Unicaja Banco, S.A. (UNI) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us today for Unicaja Banco Fourth Quarter Earnings Conference Call. Today, I'm joined by Manuel Menendez, our Chief Executive Officer; Pablo Gonzalez, our Chief Financial Officer; Juan Pablo Lopez, our Investor Relations Officer. After the presentation, we will hold a live Q&A session of approximately 30 minutes. And now I leave you with our CEO. Manuel?

Thank you, Alberto. Good morning, everyone. Thank you for attending Unicaja Banco 2021 earnings conference call. We are going to quickly review the calendar and key milestones after the merger with Liberbank. And then we will go straight into the quarterly results. Keep in mind that we have tried to show our numbers on a pro forma basis in order to facilitate the comparison and analysis of the business evolution. Starting in Slide 3. As you can see on the left-hand side, we keep making progress with integration. In December, we closed an agreement with the labor unions for the exit of 1,513 employees to achieve synergies of close to EUR 100 million on top of the ones already in place from the employees on our relief coming from Liberbank. As a reminder, we announced a total savings of around EUR 155 million by 2024 versus the 2021 figure. The next milestone from the merger is for the core banking IT migration, which we will still see taking place in the second quarter of the year. We have a detailed road map, which is well on track. On the right-hand side, a quick recap of the strategic plan we presented in December. We are basically going to focus on capturing the synergies we have explained to you before, while accelerating commercial activity on core products and maintaining a conservative risk profile. These 3 main lines will be supported by our focus on sustainability and the progress of digital banking. As a result, we expect to generate capital of around EUR 1.5 billion during the plan and achieved a return on tangible equity of above 8% in 2024 adjusted for excess capital. Now getting into the activity of the third quarter. Business activity remains very strong. We keep delivering very good results in our core businesses, residential mortgages and mutual funds. Mutual funds are up 23% year-on-year and we are gaining market share quarter after quarter. We are confident in this business line going forward. Residential mortgage book is up 3% year-on-year and the new lending in the year was 35% higher than last year. You can see that achieving these results in the middle of an integration is very remarkable. Additionally, consumer lending is starting to pick up, and you can see new lending up 28% quarter-on-quarter. And we also expect a good trend in 2022. On profitability, net interest income has decreased this quarter due to 2 main reasons, which are temporary, the fixed income portfolio restructuring after the merger with Liberbank and the extra liquidity that came in these last 2 quarters, mainly deposits from the public sector. We are in the process to reverse these impacts. We plan to continue deploying part of the liquidity into our growing loan book, transferring on-balance sheet products to our balance sheet; and lastly, reducing the negative carry we have on some deposits, [ charging ] rates to corporates and public sector deposits at a larger extent. We already see some positive evolution in the first quarter of the year, which we will review later in the presentation. Regarding fees, very good news here. These are up 10.6% in the quarter and 19.5% in the year. This is a result of significant growth in our core business lines, mutual funds, insurance and payments. Asset quality is still going in the right direction. Cost of risk in the last 2 quarters has been around 40 basis points. A large percentage of NPL entries are subjected. And with our current coverage levels of 69%, we feel we are in a good position. Finally, about capital. CET1 fully loaded ratio stands at 12.5% after all the restructuring charges, which is in line with our management target. We have a very comfortable capital position for our risk profile and we expect to keep generating capital organically. Part of this will be automatic as CET1 and thresholds increase, we will have lower deduction from capital. Brief ending note on dividends. Our target is to distribute 50% of 2021 results and we have already deducted EUR 69 million from our capital ratios. And now Juan Pablo will review the business activity this quarter in more detail.

Thank you, Manuel. Let's start with customer funds in Slide #7, retail customer funds, both on-balance sheet and off-balance sheet, keep posting positive growth. This is a result of our strong franchise. And probably let me take a closer look to our institutional deposits on the right side. We currently have more than EUR 22 billion and we are charging around 23 basis points on EUR 3.5 billion. This is EUR 600 million more than last quarter. We expect a much better development in next quarters. We have already announced our new pricing policy to these customers and we plan to charge 50 basis points to around EUR 9 billion of deposits on top of the EUR 3.5 billion commented. If they do not accept the new rate, the deposits will [ live ]. In any case, the result on P&L is the same as the deposits are costing us 50 basis points. We already expect to see a EUR 3 million positive impact on NII in the first quarter because of these measures and EUR 10 million in the following quarters. Regarding off-balance sheet funds, mutual funds are doing extremely well, up around 23% year-on-year. And also pension plans keep delivering positive growth. As you know, this is very important for us as we have a lot of extra liquidity sitting on deposits yielding nothing for our customers and costing us money. We will keep working with our customers to provide them more value-added saving products. Moving to the next slide, we take a closer look to our mutual fund business. On the left side, you can see the mutual funds evolution in the last 4 years, the growth rate is accelerating during the last few quarters. And we are achieving this growth mainly with existing customers. And you can see net subscriptions are more than EUR 2.1 billion in the year, which is 3x more than 2020. Last quarter, net subscriptions were close to EUR 500 million, almost a 9% market share. What is more important is that the business activity translates into profitability. As you can see on the bottom right, we have made EUR 97 million worth of fees in 2021. This is 27% more than last year. As we said in the strategic plan, our starting point is low. We are doing the right things in this business and the efforts are paying off, even ahead of the plan right now. Now moving to insurance. This is a business that is evolving very positively. You can see the development of new insurance premiums over the year with a very strong fourth quarter, especially in the non-life insurance business. On the right-hand side, you can see total revenues from insurance is 12% higher than last year, and it accounts for more than 10% of the gross income. We expect to keep performing quite well going forward. And now moving to lending. Private sector loan book is 3% up year-on-year. The corporate loan book recovered in the last quarter with some relatively low risk exposures as we wanted to guarantee the fulfillment of TLTRO benchmark. And the mortgage stock keeps growing quarter after quarter and consumer lending book grew at almost 2% quarter-on-quarter. Actually, in these 2 portfolios, mortgage and consumer, we are seeing the momentum is accelerating at the beginning of the year, in line with our plan. Next slide, on new lending activity. And starting with mortgages, new lending was slightly above EUR 1 billion in the quarter. This is 3.4% higher than last quarter. And the full year new production is EUR 4.5 billion, well above 2020. This is our core product. We are focused and we are very happy with the first 6 months after the merger, where we can see we are starting to apply best practices in the entire organization already. We are confident we can achieve our targets. Actually, the new production during the first month of 2022 was close to EUR 400 million in a seasonal weaker month. Consumer lending is starting to pick up, and we can see new lending in the quarter is 28% above last quarter and 2021 new lending is 8% in the year versus 2020. Corporate lending is impacted by ICO loans in the full year comparison and by some extra lending this quarter for not risking the TLTRO benchmark achievement. All in all, you can see total new lending in the year almost at the same levels of 2020, which was extraordinarily high due to the ICO loans. Now in Slide 12, we show a little bit more detail on our 2 biggest portfolios. You can see the main KPIs on the residential mortgage book, 92% is first residence and 91% of the book with an LTV below 80%. In terms of geographical exposure, we have a leadership position in our original regions and we are also able to generate very good volumes in other big cities, as it is the case of Madrid and Barcelona. We also have potential to do more in our original regions. One example is Seville or Malaga in Andalucia that is doing very well. On the bottom left, we keep a conservative profile in the new mortgages, while we are able to expand our relationship with our clients through cross-selling. On the corporate portfolio, maybe a quick note on the ICO loans. They are performing in line with our expectations. As of now, we expect a good development here, but we will have to wait until the second half of the year to be more specific. You can see that 60% of the book is already paying principal with limited impact in asset quality. And as a reminder, 75% of this stock is backed by the state guarantee. On Slide 13, we want to show our main development during the last quarters for our digital business activity. We are following 3 pillars in our strategy. First one, we are scaling up our remote capabilities, offering new services to households and corporates. Second pillar is our omnichannel strategy that keeps advancing, and we have already 51% of our customers that operate digitally. And finally, on partnerships, we have recently partnered with IKEA to offer a full home service when clients get a mortgage with us. In the next slide, sustainability is one of the 5 pillars of the strategic plan, and we are making a major effort to further develop our ESG strategy. We continue working on the development of sustainable products on the preparation for the next ECB climate stress test and on the development of green framework for the next debt issuance. In this slide, just let me highlight that what we want to show here is our latest development, which is the next-generation EU fund simulator that provides our clients with all the necessary information to manage and request the EU funds. With this tool, we aim to facilitate the process for them and those [ increasing ] their loyalty. And now, switching to the next topic. This is financial results on Slide #16. We will comment some lines later more in detail. So let me highlight here just a few things. The first one is the NII. Net interest income is down 6.4% quarter-on-quarter, mainly due to the fixed income portfolio of restructuring and the excess liquidity that entered the bank in the last 2 quarters. We will see this in more detail later. Fee income is performing really well, and it is 21% up compared to the same quarter last year and 11% up versus last quarter. On a full year basis, we have made EUR 80 million of higher fees than last year. We expect to maintain a very good evolution going forward in this line. Regarding OpEx, personnel expenses goes down again in the quarter as we have the savings from the Liberbank employees that were on agreed leave. And the same happens to depreciation. You can already see the savings coming from lower amortizations on the back of Liberbank intangibles write-down. Regarding general expenses, they are lower than last quarter as we usually adjust the internal budget at the end of the year. And finally, other provisions include a non-mandatory one-off prudential provision charge of around EUR 13 million for financial guarantees. And other profits and losses, here we took a prudent approach and updated the valuation of the real estate assets. We believe this is extraordinary as the disposals are going well with no impact on P&L, actually the opposite. And now going into a bit more detail in Slide 17. On the left side, you can see customer spread reduction is due to Euribor repricing that is over and a more competitive landscape for corporates on the back of the TLTRO benchmark already commented. And on the right-hand side, we show the front book and back book of the total loan portfolio and mortgage portfolio. The front book for the total portfolio is influenced by the yield of some corporate lending we granted related to the TLTRO. And in the mortgage book, you can see front book remains above the back book. And actually this quarter, with very limited pressure from Euribor, the back book has gone up slightly. Moving to the next slide. I will spend a bit more time in this one, where we show the quarterly evolution of the NII. We have 3 main impacts this quarter, which should be transitory. First one, lending. Here, we have an impact from the repricing to the lower Euribor that is almost over, and we could even start to see some positive repricing in the short-term. As you can see, loan volumes continue to support NII. And going forward, we expect lending to increase its contribution to NII. Second impact is the lower contribution of the ALCO portfolio as we restructure part of the portfolio in the integration process, and we have some liquidity to reinvest. We started already at the end of this year, but still we have EUR 7 billion to reinvest. In any case, the NII improvement that we see in the following quarters, we are not taking into consideration this reinvestment. Third, the increase in liquidity in the quarter, mainly from the public sector and new issuance, caused a negative carry. We expect this to revert in the short-term. As commented, we expect to charge to around EUR 9 billion deposits, close to 50 basis points. And we already expect to see the positive impact in the first Q 2022. Going forward, we see this 4Q as the bottom as we expect that higher lending volumes, reinvestment of the ALCO portfolio and a better management of the liquidity charging to more institutional deposits and switching from on-balance sheet to off-balance sheet products that should support the NII in the following quarters. Moving now to the next slide. Let's focus on the table on the right. You can see banking fees. This is mainly payment and current account. Maintenance fees increased 25% in the year and 10% in the quarter. Mutual funds, which is a key lever for our medium-term strategy, performed very well, 27% up versus last year. And also insurance is also growing at double-digit. Here, we had around EUR 3 million of seasonal fees from [ earnout ] that usually takes place every 4Q if business does well. All in all, fees grew at 20% in the year. And this is a remarkable performance and one of the main drivers for the improvement of the future profitability. Now in the next slide, regarding OpEx, you can see total expenses are down 2% year-on-year and the trend in the last quarter has been positive. We are moving fast. Since the merger was announced, we have closed more than 10% of the branch network organically, and the number of employees has decreased by 9%. As you know, we closed in December an agreement with the trade unions for the exit of slightly over 1,500 employees. And we are now in the process of analyzing the exit request. Next slide, you can see cost of risk is normalizing. Cost of risk in the last 2 quarters has been around 40 basis points and total cost of risk for the year is 49 basis points. Thus, we continue in the right direction to reach an average level of close to 25 basis points for 2022-'24, according to the strategic plan. Our current coverage levels of 69%, together with a conservative loan book with 70% of the exposure being mortgage on public sector and also considering the fact that a large percentage of NPLs are subjective make us comfortable with this guidance. And now, I pass the word to Pablo.

Thank you, Juan Pablo. Let's move now to asset quality. On the top left-hand side, you can see the quarterly evolution of non-performing loan stock. In the fourth quarter '21, there is EUR 100 million increase, although around 70% of the increase in the quarter are subjective and should be treated as extraordinaries as we finalize some portfolio reviews. This also explains the decrease on coverage ratio to 69% affected by the lower level of coverage of subjective doubtful entries. At the bottom, you can see half of our NPLs are mortgages with a real and liquid collateral behind. Also, on the top right, you can see a bit more detail regarding coverage ratio by portfolios. We believe it explains by itself, especially in portfolios with strong collateral and low LGD like the mortgage book. On the bottom right, you can see something also important, which is that the Stage 2 coverage is almost double the sector average and reflects a front-loading effort from our side. Next slide. Foreclosed assets are down EUR 114 million quarter-on-quarter. You can see we have had around EUR 440 million of outflows during the year with no portfolio transactions. The disposal of foreclosed assets is a main focus for the bank as this has a positive impact on P&L and capital. Coverage ratios continue increasing again this quarter to 63%, which will support the pace of disposals going forward. Looking now at NPAs altogether. NPA ratio slightly improved to 7.2% and coverage ratio decreased 2 percentage points to 65%, affected, as we explained, by the subjective NPLs. Having said that, when we look at the NPAs net of coverage, the ratio has remained stable at 2.6%. We are confident to achieve the NPA ratio below 5% by 2023 and 4% by 2024 as we have communicated in the recent past. Moving now to solvency. Let me explain the main movements in the bridge. First of all, and this is one of the merger drivers, we are using capital to improve further profitability. So the restructuring costs, we commented before, that implies the exit of around 1,500 employees had an impact of 110 basis points on capital. This impact is gross of taxes. We expect the DTAs we generate to become capital in the following quarters. Second, organic capital generation was around 5 basis points in the quarter. This takes into consideration lower risk-weighted assets, the AT1 coupon and EUR 8 million dividend accrual in the quarter, which, with the rest of the year, it sums EUR 69 million in the year. Third, the valuation adjustments, mainly in the EDP, did well in the quarter. And lastly, the lower CET1 implies lower thresholds that explains another 14 basis point impact. All this brings the CET1 fully loaded to 12.5%, that is in line with the management target, and we believe it is a comfortable level after absorbing all the restructuring costs and increasing NPAs coverage, among others. That again will mean improving profitability in the next years. Very quickly on the next slide. Over the last few months in November 2021, and most recently in January 2022, we have carried out a series of issuance that have allowed us to strengthen our capital ratios and allow us to comply with our MREL requirements. In all cases, the issuance has been a success with a high volume of demand. We have issued EUR 500 million of AT1 and EUR 300 million of Tier 2 to replace our expensive Tier 2 callable in March with a coupon of almost 7% and EUR 660 million of senior debt. Moving to the next slide. On the fixed income portfolio, as we explained in the third quarter result presentation, the size of the fixed income portfolio decreased at the end of last quarter due to the EUR 3 billion maturities related to the TLTRO portfolio and the restructuring of the fixed income portfolio coming from Liberbank. In the fourth quarter, we were expecting to reinvest part of the excess liquidity, but we postponed the reinvestment as government yields were still too low in the quarter. This delay has had a negative impact on NII in the fourth quarter, as we already commented in the presentation. We have already started to reinvest, and we can tell you that the purchases already made have been carried out at a higher rate than expected. Although we expect to reinvest some of the excess liquidity, the size of the portfolio is expected to be lower than in the past as we allocate part of the liquidity to a growing lending book and of balance sheet products. On liquidity, the message in the last slide of the presentation is the strong liquidity position we currently have. We expect to use this to our advantage and improve profitability, thanks to our current position. And on the right, we show capital markets outstanding funding and maturity profile. These are mainly covered bonds, senior and Tier 2. We have excluded from the graph EUR 300 million of Liberbank Tier 2 with a call date next March that we will replace from our recent issuance of Tier 2 at a much lower cost. You can see the maturities, they are well spread in the next years and coupons are relatively high. Now, Manuel is going to give you some closing remarks.

Thank you, Pablo. As we saw at the beginning of the presentation, we released a 3-year strategic plan last December. I would like to point out that this quarter is a very good start for the achievement of our ambitious targets. This year, we closed the merger and we have still been able to achieve some great results in the main strategic plan lines. On the first pillar, accelerate commercial activity, the performing loan book grew 2.4%, and we expect to achieve around 5% [ degrowth ] during the plan. Mutual funds are doing even better than expected and we have all the tools required to achieve our target growth rate. The second pillar, improved efficiency, we closed the year with a 62% efficiency ratio. The agreement with trade unions for the exit of 1,500 employees will imply around EUR 100 million of cost savings on top of the EUR 40 million coming from Liberbank's employees on [ relief ]. As a pro forma, if we consider these synergies, we would be standing at a 53% efficiency ratio right now. On asset quality, we feel comfortable with our current position towards achieving our 2024 targets. As you know, we have been very conservative on NPL recognition and coverage, and this will help in the future. All in all, we are in a good starting point towards achieving a return on tangible equity of about 8%, considering a 12.5% CET1 fully loaded by 2024, while returning capital recurrently to our shareholders. And now we can start with the Q&A.

Thank you, Manuel. We will now start with the Q&A session. If you could please keep it to 2 questions, we have 30 minutes, this way we can allow the maximum number of participants. Now operator, please go ahead with the first question.

[Operator Instructions] Our first question comes from the line of Ignacio Ulargui from BNP Paribas.

I just have 2 questions. One is a bit on NII outlook for 2022. If you could just, you have said that you see fourth Q to be like the floor of NII would do get a bit of a sense on how do you see the TLTRO maturity is expanding and whether that guidance is excluding TLTRO? And second question is on capital. How do we have to see the sort of like DTA recognition positive impact from the early retirement? How much capital we will be generating into 2022 based on that?

I'll take the first question on NII. As you mentioned and we said in the third quarter, we expect this quarter to be the bottom and gradually improve in the coming quarters. And the major reasons, as we have explained are the management of the liquidity, the deposits, we expect some positive in the first quarter around EUR 3 million and around EUR 10 million in the following quarters. And if we assume around EUR 9 billion of management of liquidity, the deposits, either charging or leaving the bank at around 50 basis points, you come with those numbers. On top of that, we have the expected loan growth at mid-single digits and the reinvestment of the ALCO portfolio. And as you said, we haven't considered any potential benefit from the TLTRO in the guideline that I'm going to give you. So we expect to lose the extra 50 basis point in the second half of the year, and we haven't considered any tier in as well. So all in all, with these assumptions, we see the NII recovering in the next quarters and for the whole year. If we take as a starting point the annualized fourth quarter NII, we expect a growth of low to mid-single-digit for the whole year. But still, this is not enough to compensate the 2021 number compared with the 2022.

Regarding capital, we reiterate our guidance of the strategic plan. So we expect a positive trend and use our excess capital above the 12.5% target to improve the remuneration of the shareholders and also to improve the profitability of the bank. And I think Juan Pablo can give more information about the question.

Regarding DTAs, as you know, we carry out different charges in the PPA, both in NPLs, real estate assets, other assets and the personnel and restructuring costs. All these charges were gross. The impact was gross in capital. So we suffered the impact right now. And going forward, what do we expect, we will have 2 benefits. First one, as some of these temporary differences on DTAs reverse, for instance when we start paying to the early retired employees, that will go through capital, that will go back. The limit for that capital origination would be the net profit of each year. But we can tell you that together, the fact that 85% of the employees will leave in 2022, so this is something relatively quick will make that those DTAs will come relatively quicker, relatively fast than I said. The limit is the net profit of each year. And maybe just one comment here. There is another impact coming through the threshold as CET1 increase, also a threshold increase and the reductions coming from threshold are also lower. So there are 2 impacts.

Operator, can we have the next question please?

Our next question comes from the line of Maksym Mishyn from JB Capital Markets.

I have 2. The first one is on mortgages. The market remains very competitive. And I was wondering if you could hint us what returns do you get from new mortgage production? Also, how much of new mortgages goes out at fixed rates and how much of this do you swap for the floater? And then the second question is on NPLs. I was wondering if you could provide some more color on the increase in the subjective NPLs in the quarter. And if this increase wouldn't happen, how much the cost of risk would be?

Well, I will take the first one regarding the yields on mortgages. As you probably saw in the presentation, the front book right now is around 1.27%. And we are seeing that the market is with a strong competition. We expect a similar level for next quarters. Very [indiscernible] as well that we are not only making NII, the cross-selling is another source of revenue. We are making more than 55 basis points through cross-selling. That's something that you see in the fee income line like in this quarter.

Yes. Regarding if we hedge the fixed to floating of the mortgage production, we have managed and we do manage our interest rate sensitivity, not hedging one part or another part more on a global and balanced analysis. And I can confirm you that we have quite a position of the balance for higher rates that will improve our NII. So I think it's not if we hedge these mortgage or that fixed income of the deposits on our liability, we look at the interest rate risk with a holistic view for the whole balance. Regarding NPL, in the fourth quarter, we have front-loaded some NPLs, anticipating the potential increase in NPLs in 2022. And you can see that by looking at what kind of NPLs have we had, it's around 70% of those NPL entries where -- in the quarter were subjective NPL. It's not that they are due more than 90 days. And if you look at our whole stock of NPL, it's around 40% is subjective. And even with those numbers, during this year, we have decreased the NPL number. I think, the point, how much could have been the cost of risk, I think was another point. It's always hard. We have taken another effort in this year. We have been prudent and we want to maintain this prudent approach on NPL recognition and cost of risk. But we maintain our guidance that it's going to be 25% for the next 3 years of our strategic plan. Obviously this is going to be reducing from higher numbers to lower numbers at the end of the period, but we wanted to be prudent until we have more clarity on what happened with the ICO loans, payment holidays ending in the second quarter of next year.

Operator, next question please.

Our next question comes from the line of Carlos Peixoto from CaixaBank.

So a couple of questions from my side as well. So, on the ALCO portfolio side, just as a quick one, what would be the size or the structural size that you will be aiming for in terms of ALCO portfolio? Then on the fee side, what type of outlook should we think or whatever growth do you expect in 2022? And within the fourth quarter numbers, how much of the fees reported derived from success fees?

I'll take the ALCO portfolio. I think, to come up with the number -- exact number, obviously we have some different forecasts. And as we mentioned, we were even planning to already be investing in the ALCO portfolio the excess liquidity, but we didn't see the right timing for investing due to the government bond interest rate level in the fourth quarter. So we delayed a little bit that increase. And as we said, we have around EUR 7 billion to be invested. And even without that investment, I think it's important that I mentioned that we expect to maintain around EUR 50 million to EUR 52 million or EUR 53 million for the coming quarters, even without any reinvestment of the ALCO portfolio. So, I think the drag that the ALCO portfolio has been for the NII in the last few quarters, I think it's over. And from now on, we have a clear view that at least maintain the level of contribution from the ALCO portfolio and increasing depending on market condition. And I cannot say if it's going to be EUR 1 billion, EUR 2 billion, EUR 5 billion, even the EUR 7 billion that we have of excess liquidity and capability to invest.

And regarding fees, as you saw in the quarter, the trend is very, very positive with fees increasing more than 10% quarter-on-quarter and more than 20% during the year. And this is a combination of our 3 main pillars. First one is the mutual funds, where fees are 27% up. And something interesting here is the quarterly contribution, in the 4Q, the contribution was EUR 27 million. This compares to EUR 21 million at the beginning of the year. So this is EUR 6 million more per quarter, so EUR 24 million on an annual basis. And that's why we are saying that we are ahead of the plan in this line. And this is basically with volumes. As you know, there is another lever that we can use. And this is the change of the mix to more profitable products. This is something that we would see in 2022. This is something that takes time to change the prospectus of the funds to move the funds. And this is something that you will see in the second half of 2022. But just basically with volumes, we are making almost EUR 24 million more on an annual basis, and the inertia is good going forward. Then regarding insurance, the fees are 10% up during the year and the trend is also good. As you know, we are in the process to renegotiate our partnerships. And we already book a provision in the PPA for this and allocate capital to this process. We feel comfortable with this capital allocation. And the message here is that we are ready to, again, to use capital and to improve the recurring revenues on this business, so something that we are positive for the next quarters. And lastly, payments. Payments and current accounts are doing well, and we see a larger contribution going forward. So all in all, what we expect is fee income to grow double-digit in 2022 compared to 2021. And there was also a question more specifically regarding the quarter, there were EUR 3 million in the quarter regarding the achievement of the business plan in the insurance business plan, and this is something that we see almost every quarter, 4Q.

Operator, next question, please.

Our next question comes from the line of Borja Ramirez from Citi.

I have 2 quick questions. Firstly, on the volume growth outlook, if you could kindly provide a bit more details on the loan growth expectations by segment? And then, my second question would be regarding NPLs. If I understood well, there could be some potential increase related to the ICO loans. If you could kindly provide a bit more of details on this? And also, if you envisage any disposals?

I can take the first one regarding lending growth. And if we go through the different portfolios, first one, mortgages, they are up 3% in 2021, something that we are very happy in the middle of an integration. We believe the market continues to be attractive. We see big opportunities in some regions as Santa Lucia or Madrid. We are starting to share the best practices. An example of this is that all the networks are getting demand through different channels as real estate brokers with a good risk profile. And all in all, we expect this book to grow 6% this year, 2022. Probably here, let me again do highlight, the beginning of the year has been really good in 2022.The first month, we make almost EUR 400 million of new production in a weaker seasonal month. So this make us confident for the rest of the year. In consumer, the stock is almost 2% up. This is, again, a good start, and we expect this business to grow similar to mortgages, around 6%. That in euro terms is relatively modest. We are talking here about EUR 100 million increase in the stock. Another positive news is pricing. Pricing is a bit higher than expected, close to 7% of the new production. And this portfolio, as we usually say, with low risk makes a difference in terms of profitability with existing customers. And lastly, corporates. Corporates and SMEs, the 4Q, as we already commented, there is an influence coming from the TLTRO. Going forward, we do not expect growth in this portfolio in 2022. Actually we think it could decrease at low-single digit after all these TLTRO lending and the ICO loans. And probably we are a bit more or less optimistic regarding the next generation funds. We are ready, as we saw, we got the tools. We got the simulator. We are close to the administrations, municipalities, regions in our home regions and to our customers. So we are ready, but we are a bit less optimistic regarding this corporates and SME book in 2022. And overall, we expect lending book to grow at mid-single digit.

Let me take the question on NPL and what I said on ICO loans. What I said is that regarding the NPL, we have been taking a prudent approach. And obviously, as I said, 70% of the NPL recognition are subjective. This is because we are analyzing in-depth the ICO portfolios and the actual due in payments could be happen in the second quarter when the holiday payment finished for the ICO loans. So it's not that we expect the NPL to increase significantly in the coming quarters, but we prefer to maintain a prudent approach because this is an analysis on the potential future NPLs that would arrive. And obviously this is something hard to come across. We have a brighter view on the economic development. And we think the economy will perform and most of the ICO loans will perform, but we maintain a prudent approach in that sense, and that's why we have increased in the quarter with these subjective NPLs. And just to give you some color, if you look at the numbers of the recoveries in this quarter, we have recovered 65% of the outflows in the NPLs are recoveries or loans becoming performing. So it means that we have quite a prudent approach and most of the NPLs would either recover or become performing again. So I hope this answered your question.

Operator, next question, please.

Our next question comes from the line of Ignacio Cerezo from UBS.

The first one is on the non-credit impairments, which has been a source of a disappointment, but the number has been coming up more negative on a more recurring basis. So what kind of comfort can you give us that we're going to see a decline of top line, in line with the business plan guidance? And the second one is on the EUR 1.5 billion capital generation you are targeting. When considering the starting point in terms of capital, is there any upside risk to capital return dividends basically so that [indiscernible] of that capital is actually giving back to shareholders. So, is there any other alternatives you're considering for the capital generation?

So I will take the first one. Regarding provisions in this quarter in the line of other provisions include non-mandatory prudential charge of around EUR 13 million. This is for financial guarantees. These provisions are not mandatory from an accounting criteria. And this is the main reason that explains the difference between our guidance. Our quarterly guidance was between EUR 15 million to EUR 20 million in the actual 4Q. What we can tell you right now is that we reiterate that guidance that EUR 15 million to EUR 20 million per quarter.

Regarding capital generation, as I said, we maintain our plan -- according to our strategic plan, we expect to have a positive trend over the next years or the next few months. And the plan is to improve the remuneration shareholders and at the same time to improve the profitability of the bank. In terms of shareholders' remuneration, as you know, we are going to propose the dividend payment in our Annual General Meeting. And the proposal, of course, this year will be based on the recurring net income of the year. And you know that we have agreed a 50% payout on the pro forma net income for the year. And as I said, this is in line with our strategic plan. We announced -- we communicated that 50% payout target was something that is something that we've felt comfortable with, and that continues to be our target. At this point in time, we have not decided yet the mix of the dividend payment, the cash or share buybacks. As you know, in the recent past, both Liberbank and Unicaja paid cash and also did share buyback programs. So, a mix of both is something we could feel comfortable with. This is basically the situation that we have now.

Operator, next question, please.

Our next question comes from the line of Fernando Gil from Barclays.

I'm sorry if I missed one of the answers. My question is regarding pricing on the stocks. You commented that consumer is coming new production at around 7%, just to see how our trends on corporates and mortgages, which I may have missed.

Yes, you are right. In consumer, the book is around 6.5% more or less. And right now, the new production is a bit above that, around 6.9%, close to 7%. So this is even as well, it's a bit higher than our plan. And regarding mortgages, the back book right now is 1.1% yield. Obviously it has decreased in the last quarter because of the irregular repricing, but we are starting to see slightly, slightly increase in that back book. And regarding the front book, we are making right now at 1.27% in the 4Q, the new production. So this is obviously above the back book. We acknowledge and we see the market is with a strong competition right now. So we could expect around that 1.25% going forward. Something interesting about mortgages is that where we see more competition is in the wealthy customers and we are competing there. Obviously the yield is a bit lower, but also the capital consumption on those customers is lower. And in terms of RAROC, when we take into consideration everything, the RAROC is quite -- continues to be quite interesting. And as well, we commented the additional revenues coming from the cross-selling that is more than 50 -- around 55 basis points. And regarding corporates, the 4Q was more an extraordinary quarter. We see a significant decrease in the yields in low rate -- in high ratings in good quality names. This is linked to the TLTRO fulfillment, but we see this is something extraordinary at the end of the year related to the TLTRO. And we could see some better deals going forward.

Operator, I think we have time for one more question. If you could please get the final question through.

Our final question comes from the line of Carlos Cobo Catena from Societe Generale.

I guess most of my questions have been answered already. But because I joined a bit later, I'd like you to revisit what you said about NPL formation. I understand you've been prudent and reclassified probably more conservatively than peers. But some of the banks have guided for peak in NPLs already this quarter or in material growth from here, considering that you've been more present, are you aligned with that view that NPLs are not going to grow further from here or what's your view? I understand the cost of risk angle of that is clear, but I want to understand how the flows of NPLs are expected to perform.

I'll reiterate what I said, Carlos. I think, to have a clear view, we are not sure if the NPL peak. It's going to be the fourth quarter of this year or it's going to be the second quarter of next year of 2022 or third quarter. What we have been is, we have been prudent in analyzing all our portfolios and recognizing with different models, the potential NPL arriving. So, the actual number could be the fourth quarter but we maintained a prudent approach in that sense. And because we have most of the payment holidays for the ICO loans will be due in the second quarter, so we think we will have a clear view in the third quarter of next year. And we can confirm at that time if it's the third quarter the peak or it was this fourth quarter of the year.

With this final question, we will leave it here this time. Thank you, everyone, for joining and the entire Investor Relations team remains available for any further questions. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.