Banco De Sabadell Sa Ord

Good morning all and welcome to the Sabadell results presentation for the first quarter 2025. Today, we are joined by our CEO, César González Bueno, and our CFO, Sergio Palavecino. The presentation will take the same structure as previous quarters. Our CEO will begin by outlining the key developments of the quarter, followed by a discussion on the most significant topics. Next, our CFO will cover financial results and balance sheet developments before our CEO concludes with some closing remarks. Finally, we will open the floor for a live Q&A session. I will now hand over to César González Bueno to kick off our presentation.

Thank you, Juk. Good morning, everyone. I will start going through the key elements of this quarter in slide 4. The strong momentum in commercial activity continues. Performing loans grew by 5% and customer funds increased by more than 6% on the year. Secondly, asset quality remains strong. The NPL ratio fell to a new low of 2.67%, which is 79 basis points less than in the previous year. This translates into a substantial reduction of the cost of risk. At the end of the first quarter, the group's total cost of risk stands at 35 basis points. Thirdly, NII declined by 1.3% year-on-year due to lower interest rates and de-risking carried out. It remains resilient in a lower interest rate environment. Fourthly, on the 31st of March, we started the first of our two share-by-backs programs, which together amounted to $1 billion. As of 2 May, we have already repurchased 213 million euros, representing 21% of the 1 billion announced and 86 million shares. Once we conclude the first programme of 247 million, we will redeem the corresponding shares without waiting for the end of the second programme, which amounts to 755 million euros. Last but not least, our common equity tier 1 fully loaded ratio reached 13.3 with 29 basis points of capital generation in the quarter. This proves the strength of our capital business model, which focuses on capital return. We can generate significant amount of capital while funding our loan book growth. And remember, this is after accruing a 60% payout for our shareholders. The return on tangible equity stood at 14.1% on a recurrent basis. This is excluding the positive one-offs booked last year and including the equivalent amount of the bank tax for the last 12 months. We are well on track to meet our year-end target. Moving on to slide 5, I would like to point out that we are growing with lower risk to deliver healthy capital generation. I think this is a key element of the way we manage. On the left-hand side of the slide, you can see that our loan book XTSB is increasing at mid-single-digit rates, while probabilities of defaults of new lending are decreasing by double digits across all segments. In simple terms, we are de-risking our loan book. This translates into a lower loan yield, yes, but with a lower cost of risk. Therefore, there's a neutral impact on profitability while improving risk-adjusted return on capital. which is one of the key metrics that guides our actions. This allows to generate more capital and support a higher distribution capacity. This is reflected in our improvement of 100 million euros in our shareholder remuneration for 2025 to reach the 1.3 billion. As profitability remains strong, we are reconfirming our return on tangible equity guidance of close to 14% at the end of this year and above 14% in 26. In slide 6, we see the evolution of business volumes. The loan book continues to show strong momentum, growing by 0.9% in the quarter or 1.4% at constant exchange rates. On a year-on-year basis, it grew by 5%. Performing lows in Spain increased by 1.6 in the quarter and 5.5 year-on-year. In the UK, we see a mostly flat evolution in the quarter and a 2% increase year-on-year. Assuming a constant exchange rate, the yearly evolution has actually been flat, in line with our guidance. International businesses remained flat in the quarter. but had a positive evolution of 2.7% at constant effects. Year on year, growth reached double digits. Moving to the right hand of the slide, on balance sheet funds remained broadly stable in the quarter and grew by 4.5% year on year. Of balance sheet funds grew by 3.1% in the quarter and by 12.9% year on year. On slide 7, lending origination. It remains strong in Spain. New mortgages grew by 81% year-on-year, despite a 5% decrease in the quarter due to seasonality. New consumer loans grew by 26% year-on-year, remaining stable in the quarter. New loans and credit facilities to SMEs and corporates increased by 1%, comparing with Q1, while decreasing the quarter due to seasonality. Finally, origination of working capital finance increased by 2%, compared with the previous year, and was also affected by seasonality in the quarter. On slide 8... we see that the payment-related services remain strong in Q1. Car turnover increased by 6% year-on-year, while point-of-sale turnover increased by 5%. Quarter-on-quarter turnover decreased in both cases due to the normal seasonality. In the bottom half of the slide, we can see the evolution of customer funds in savings and investment products. They increased by 700 million euros in the quarter, driven by an increase of 1.4 billion in off-balance sheet products. Moving to slide 9, performing loan book excluding TSB. Despite the numbers that we saw before, I think the key element is what is the stock, and the performing loans in Spain increased by 1.6% quarter-on-quarter and by 5.5% year-on-year. This is the result of the positive evolution of lending origination together with a higher percentage of credit lines drawdowns. The mortgage book grew by 1.2% quarter-on-quarter and by 4.9% year-over-year. The stock of consumer loans grew by more than 20% year-on-year. Regarding SMEs and corporates, the loan book grew by 1.4 in the quarter and 4.8 in the last 12 months. Finally, the public sector also showed a positive evolution both in the quarter and in annual terms. On the right-hand side of the slide, you can see our international business performance. As I said previously, We had a positive evolution of 2.7% at constant effects in the quarter. In annual terms, we posted an increase at constant effects of 14%. All in all, performing loans excluding TSB grew by 6% year on year. This is in line with our guidance of mid-single-digit growth in the year. Let's move now to the UK business on slide 10. In Q1, new mortgage lending increased by 22% quarter on quarter and by 12% year on year. The loan book, nevertheless, remained stable as expected. New mortgage lending was partially fostered by the stamp duty changes that came into effect on April 1st. Mortgage applications, which are a leading indicator of future new lending, continue to rise. This will contribute to maintaining our mortgage loan going forward. Total customer deposits remain stable in the quarter, growing at around 1% year-on-year. We are seeing a reduction in switches from current accounts to savings accounts. This is aligned with a reduction in the remuneration of our savings products in January after the Bank of England cut interest rates in November last year. This explains the four basis points improvement in deposits costs quarter on quarter. Following another rate cut in February, we reduced savings product rates again on April 1st, and we will see its impact in Q2. If we now go to TSP's financial performance, contribution to the group net profit continued to improve and reach 94 million euros in the quarter. Going through the main lines of the P&L, NII increased by 2.4% this quarter, mainly due to the structural hedge contribution and a change in mortgage income recognition. This offsets fewer days in the quarter, lower mortgage spreads, and base rate cut. On the other hand, costs declined by 2% quarter-on-quarter and by 7.3% year-on-year, continuing the downward trend that was driven by the efficiency initiatives carried out last year. All in all, TSB's net profit amounted to £74 million. This figure includes a positive one-off item of £22 million net of taxes recorded under the other operating income line. This is due to a negotiated recovery under indemnities from a third party related to financial services support. All of these numbers bring us to a total return on tangible equity of 12.5. This is with a core tier one that reached 15.2 after the capital distribution of 300 million pounds to Banco Sabadell in the first quarter of the year. These Q1 results are aligned with the guidance that we provided for 2025. On slide 12, summary of groups, financial performance, and that will conclude this section before I pass it on to Sergi. NII declined by 1.3% year-on-year, while fees grew by 1.3%. Costs grew slightly by only 0.09%. Provisions decreased by more than 29% in the year, underpinned by improved asset quality and in line with our strategy and management actions. All in all, we posted a net profit of 489 million euros, resulting in a recurrent return on tangible equity of 14.1. We are well on track to meet our guidance. In terms of solvency, our capital ratio stands at 13.3, which compared to last quarter is an increase of 29 basis points. And now let me hand over to Sergio, who will talk us through the financials of the bank in more detail.

Thank you, Cesar, and good morning, everyone. Let's now move on to the financial results on slide 14. We recorded net profit of 489 million euros in Q1, which is a year-on-year increase of 58%. It is worth mentioning that this comparison is affected by a difference in the amount and the way we have recognized the Spanish banking tax. Last year, a bank levy of 192 million was recorded in full during the first quarter within the other income and expenses line, whereas this quarter the figure recorded is 31 million euros, which is 25% of the full year expected amount. It has been recognized under the taxes heading as it is now a tax rather than a levy. On top of that, and setting eyes on the recurrent items, our results were primarily underpinned by a reduction in provisions, which continues to reflect our solid risk management practices, as we will discuss in more detail later. The net profit represents a return on tangible equity of 14.1% on a recurrent basis, well aligned with our 14% guidance for year-end. We will now go through the different P&L items in more detail. Starting with NII on page 15, this line decreased by 1.8% quarter-on-quarter on a like-for-like basis and by 1.3% year-on-year, mainly explained by lower interest rates in the eurozone. On the top right-hand side of the page, you can see the drivers that explain the quarterly evolution. moving from left to right. Last quarter we recorded €1275 million in NII, so when excluding the €36 million positive one-off, we get an underlying figure of €1239 million. Customer NII had a negative contribution of just €2 million, mainly due to a minus €19 million impact stemming from a lower customer margin, due to the long book repricing at a lower rate. This impact has been mostly offset by the increase in the volume of loans and deposits during the quarter. The FX was neutral, with small movements in the most significant currencies in which the bank operates. Regarding ALCO, liquidity and wholesale funding, we have seen a net impact of minus 5 million euros, mainly attributed to liquidity, reflecting the lower ECB deposit facility rate. Finally, the day count represented an impact of minus 12 million, while other items accounted for minus 4 million. I would like to highlight that customer spread decreased by just two bips to 305, and net interest margin increased by two basis points to 202, showing low sensitivity to interest rates. Now, moving on to fees. This posted a marginal quarter-on-quarter decrease, primarily driven by lower car-related fees at TSB. Excluding TSB, fee levels remained broadly stable, even when factoring in the success fees recognized in Q4, which amounted to $12 million. On an annual basis, fees increased by 1.3%. The annual evolution of this line has been also impacted by a reduction in TSB. Excluding TSB, fees increased by 12 million, represented year-on-year growth of circa 4%. This performance was supported by a stronger asset management business and insurance. Now, moving on to cost. On the next page, this quarter total costs were well under control and decreased by 2.3%, but they posted a small increase of 0.9% year-on-year, in line with our expectation. Excluding TSB, expenses remained flattish in the quarter, as lower administrative costs offset the staff cost inflation. At TSB, the evolution of expenses during both the quarter and the full year reflects the realization of cost synergies from the efficiency plan in the UK. On the next page, we cover cost of risk. On the left-hand side of the page, we see that credit provisions, including TSB, remain broadly stable quarter on quarter, despite the release of €54 million of provision EQ4 related to extraordinary items. The positive trend is even sharper on an annual basis, with credit provisions down by more than 50%. This reflects the benefits of the initiatives implemented in the credit risk management processes, resulting in a stronger asset quality. In the case of TSB, the quarter-on-quarter increase is due to some provision releases recorded in Q4, following the update of the macroeconomic scenario in the UK. Looking at the breakdown of total provisions on the top right-hand side, we can see that 77 million euros of loan provisions that I have just explained. Then, 14 million euros of foreclosets provisions, 33 million of MPA management costs, and 23 million of other provisions, mainly related to litigation, all of which are in line with the expected run rate. Therefore, overall, the group's credit cost of risk stood at 18 basis points, while the total cost of risk for the quarter stood at 35 basis points, which implies an improvement of 7 bps versus last quarter. Now, moving on to the next section, we will discuss asset quality, liquidity, and solvency. Starting on page 20. I'm pleased to confirm that the NPL ratio continues to fall with each passing quarter, having dropped to 2.67%, which is 17 basis points below last quarter's figure. Gross inflows of NPLs have also reduced materially, roughly 30% on a year-on-year basis. The coverage ratio keeps on improving and reached 63%, increasing by 4 percentage points in the last 12 months. Looking now at the table on the right-hand side of the slide, we can see that Stage 2 exposures dropped by more than €1.6 billion in the year and by more than €450 million in the quarter. We also managed to reduce our Stage 3 loans by more than $1.1 billion in the year and by $250 million in the quarter. Now, in the next page, we would also like to point out that the current level of net MPAs as a percentage of total assets is already below 1%, reflecting a massive improvement. In terms of foreclosed assets, the stock has continued to decline both quarterly and in annual terms. 94% of them are finished buildings and we sold around 24% of our foreclosed asset portfolio in the last 12 months at a premium of 12% on average. As a result, when we look at total MPAs, we can see that the pace of its reduction has accelerated to 19% year-on-year. On top of this, the coverage ratio has increased by more than 3% as points in the last 12 months. Turning now to liquidity on the following slide. As you can see, the group benefits from a solid liquidity profile, while credit ratings continue to improve. Let me highlight the two recent upgrades. Firstly, Fitch raised our long-term credit rating by one notch to BBB+. And then Standard & Poor's also raised our rating by one notch to AA-. Both upgrades reflect the agency's view that Banco Sabadell has strengthened the profitability of the business franchise and in a standalone credit profile. Along with these upgrades, our outlook is still rated positive by Moody's. Turning now to page 23, we can see our current embryo position. This quarter, the new embryo and subordination requirements for 2025 have come into force. As it can be seen, Sabadell has an ample buffer above the requirements in all embryo ratios. Regarding our funding plan, we expect to keep 81 and tier 2 buckets completed. In terms of senior debt, our intention is to keep the current embryo buffers. And regarding covered bonds, we will issue when we see an opportunity to do so, both in Spain and in the UK. On top of that, we have not used SRT this quarter, but we plan to keep using it in the coming quarters in order to actively manage capital and risk exposures. On the next page, we show the evolution of capital ratios. Our fully loaded CET1 ratio stood at 13.3%, having increased by 29 basis points in the quarter after occurring 60% dividend payout. Looking at the quarterly evolution in more detail, let me highlight that the organic capital generation was 65 basis points. Then, the accrual of a dividend payout ratio of 60% and the 81 coupons deducted 41 basis points. The fair value reserve adjustments were marginally positive, while risk-weighted assets growth consumed 10 basis points in a context of long growth. Finally, the implementation of Basel IV had a small positive impact on our capital ratio of 12 basis points. Last but not least, we show shareholder value creation on the right-hand side of the page. Tangible book value per share increased by more than 14% year-on-year, including the distribution of 23 cents per share paid out in cash dividends over the last 12 months. In the next page, which is the last one of this section, we show that total shareholder remuneration for 2024 and 2025 has been improved once again to 3.4 billion euros, which is 100 million higher than expected before. That's the combination of 2.1 billion distributed last year, of which we are still executing the share buybacks, and the improved figure of this year of 1.3 billion euros. This improvement is driven by higher capital generation than expected, resulting in larger excess capital over the 13% CET1 threshold. The 1.3 billion total shareholder remuneration expected for 2025 is equivalent to almost 10% of our market cap. Before ending with this page, on the back of the current share buybacks, the outstanding number of shares is expected to be reduced to 5 billion. And more importantly, we expect an accretion of earnings per share and dividend per share of 7.5% once the programs are completed. With this, I hand over to Cesar, who will conclude our presentation today.

Thank you, Sergio. Before opening the Q&A, I would like to briefly recap four key messages around Banco Saudel. First, strong commercial activity momentum continues, with the loan book and customer funds growing by mid-single-digit year-on-year. Secondly, our profitability is sustainable. Our recurrent ROTE, Return on Tangible Equity, stands at 14.1% in Q1, in line with the 14% year-end guidance. Our profitability is expected to be above 14% in 2026. Third, and I think this is a major element of today's presentation, with our level of profitability, we are generating capital above expectations, and we remain firmly committed to distributing it to our shareholders. Fourth, we have improved shareholder remuneration guidance in 2025 to €1.3 billion. This is an increase of €100 million, as Sergi mentioned before, and reflects our greater capacity to remunerate shareholders. Before finishing, I would like to share with you that we will be soon announcing the date of our Capital Markets Day. Once we have more clarity on the evolution of the takeover bid and if there is or if there is not and when it happens, a tender process. With this, let me hand over to Juk to kick off the Q&A.

Thank you, César. As we have a limited amount of time, I would kindly ask you to limit the number of questions to no more than two. Please remember to press star six to unmute your telephone. So, operator, could you open the line for the first question, please?

First question is coming from Francisco Riquel from Alantra. Please go ahead, pressing star six.

Yes, hello. Thank you for taking my questions. The first one is cost of credit, excluding TSB, came out at only 18 basic points, long losses only, which is the lowest of any Spanish banks reporting to date. So you started the presentation highlighting the reduction in the probability of default. So the 18 basic points is the expected loss of the new production, or is it supported by NPL funds? recoveries which have also performed well so what is the normalized cost of credit loan losses only that we should expect going forward and my second question is on the distribution target that you raised to 1.3 billion euros this year so 1.1 you mentioned is will be cash dividends so 200 will be the the top up which is basically the excess city one that you are reporting above the 13% target. So does it mean that any further excess capital built in coming quarters could imply upside risk to the distribution target for the year? So in this context, you're reporting 12 basic points of Basel 4, previously guided for neutral. So is this the fully loaded impact? Will it reverse somehow in coming quarters so the capital built will be lower? Thank you.

Well, the cost of credit is certainly very low. I think we have been stressing all along that the core of our management is not around NII or it's not. It's all the elements that will result in the end of more capital generation. And that is why everything that we do, and this is a major transformation of the bank. It's around Ray Rocks, it's about value creation, and it's permeated to the whole organization. And this is yielding these results that we can grow the loan book that we can grow handsomely and at the same time do it with very handsome ray rocks. The NII might not follow exactly in the same proportion, but the combination of the NII, which is resilient, together with the improvement of the cost of risk of our book and of our new production based on expected losses at concession time has made us to change and shift from an underperformer to, I think, a very good performer from a risk perspective and from a value creation perspective. Of course, talking about normalized will depend about the cycle, and many things remain to be seen. But in relative terms, I think we have become a very, very good player in this arena. I don't know if you want to add anything, Sergio, to this one.

Sure. Thank you, Cesar. Cost of risk, as you mentioned, has improved remarkably. But this is just the reflection of the strong improvement in all asset quality metrics. In the presentation, you can see that the stock of stage three has reduced by 1.1 billion in year-on-year basis. The stage two has reduced 1.6 billion. And the new entries of gross, so the gross inflows of MPLs have reduced 30%. And the foreclosed asset portfolio is virtually on runoff. So we have no entries and we keep on selling. We have sold more than 20% in the last year. So the cost of risk is actually the reflection of the book. And therefore, there is no extraordinary items, releases, or any sort of that. So definitely, it's an improved trend that we very much look forward to seeing around those levels. Of course, we might see some volatility quarter on quarter. But if anything, we are more than comfortable with the guidance of 40 basis points. Definitely we see upsides on that guidance going forward when we see the performance of the credit book.

As per the second question, yes, we've raised our capital distribution by 100 million to 1.3. You asked if there was upside risk. There might be upside risk. It's difficult to assess at this point in time. Of course, 12 basis points, as you mentioned, are coming from Basel IV, which has been positive instead of negative, as we expected last year. But this excess of CT1 mainly comes from our ordinary activities. So we are able to grow and at the same time to generate capital in a very handsome way. So we are very positive about this trend and we think that it's one of the attractive elements of this bank.

Yes, and I think just a last comment on your questions, Paco. I think you asked about if we expect any reversal of the 12 basis points positive for Basel IV. We don't. This has been the first implementation, and it's the first, so it's that impact. And we do not expect any material impact because of Basel IV going forward. On capital generation, as Cesar mentioned, the commitment is to deliver, but we also are seeing quite a remarkable loan book growth, finally growth after so many years of deleveraging. So at the end of the day, we will be able to finance that growth through the organic capital generation. Thank you.

Okay, so could we move on to the next question, please? Yes.

Next question is coming from Cecilia Romero from Barclays.

Hi, Cecilia. Please remember to press star six to mute yourself.

Okay. Thank you very much. Thank you very much for taking my questions. I have two questions. The first one is on the M&A process and the second one is on cost. On M&A, I wanted to know what are your views on the public consultation launched by the Spanish government following the CNMC's antitrust approval of the BBVA's bid? Do you see a real possibility that this consultation could lead to additional remedies or conditions being imposed on BBVA? And the second on cost, you've guided to 1% cost growth this year, supported by savings in the UK, and despite the ongoing M&A context. Are there additional cost levers you can pull to maintain discipline next year? What is your current expectation for cost growth in 2026? Thank you.

Okay, so I think, let me give you a broader answer than your question, because your question was around the M&A process and then You nailed it down to the consultation. But let me open the scope for a second. The first thing, for those of you who don't live in Spain and are not so close to the situation, the thing is that there is a very general and wide opposition to this transaction from all sectors. And we have never seen this level of unanimity. You know that... and allow me the joke, if you have 20 people, there are 20 different coffees ordered. They are all different. We tend to be very individualistic and we tend to be very granular in the way we think about things. Well, this is not the case. This is not the case. It's unique that all the associations of employers... And at the same time, all the trade unions and at the same time, the consumer advocacy elements and all the associations have said that they don't want this merger. And they don't want it because, as we've mentioned a ton of times, we are very strong on the SME, which represents around 70% of the GDP in Spain and a huge amount of the employment. So there's a very negative view. So will the remedies come from the government or not? We don't know. What we say and what we think and what we have observed and what we hear our clients say all the time is that they think that this transaction, if it was to occur, should have significant remedies to mitigate the damage that this would create. But there's another element that is much more important because this one is out of our control. This is something in which we are mainly observers, which is, and this is very relevant for the M&A process, which is the fact that BBVA's currency has deteriorated significantly versus its peers since the 29th of April, which is when all this started more than one year ago. And let me give you these numbers because these numbers don't come directly out of the tables. And, of course, we calculate them daily. and they are quite interesting, and they include the improvement of shareholder value, including dividends. So BBVA has improved since the 29th of April by 23%. The European banks have, on the same metric, performed upwards by 38%, significantly higher. The Spanish peers, and here I'm referring to CaixaBank Inter Unicaja, have improved by 54% versus the 23% of BBVA. And we have basically remained in line with our peers, and we have grown instead of by 54%, by 60%. But if you take into account that the average target price of analysts since that time has improved by 51% much more than our peers, well, we have done it in line with our peers. What does this mean? I mean, in M&A, the key element is the value of your currency. And the currency, and this is what we anticipated when we rejected the offer a year ago, the currency of BBVA... because of the evolution of the Mexican banks, because of the evolution of the Turkish banks, is clearly below the one of the European, Spanish, and Sabadell performers. And that is what gives the broad context. And I think the M&A going forward is going to be influenced by these two factors, the global rejection in the Spanish society. It's very difficult to go against the the public opinion, the generalized public opinion, and the currency value of BBVA stocks.

And I think there was a last question about cost. Shall I take that one?

Yeah. Yeah, I got so carried away with this.

Of course.

It's a hot topic. The hot topic, the elephant in the room. So the cost, 1%. Following year, we haven't given guidance. I think we have room to continue to be very effective. So we have given guidance for 25, not for 26. We are not going to give guidance now. But let me assure you that our cost discipline and our ability to pull levers in the future is there. And I think we have demonstrated that very handsomely during the last four years and we will do so going forward.

Thank you, Cecilia. So, Bredor, could we have the next question, please?

Next question is coming from Ignacio Ulargui-Lopez from BNP Paribas. Please go ahead and pressing star six.

Thanks very much for the presentation and for taking my questions. I have two questions. The first one is on capital and how much more optimisation, you mentioned that you have not used SRTs this quarter, how much space do you think you can have on that one in terms of the additional organic capital generation that you could have? And the second one is on fees. There has been a very good performance on asset management As you pointed out in the call, how should we think about that? Is there an improvement of the commercial dynamics in the GDP with Amundi? I mean, how should we think about the income in 2025? Thank you.

I guess SRT is definitely for me. Yes. Of course. Sure. Nachos, you know we have different SRT programs in place. We have programs connected with our SMB book, with project finance, with consumer loans. And we can sort of manage on a need. So this is something flexible. In the year, we're planning for SME transaction, a consumer transaction for sure, although we could, again, we could be flexible. So in our expectation, SAT for this year can be around 10 basis points, but if at a given moment in time there was convenience or need to do more, this is something that could be adjusted. Okay.

On fees, we remain, we sustain our guidance, it's unchanged, of low single-digit growth for 25. And this is on the back of asset management fees to keep outperforming and on the back of positive inflows in Q1 of 1.5 billion, which gives us further confidence. And looking forward, we have positive underlying trend in banking services And also in higher activity, because you see that our volumes are growing, more business, more transactions, more trading. So we maintain unchanged our guidance for low single-digit growth. Thank you, Nacho. Do you want to add anything, Sergi?

No, I think it's very clear.

Thank you.

Perfect. So we can move to the next question, please.

Next question is coming from Max Machine from JB Capital. Please go ahead, pressing star six.

Thanks. Hi, good morning. Thank you for the presentation and taking our questions. I have two questions and a follow-up. The first one is on loan book. Could you please help us understand the feeling among your corporate customers related to the macroeconomic uncertainties? Do you see any impact whatsoever on the pipeline of long-term financing? And your thoughts here would be super helpful, especially considering that we already have April behind us. The second one is on equity accounted results. You mentioned in the report higher income of investees. Could you walk us through on what you have there and whether it is sustainable? And finally, a follow-up on Paco's question. Why not upgrade your cost of risk guidance given such good performance of the asset quality?

Thanks. Okay. On the loan book pipeline... This month, we are seeing still a pipeline that is constantly strong. Not increasingly strong, but constantly strong. And the sentiment is a question mark for the future. So we cannot ensure that there will be not a change in sentiment. What we can tell you is that for the time being, the pipeline is in line with the growth that we have been seeing in the past. The world is volatile. Let's see what the future has to bring us. But to your specific question on the pipeline, the pipeline remains resilient. Second question for you. Sure.

Second question was regarding the equity method and dividends line, which has come stronger this quarter, 61 million. I think we used to have a round rate between 30 to 35. So effectively, there is a combination of some extraordinary items here and some others that we think are going to be recurrent. In the extraordinary, we have high results from the revaluation of some venture capital companies. And on the more recovering side, we have the contribution from our JVs, which is higher. So all in all, and just to try to help you going forward, our personal view is that the run rate or the run number for this project line could be on the area of 40 million euros going forward. And then finally, if I can take the last one, which is regarding why we're not updating our cost of risk guidance. And it's been a quarter. We are not changing the guidance. We're very comfortable with our profitability guidance. Bottom line, 14% ROT for this year. and more for 2026 on the basis of higher relative revenues. I think there will be plenty of time during the year to monitor the different parameters and update the due time.

Thank you. Indeed. I think we have always been Prudent. I think that's one of the things that has been, I hope, appreciated by you all, that we are not overly bullish at any point in time. And I think this is the time. We have a very good cost of risk. I mean, 40 basis points, 35 this quarter, but 40 basis points, it's a very good guidance. It's fair. Let's leave it at that.

Perfect. Thank you, Max. We can move to the next question, please, operator.

Next question is coming from Carlos Peixoto from CaixaBank BPI. Please go ahead pressing star six.

Yes, good morning. Thank you for taking my question. A couple of them from my side as well, mainly of details. So first one on consumer lending in Spain, which remains quite strong. Maybe if you could shed some light the specific segments within consumer lending that are doing well and what you believe is driving that demand. And then the second question is actually in minor detail on the banking tax. So your previous guidance was pointing towards 140 million euros related to this tax in 2025. This quarter, the tax was at 31 million euros. And so I was wondering whether the $41 million could be a good run rate for the rest of the year, or do you think that the $140 still prevails as a figure to have in mind? Thank you.

So let me take the one of consumer lending. The stock grew by 21% year on year, and we have outperformed, again, the sector average. This is a well-defined strategy. At the beginning, the first thing that we fixed when we came on board was... We stopped the production of consumer lending because we were not able to price correctly and we were not able to risk correctly. Now I think we have a state of the art in three elements. We price very well. We price to risk. We have very good models. Everything is pre-approved. Most of it, more than 80% is pre-approved. And we have a process for conversion that has improved dramatically. You know that this is very much of a click-through product. And we have improved dramatically the process, which is as easy as it gets. And What happens also is that we do not have yet our market share. We are coming from behind. So we still expect years of handsome growth in the consumer lending, which, by the way, has very good frameworks.

And regarding the banking tax, I think, Carlos, that was your second question. We are accruing the banking tax linked to the 2025 year that will be paid in 2026, but we have started accruing it. So all in all, it's an estimation of the amount that that is going to be. We are estimating 125 million for the entire year for that banking tax. And based on that, we're accruing 31 million. Should that expectation not change based on our revenues for this year, of course, then we could be accruing a similar number every quarter. Thank you. I hope that's clear.

Yeah. Thank you, Carlos, for your questions. Operator, could we move on to the next question, please?

Next question is coming from Britta Smith from Autonomous Research. Please go ahead, pressing star six.

Good morning. Thank you for taking my questions. The first one would be based on your comments regarding the management of a return on allocated capital. Do you foresee any potential structural changes in the outlook regarding individual P&L lines, for example, could we see upside to the cost of risk offset with a lower net interest margin? And the second one is a bit hypothetical, but if there was no BBVA deal, how would you look at the capital opportunities that you have, especially with respect to weighing potential M&A with further payouts? Thank you.

I didn't fully understand the first one. You take the first one. I didn't fully understand it.

Sure. Morning, Brita. Thank you for your questions. I think we have already discussed cost of risk and cost of risk guidance, which we're taking a very conservative approach. Regarding the guidance on NII, we keep it unchanged. And if it's helpful, we can discuss now the different building blocks, right? On one side, we expect NII at TSB to grow high single digits, and we expect NII to decrease low single digits in the ex-TSB perimeter. Then starting from the UK, NII at TSB will grow mainly on the back of the contribution of the structural hedge, which is expected to add... Approx 100 million pounds in 2025 and actually more than 100 million pounds additional in 2026. And this is simply with the current balances and at the current rate. So we have a lot of visibility for the NII TSB. In the XTSB perimeter, there we see different headwinds and tailwinds. The main headwinds are coming from lower rates. Rates, as I'm sure you know, have been quite volatile during this year. And the current forward arrivals are actually a bit lower than what we planned for. The main tailwinds are volumes that actually have been incentivized by the lower rates environment. We have seen a growth in volumes of 5.5% in Spain in Q1 across all the different products and segments. And this is quite good after so many years of the leverage. And actually, this growth has been in line with the nominal GDP growth. And we expect this to continue in the coming quarters. Additionally, we have actively been managing the decrease in the cost of funds. We see room to cut further the cost of deposits and even more the wholesale funding costs after the recent ratings upgrades. Additionally, we have increased our ALCO book close to $1 billion in the quarter, roughly $3 billion year-on-year. And we see a bit of ability to increase it going forward. And today that can be done at profitable levels. So all in all, we are not changing our guidance for 4.9 billion for 2025. And we will be monitoring closely these moving parts. I hope that's helpful.

To the second question, now with BBVA on the table and even without BBVA on the table, I don't think there's much appetite. In Spain, there are three very large banks that shouldn't merge any further because they have reached a limit of size that is... that is sufficient or excessive even from a competition perspective. And for the rest, it could make sense for many of them among themselves with us and so forth. But the thing is that they are all very well capitalized. And there is not much appetite because they all value for different reasons their independence. So I don't think that in the book of probabilities we should put a high score on further M&A transactions in Spain in the near future. That doesn't mean that everybody will not remain open to looking at opportunities and to see if they open. But I think in terms of probabilities, but not only for us, but for anyone, although they could make sense from a synergist perspective, I don't think the probability can be qualified as not even medium for the near term.

Thank you, Rita, for your questions. Shall we move on to the next question, please?

Next question is coming from Pablo de la Torre from RBC Capital Markets. Please go ahead pressing star six.

Hi, and thank you for taking my questions. My first one was on the new lending trend you described on flight seven. You mentioned seasonality impacted your new lending in the quarter. And I was wondering if this had anything to do with some of the initiatives that you launched during 2024 that might have brought demand forward, especially in the SME space. And I guess more generally here, would you expect the net loan growth to accelerate during the rest of the year from the current 5% level? Or is that uncertainty and the unclear sentiment you have mentioned before weighing on your loan growth for the rest of the year? My second question was on your deposit trends. You reported a small quarter and quarter reduction on balance sheet funds. And looking at the accounts, I can see that the percentage of fixed-term deposits has come down in the quarter. I guess you had previously guided to deposit growth, excluding TSB of low single digit this year. Do you still see that as an achievable target? And can you explain more broadly what your expectations regarding deposit growth and mix are for the rest of the year? Thank you.

Yeah, I think it's more relevant because if you look at page seven, It includes also the amounts that have not been. So it's the disposable lending, but not the disposed lending. And it also doesn't take into account the renewals or cancellations. And therefore, I think you're much better off looking at page nine. And there you see that in all segments and in all products, you see a growth both quarter on quarter and year on year. That's the stock value. And that is really the thing that yields interest and therefore the most relevant. So what we see is a very healthy behavior also during the quarter because the stock is growing at 1.2% for the mortgages. at 4.2% in quarter on quarter, on consumer loans, 1.4 for SMEs and corporates, 5.1 for public sector. So the new lending, we haven't seen yet, as I mentioned before, any weakening. And furthermore, the pipeline is still very strong, remains to see in the longer term. So the pipeline for this month is also strong, remains to see for the future, if there is a change in mood and a change in trends, but we haven't observed it yet. For the second question, I'll leave it to you.

Yeah, sure, Pablo. Thank you for your question. Regarding deposits, it's definitely a key business for us. We definitely are not changing our target of growing mid-single-digit deposits during the year. Year-on-year, the growth has been 6.3%. The first quarter is always seasonally growing. on a seasonal basis a bit weaker, but we see a good activity in deposits across all our business lines that goes from individuals to corporate clients and through the different channels because we do capture deposits not only through the branches, but also on a digital basis. We've been boosting our digital online business for current accounts, which has grown remarkably in the last quarters. So all in all, we see room to grow in balances in deposits, and given the trend of rates, we, as mentioned before, we see ability to cut the cost on these balances.

Thank you. Perfect. So we can move to the next question, please.

Last question is coming from Marta Sanchez Romero from City. Please go ahead pressing star six.

Marta, please press star six to mute your telephone. We cannot hear you. Right, so operator, I think we can jump to the next analyst, please.

Next question is coming from Ignacio Cerezo from UBS. Please go ahead pressing star six.

It looks like we don't have any further questions. I don't know. Okay, Nacho, yeah, we can hear you.

Can you hear me now? Yeah. Sorry for that. It's okay. Sorry for the double mute. Double muted, I think it was. So, yeah, the first question basically is on the corporate lending growth in Spain. If you can kind of give a little bit of color basically on whether that is coming from existing clients, new clients, and if there is any difference between SMEs and corporates in terms of client acquisition. Sure. And the second, if you can give us a little bit of color as well, some numbers on the front book, back book, on the mortgage and the corporate lending book in Spain, those levels actually for the quarter.

Thank you. Okay, I think it's very clear that our strategy is to focus more on existing customers. I think one of the strategies has been to increase our share of wallet. We have a very, very wide penetration. One in two SMEs is a client of ours. of the bank, but very often we know them well, we can be proactive with them. Now that we have the PDs up front, the probabilities of default, we are engaging in a much more proactive activity and we are doing it so much more with existing than with non-existing clients. We are, of course, also acquiring, but the core comes from a higher penetration of our customer base that we now understand very well from a risk perspective. And that's why I think the growth is healthy. In terms of corporate and SMEs, we are growing on both.

And I think there was a question on spreads and from book yields. And you mentioned mortgages and SMB and corporates. It's a different business, as you know, and different yields for the mortgage. Mortgage in Spain is a very competitive product, and we look at it as an integrated basis. We have a contract that integrates the different products, and based on that, we price for it. So what I could say here is that what we look is at the railroad of the product and railroads are very healthy, covering in excess the cost of equity that we used in the product and enables us to capture clients. For SMEs and corporates, the yields of the new business somewhat above the four percent yield. This is still a bit above the back book. And in terms of a spread, if your IBOR has been hovering around 240, I could say that this is something more than 150 basis points. Of course, this is the combination of SMEs and corporates. And as you can imagine, corporates are more in the up to 100 basis points spread and SMEs around 200 basis points spread. But this is, of course, all of them covering well all costs and the cost of capital that we attach.

I think the question is very relevant, and to look at the NII very closely is very relevant. I have to insist that from a management perspective, we are looking much more at railroad, and that we are always above cost of capital, very often in a very handsome way. And that is why we are creating value by increasing the capital of the bank while growing the volumes. And that's our strategy.

Perfect. So we still have time for one additional question. So operator, please.

Last question is coming from Fernando Gildes Antibanes from Intesa San Paolo. Please go ahead, pressing star six.

Fernando, we cannot hear you. Sorry, can you hear me now? Yeah, yeah, we can.

Thanks. Thank you. Quick one regarding the investor day. Can you guide us on what do you think come next after the public consultation period that has been open? And how long do you think can take the government to issue a final recommendation? Because I guess the investor day will be after that. Thank you.

It's uncertain. It's uncertain because from, I mean, the period that is established is three, so two, 15, sorry, 15 working days for the minister to decide if it brings it to the government or not. That's three weeks. And then there is one month, 30 natural days, so not working days, for the government to decide if they add or not remedies. But these periods can be interrupted if there is need for further information. And that's why, as we saw, the CNMC, which has much shorter periods, has taken a year. So at this point in time, it's very difficult to have visibility. And I think it's very difficult to anticipate if the tender, if it ever happens, will happen before or after the summer. I can't put even probabilities on that. We will have to see how things go.

Perfect. So that concludes our Q&A session today. As always, the Investor Relations team is available to take any further questions or if you have any follow-ups. Thank you, everyone, for participating and for joining us today. Have a nice day. Thank you so much.