing pretty well, honestly. And our focus is on value. It's not on volume. On the back of our strong liquidity position, we are ending the quarter end of period with approaching 180%. So our focus is on client acquisition, payrolls. Well, everything you know very well, but that is delivering results in terms of client acquisition, planning acquisition with income we have some figures on the presentation. And well, also, at the same time, keeping a positive margin on balances from wealth management et cetera. And so this is our focus. So you may see that our noninterest bearing deposits keep progressing, something we expect will continue to do and what we are happy with evolution, honestly. So moreover, I would remark that when dealing with customers, it's not only about deposits. It's also about wealth management, diversification into long-term savings products and we take a broader view. So we don't have like a specific target for deposits and a specific target for Wealth Management. So it's like managing the portfolio with a broad view and as a result of it, you may see that we keep growing inflows into wealth management over EUR 1 billion per month, gaining market share. This is, well, business that with quite a large present value. So I think that is what continues to make sense. So this is the message. On ALCO, we had quite strong maturities over the EUR 4 billion. We have rolled over as a result of that. So we have already been in the market. So as a result of that, the average yield of our fixed income portfolio is improving by 20 basis points in a single quarter. We faced more maturities going forward. Is there room to roll the book? Yes, there is some. So but you will agree with me that the situation on non-term yields is somehow volatile. You have a situation in certain countries, sovereign spreads are being impacted. So it's something that obviously will do on a gradual manner. And I think that with that, I cover more or less for your questions.

Next question comes from the line of Maksym Mishyn from JB Capital.

Two from me, please. The first one is on the corporate loan book. In Iberia it has accelerated. Can you provide a little bit more color on the type of demand you are seeing? And how sustainable do you think it is in the current macroeconomic backdrop? And the second one is on proceeds from real estate disposals. They have once again been a surprise. Could you just update us on what we should expect in the coming quarters?

Thank you, Maks, and the Spanish loan book what has worked for us is mostly our growth in the SME, on the SME front, where we're gaining market share. I think Germany and Spain, you've seen some recovering confidence levels. And obviously, we are very well positioned to capture that. The leverage ratio in Spain for corporates is still well below European levels, 22 percentage points of GDP below European leverage. It's 82% versus 104% in Eurozone, and it's come down from 141%, plenty of demand. And obviously, the volatile economic environment particularly not volatile economic environment because the results have been pretty good, but it's the perception of risk has been with us for such a while that I think generally we see sort of the fabric more and more willing to grow and push ahead despite the uncertainties on the future. We have had GDP growth on a nominal basis that is pretty solid. It's actually close to 6%, 5.9%. You take into account the level of growth and the level of inflation. So seeing robust business growth is not a surprise. I have to say. And CapEx cycle has been pretty strong. It's again, almost 7% year-on-year, again, in nominal terms. So it's all moving in the right direction. And yet there are uncertainties with respect to the future. But people I talk to and the numbers that we see tend to feel like, okay, yes, there are uncertainties. But if I say still, this may be forever. So I'm going to need to invest and do things and obviously, with some further degree of cashing here and there, but the economy clearly is moving and the GDP numbers for this quarter very much supporting that. And again, we are at this stage being particularly successful in the SME market, which I'm not surprised given all the changes that we have made which a client segment -- new segmentation at the beginning of the year and actually working very well, and we're investing in technology people and obviously, service on to this part of the market. Second question on real estate, we continue to expect to show real estate gains. I think for the following quarters, you should think of a positive number in this item of the investment, not necessarily at the same -- exactly the same level in the second or third quarter that have been pretty strong, but are clearly positive, and this should be similarly into next year. Our real estate portfolio on a net basis will include both sort of available for sale and rental assets is around EUR 1.4 billion. We're selling with 50% average capital gain. So pretty simple to do the math. But obviously, this takes time because these processes long in Spain. But again, in a summary, positive trend to be continued, expect to be certainly in the fourth quarter, again, having positive results in this line and certainly, obviously, in the total of the year, it should be clearly positive.

Our next question comes from the line of Ignacio Ulargui Lopez from BNP Paribas.

Two questions for me. One, looking to the deposit mix and the evolution of the deposit mix. And you were pointing out that there has been a bit of a stability between the interest bearing and noninterest-bearing deposits. Have you noticed any change in terms of behavior from customers? Do you feel retail are becoming a bit more price-sensitive going forward into year 2027? How should we think about that mix? The second question is on fees and revenues for services. I mean if you could elaborate a bit on the run rate we are having today is close to 8%, whether you think that, that rate is sustainable in the long term based on what you were commenting, I would expect, how but just wanted to get a bit of color on that growth being mindful of the market volatility? And also within that, on banking fees, I have seen that banking fees, excluding SRPs, have stabilized this quarter. They are growing for the first time in a long time? Should we see this like the bottom of the quarter 4 for the traditional banking fees?

Thank you, Nacio. I'll start and Javier you complement, as you wish. On deposit behavior, I don't think so. I think as Javier has elaborated, this is more a macro factor associated to higher inflation, lower disposable income or lower growth in disposable income, sorry, and lower savings rate and also interest rates. And obviously, you look at the previous cycle of interest rate increases in 2022 to 2023. We had something similar in this case, we saw a strong increase in the purchase of treasury bills. So there is some money that in the context of an increase in rates will look for, let's say, hot money or look for the highest rate, and we are not likely to be in that position generally. So I don't think there's a change in client behavior is yet another cycle of increase in interest rates. And certainly, the numbers were seen indicate that behavior. And again, in this context for us to gain market share and to grow our household site deposits by 3%, I think, is very good numbers. And I feel, I'm sure you're [indiscernible] and I would for a 5% because the market was doing better. But in this sort of a few quarters where you have the change of the pace, the fact that we are clearly, again, outperforming is something that I value very highly. In terms of fees services, generally revenue from services. I'll start, Javier, please add. But I would say the structural trends are quite positive and they are likely to stay. And this is looking into wealth management, are we going to have sort of high flows into wealth management products on a sustained basis given our market position and given potential for the country, which I discussed, the answer is absolutely yes. What is more difficult to forecast is, obviously, the market's ups and downs. This year has been pretty positive in terms of how market value of our AUMs have evolved, and we are not going to have that every year. So but that's fairly easy for you to forecast if there's another good year, you should see, obviously, very strong growth there. And if we have at some point down year this will cyclically slow down. But other than market movements, to be honest, the position is fantastic. We've been gaining market share on these products for as far as I remember. Certainly, we put the last 10 years, and it's kind of quarter after quarter. So that's pretty good. And obviously, that results in increase in revenues and protection that is very much the case, both non-life and life risk is great dynamics. I'll stop there so that SRTs and what have you for a...

No, yes. Well, on fees, maybe because you had a question Nacio, much about if we are bottoming on more recurring banking fees, where we think so, although you know that we have on that line, the impact from SRT that we are being transparent on what it is impacting. And as we are expecting to be more and more active, obviously, there will be an impact. But it's true that the underlying looks better. So I think that there are certain parts that are being able to stabilize like some pressure we had on, for example, on maintenance fees on debit cards for payments, also maintenance fees on current accounts. All that part is, I would say, much more stable. I will not say that it's fully stable, but is at least the downtrend has been -- it's much less intense. On the other hand, we have positives on other parts like everything related to, for example, securities to foreign exchange. So all those parts are doing pretty well. and to some extent, compensating well also CIB, although it's not, I would say, recurring banking fees because are always more volatile. But CIB is also contributing more and more. So I think that, yes, we may be at the bottom. I am not saying by this that we are going to go the other way around recovering, but at least that this is not going to be a clear negative anymore. So you're right.

Next question comes from the line of Francisco Riquel from Alantra.

Yes. I want to focus on deposits, which is the hot topic today. So I understand the macro reasons for the slowdown that you have mentioned. But I want to focus on the relative performance in Spain because deposits in Spain slowed down to 2.5% growth in Q3 and the sector is up 4%. So demand deposits in Spain fell 3.4% Q-on-Q, it's a seasonally weak quarter, but Q3 '25, the fall was just less than 2%, and Portugal this year is down only that is also a market impacted by a rise in inflation. So I wonder if you think that you are losing ground in Spain in a more competitive sector environment for deposits. You can please comment on the relative performance. And my second question is in the cost of deposits, the gap between the costs with and without hedges has increased Q3, but you will start rolling over the legacy hedges in Q4 and Q1 next year. So if you can please give guidance on cost of deposits or deposit EBITDA going forward with and without hedges.

Thank you, Paco. Obviously, 2 very good questions. I'm going to try again to say what I'm trying to say in another way, we have to look at customer funds overall. And then let's look at 3 buckets. There is household site deposits and I don't like to talk about corporate side deposits because we're going to have a small part of which is nonremunerated, it's transaction of money. Most of it is going to be remunerated close to the deposit facility rate and creating really funding for the bank, but no margin. we don't need funding as opposed to some other institutions because we have a very comfortable liquidity position. So we're choosing not to push ahead on that part. But household side deposits, we love them because it give us -- usually, they are the consequence and the reason for a relationship with the clients. And obviously, they are zero cost funding and we all understand that's very attractive. So we're pushing there. And then we're not pushing on corporate set deposits, time deposits, generally, obviously, it will depend, but includes a lot of same money that is not adding value. It's providing liquidity and then we have the wealth management part where we see duration on margins and limited capital consumption. So we love that part. So there is 3 buckets where Canadian markets are growing faster in the first and in the third the 2 that are really profitable to us, and we are doing -- growing less than the market in the second one, which is where we do not see the attractiveness in terms of profits. Obviously, provides liquidity. Again, and I understand that others may be pushing there more or because they are trying to acquire customers through very high sort of rights teaser rates, et cetera. That's not what we do. So to be honest, we do not think we're losing ground. We think we're gaining ground where we want to and we are very satisfied. And again, we're very satisfied because I think the reason why we're successful on Bucket 1 and Bucket 3, the 2 that are really profitable are structural, and we're going to continue to gain traction and market share on that front. And cost of deposits, Javier?

Yes. Thank you, Paco. Well, I think that it's pretty clear the difference between the cost of deposits win and without hedges. And you know that we provide all the information about hedges. So you can model exactly which is the impact of that path into, let's say, cost of deposits depending on the assumptions you make on the yield curve. This is pretty simple and automatic. What matters is the commercial trends beyond those hedges because well, it tells you about precisely what Gonzalo has just been commenting. And well on that front, we are working with a base case that the deposit betas are going to be in the low 20s. We don't see any reason to change that forecast. What is true is that probably it applies to a slightly lower volume of deposits than initially expected. But as said, focusing on what adds value to the bank, that basically those transactional deposits with very low remuneration and then also on Wealth Management business. The exact trajectory of deposit costs with and without hedges, I could say Paco, that depends a lot on your assumptions on the overnight rate because a tolls what is impacting that part, but it's true that with rates moving upwards, that gap probably will increase a little bit. it's true that with the maturity of those legacy hedges will close again, but then it will depend on the evolution of rates going forward.

Next question is from the line of Miruna Chirea from Jefferies.

I had 2 on rate sensitivity and on the cost of deposits as well. Firstly, on the rate sensitivity. We know that you have reduced over the summer or sensitivity or your post sensitivity from 7.5% to 5%. And I was wondering if you could explain us better what led to this reduction? And if it's been because you've been growing more than expected in fixed rate mortgages, for example, why not swap more to many of the sensitivity at 7.5% as you're targeting and when would you expect to go back to 7.5%? And then in terms of the 17 basis point increase in cost of deposits on the interest-bearing balances in the quarter, much of that has been automatic versus how much has been commercial decision to pass through? So just trying to get a sense of deposit betas on the managed portion of the portfolio.

Okay. well, sorry, on that -- thank you, Okay. So well, on rate sensitivity, the 7.5% is like a target. So as you can imagine, you cannot run a balance sheet of EUR 700 billion exactly with a sensitivity almost every day. So the balance sheet has its own dynamics and the sensitivity is always built on the assumption of the future evolution of the business because, actually, we are providing, as you know very well, our NII sensitivity is 1 year on year forward. So in order to do that, you have to count on an estimate, on the evolution of your commercial side of the balance sheet on the business itself. And what has happened is, as you know, very well is that we have had a faster loan growth than initially expected. Hence, we have had a reduction in our sensitivity because part of that new loan production is at fixed rate, not only mortgages that are also although, obviously, with -- to a lesser extent, but there is -- there are always some other parts that also at fixed rate. To your question about why normal hedges is because we have assessed that as this has happened in a process that rates were moving upwards. So -- and now rates are already pricing, let's say, ECB rates over 3% is fine if we are more [indiscernible] 5% than 7.5% because it's a move that has already happened, okay? So increasing the sensitivity now you would be betting that rates keep moving upwards. And well, this is less clear to us, honestly, compared to what is already priced. So I mean that not that are actually moving upwards or not. So I mean, compared to what is priced. And this is why we have decided to keep our sensitivity, [ Filca 5%, ] but anyhow, is pretty close to our target. Sorry, I had a question on deposits. On deposits, the 17 basis points increase. The bulk of the increase is coming from indexed deposits that are basically corporate deposits back to the answer from Gonzalo previously. So this is money that is obviously expensive money with a margin on the overall rate, positive margin for us, but obviously, not large. And the repricing is pretty automatic, and we continue to keep, you can continue to take this 50 to 50 between, let's say, index and, let's say, time deposits that are usually retail deposits that are usually with maturities 6 to 12 months, and then there is a renegotiation process, there is a back book, and it takes longer to reprice upwards. So the bulk of that increase is coming from that part.

Next question comes from the line of Antonio Reale from Bank of America.

It's Antonio from Bank of America.Just a couple of questions from my side, please. The first one, if you could give us an update on what you're seeing on the lending side you're still gaining market share without diluting returns, at least judging by the ROTE update you've given us. Can you maybe give us a bit more color on what you're seeing in terms of appetite from clients and how your competitors are changing sort of the approach with higher rates? That would be my first question. And secondly, on costs, inflation in Spain is running at around 4%, which is probably higher than anybody would have expected at the start of the year. So I wonder how that would affect your cost based on what flexibility you retain to sort of mitigate this effect?

Thank you, Antonio. On the lending side, we're seeing better trends than what you would expect, and particularly also looking at the recent publication by the ECB on sort of evolution of deli demand and conditions throughout the Eurozone. There is quite some traction certainly for us. And to some extent, we're being surprised. You could think that at some point, lending role will gradually come slightly down, closer to nominal GDP compared to where we are. And I guess that's probably the conservative and logical assumption to be made. So rather than the 8% growth that you see now, maybe we're in the year at around 7%. But again, we're seeing fairly strong trends. The other thing is something, Javier would speak much better than I do. But you all know that capital markets have become tighter, lower liquidity and certainly higher funding costs for everybody, including financial institutions. This is something that, I think, relative to others because of our liquidity position favors us. And I think, obviously, this experience is that gradually this translates into asset spreads when you look at capital markets, having larger spreads, this usually does not immediately impact but more sooner or later, it does. And then it's not yet asset spreads, but obviously, it's been also the base rate. So the combination of all these, I think, is likely to lead to a market that is I guess, not as tight as it is now on the asset side as it has been in terms of pricing and in terms of volumes, as I said, obviously, some slowdown likely, but I have to say not much, but in or sort of distortion internationally. That's how I see it. And with respect to inflation, obviously, it's fast, higher than expected. So it does create, I think, upside risks and costs everywhere throughout the system. What I can say is that we should continue to find ways to offset this inflation. That's my sense. Certainly, we are in an opportunity to reiterate our guidance, which obviously includes this year and also for next year in order to meet our year guidance, that means a significant slowdown, the acceleration if the implicit in the target is going to be closer to 3% and above the 4% as we are now. That requires, as you say, quite some efforts, but we're beginning to see results from all the productivity enhancements that we're doing have to do with our Cosmos projects technology, including AI, but not only -- so I think it's going to be tough. But we are optimistic that we can manage our cost base proactively and offset this additional pressure on the inflation.