Banco Comml Por Ord New

Good day and thank you for standing by. Welcome to the Millennium BCP first quarter 2024 earnings conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Miguel Maia, Vice Chairman and CEO. Please go ahead.

Good afternoon. Miguel Maia speaking. Welcome to the CP earnings conference call. As usual, I will mention the highlights of our performance, and then Miguel Braganza and Bernard Kulas will follow, providing additional details. This quarter, our net income went up more than 8% when compared with last year's first quarter, having surpassed $234 million and confirming once again the quality of our franchise. Careful margin and cost management allowed us to achieve a sound core operating profit of more than $584 million. The activity in all our three core markets contributed to this performance, notably in Portugal, where net income went up more than 18%, having reached almost 204 million, supported by the leading position of BCP in multiple business fronts and confirming the profitability and efficiency of our business model. In Mozambique, Millenium BIM is showing a steady profit level, quarter after quarter, having achieved a net profit of 23 million, despite being influenced by the significant increase in the cash reserves maintained with the central bank. In Poland, Bank Millenium recorded its sixth consecutive positive quarter, with a net income of almost 30 million, despite still affected by relevant costs related with legal risks of FX mortgages, which had a negative impact of 191 million, of which 117 in provisions. The adjusted net income of Bank Millenium, excluding FX mortgage-related effects, grew more than 6% year-on-year, supported on expanding business volumes, corporate stability, and a strong NII, confirming the quality of our franchise. Still in Poland, we are prepared for implementing the credit holidays recently approved, whose impact, estimated in the range between 47 to 57 million, will be booked in the second quarter. The estimated value fits in what we have forecast for 2024. These quarter results confirm the strong ability of our business model to generate organic capital, which has allowed for substantial increase in our capital position. We have strong capital ratios, with Common Acre Tier 1 at 16%, and total capital at 20.5, having increased 246 basis points and 255 basis points, respectively, compared to the first quarter of last year. The quality of our retail banking business model, supported on strong relationships with our customers, led to an increase of 7% in customer funds year on year, and is prevailing in the challenging competitive landscape for deposits, on balance sheet customer funds grew 7.5%, having grown up 12% in Poland. We also kept our trajectory of improvement of the quality of the balance sheet. Since March 23, we have managed to cut non-productive assets by additional 326 million, including 223 million in MPEs, 60 million in foreclosed assets, and 43 million in restructuring funds. The NPE ratio stood at 3.4%, and the NPE cash coverage is above 81% and 121 if considering real estate collaterals. The rigorous management of the balance sheet risks enable us to keep a controlled cost of risk despite the challenging environment in which we are operating. At group level, the cost of risk decreased four basis points since March 23, reaching 52 basis points with reductions of five basis points in Portugal and four basis points in international activity. Overall, this was another quarter in which we further strengthened the franchise, the asset quality, the capital ratios and the operational efficiency of the bank. In the symbiosis between excellent teams and distinctive digital competencies, lays the backbone of our competitive edge. Individual and corporate clients continue to choose Millenium as their preferred bank, and our services were again awarded with prestigious distinctions recognized by the market. At group level, our customer base expanded 3% in the last 12 months, reaching 6.7 million, of which more than 2.7 million in portals. Most notably, mobile customers grew 11% during the same period, accounting for 69% of the group's customer base and 60% in Portugal, being a very good indicator of the success of BTP digital transformation. Customers' recognition of our digital capabilities continues to be reflected in the use they make of our app. This quarter, customers carried out 70% more transactions through the app, than on the same period last year with a significant growth in the number of transfers and payments. The number of sales through mobile has increased 53% in the same period with emphasis to saving solutions which increased 55% and to the sale of personal loans which increased 20%. The investment and priority we give to mobile solutions with a clear focus on customer-centric innovation means that our app continues to lead the rankings and deserves top reviews on the most relevant platforms. We closed the first quarter of 2024 with a strong commercial and financial performance in our three core markets, namely Portugal, Poland and Mozambique, despite the context in any of these geographies have remained quite challenging. The evolution of BCP's share value has also been positive, and as a result of the journey undertaken, it reflects the bank's ability to generate a relevant return on invested capital. The growth of the customer base and their satisfaction indicators, both with the branch teams and mobile, give us confidence and allows us to be optimistic about the future. Miguel, the floor is yours. Thank you, Alex.

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

Thank you, Miguel, and good afternoon, ladies and gentlemen. So starting on page 25, net income in the activity in Portugal amounted to 203 million in the first quarter of 2024. That means that it's to 18.4% above the 172 million achieved in the same quarter of last year. This evolution of net income in the activity in Portugal benefited from the stability of net operating income, revenues, cost discipline, and by the reduction of impairments and provisions. On page 26, looking to NII in Portugal, net interest incomes to that 339 million, remaining in line with the amount that was recorded in the first quarter of the previous year. And these evolutions, as we always try to explain, resulted from different dynamics. In one end, NII benefited from the higher income generated by the customer loan portfolio and from the positive impact arising from the active management of the securities portfolio. And on the other end, there was an increase in the costs associated with the remuneration of deposits and costs also incurred with the issuance that we have done at the year-end of last year. Net interest margin decreased from 2.44% in the first quarter of 2023 to 2.34 at the end of March 2024. And as Miguel mentioned, we're quite above the 2.2%. Moving to page 27, total fees and commissions to that 141 million in the first quarter of 2024. remaining in line with the amount that was recorded in the same period of last year. The drop of 3.3 million that was recorded in banking commissions was almost offset by the increase of market-related commissions. Net trading income with a negative amount of 4.3 million in the first quarter of this year, that compares with 10.2 million that was posted in the same period of last year, and it's mainly explained by some mark to market of some edging activity. Other net operating income increased from 1.7 million in the first quarter of 2003 to almost 7 million in the first quarter of 2024. Going to page 28. and that's regarding costs. Miguel already provided some details on that, but it's also important to reinforce that the bank is continuing applying a strict policy in terms of cost management, and the increase of 5.5% on operating costs was mostly determined by a growth of 7.5% recording on staff costs and by the increase of 4.5% on admin costs. Depreciations were stable year on year. The number of employees are broadly stable, and there was a decrease of nine branches within this period. Moving to page 29, which refers to asset quality, the NPs stood at the level below 1.1 billion at the end of March, showing a reduction of 192 million compared with the first quarter of last year. Taking in consideration the continued efforts to reduce the NPEs, I should highlight that the NPE ratio as a percentage of total credit portfolio evolved from 3.2 to 2.8 at the end of March 2024. Cost of risk also evolved favorably from 53 basis points to 48 basis points and below the 54 basis points that was registered at the end of last year. Now, let's move to page 30, which looks at the NPE coverage breakdown. And as you can see, total coverage of NPEs stood at 142%, and the NPE coverage by loan loss reserves at 89%. Coverage by loan loss reserves, of course, as I always mention, is strongly in loans to companies where real estate collateral, usually more liquid and which a more predictable market value, accounts for a lower coverage than in loans to individuals. So coverage by loan loss reserves was at 121 for companies at the end of March 2024. On page 31, we chose the evolution of foreclosed assets and corporate restructuring funds. And as I lighted on previous quarters, there was a significant reduction. net value of foreclosed assets stood below €100 million. That compares with €153 million one year ago, meaning a reduction of 39%. And just to remind you that at the end of December 2022, the foreclosed assets amounted to €262 million. Regarding property sales, I mean, there was a relevant reduction in the previous years, although in the first quarter of this year, there was only 11 properties that were sold and 93 properties that were sold, but also I should highlight that the sale value was higher than the book value. Now moving to page 32, total customer funds reached almost 68 billion in March 2024, which compares with 67 billion euros recorded on the same date in the previous year. And this evolution is justified by the positive evolution of unbalanced sheet customer funds, and more specifically, due to the increase on deposits that went up almost 900 million. Loans to customers stood at 38.4 billion as of March 2024, below 39.9 billion recorded in the first quarter of 2023. And the decrease in loans to customers results from a lower level of credit performing that was somehow associated with the decrease of credit lines that were provided to companies under COVID schemes and also from somehow some reductions in terms of non-performing exposures. Going to page 33, which shows the evolution of performing loan book in Portugal, loans to individuals to that 21 billion, which is slightly above the amounts recorded one year ago. If we look by segments, there was an increase in personal loans of almost 200 million, and a slight reduction in mortgage loans, around 75 million, due to the increase of amortizations and early repayments that were registered in 2023. Loans to companies amounted to 16.5 billion at the end of March 2024, standing below 17.9 billion recorded in the same period of previous year, and is justified, as I mentioned before, for several reasons. And I should also highlight that the high level of interest rates also affect the increase on the performing loans to companies. Now, moving to page 35. So we are moving to international operations. Results on international operations were still impacted by the effects related with Bank Millennium, although it is important to highlight once again that Bank Millennium registered the sixth consecutive quarter with positive results. Net income of Bank Millennium stood at 29.7 million. That compares with 58 million one year ago. but it should be noticed that on the first quarter of 2023, Bank Millenium booked an extraordinary gain related with the sale of 80% of the Millenium Financial Services. Mozambique provided a positive contribution of 22.6 million. So in total, contributions from international operations after impacts from discontinued operations and non-controlling interests stood at 30.8 million, which compares to 44 million in the first quarter of 2023. Once again, looking at the right-side chart, excluding specific effects from Poland, as mentioned before, costs related with FX mortgage and the sale of the 80% of the stake in Milani Financial Services, total contributions from international operations to 11% above results achieved one year ago. Moving to page 36, which refers to Bank Millennial itself, net income continued to be impacted by costs related with CHF mortgage. And as mentioned before, net income stood at 29.6 million, which compares with 58. Excluding specific effects, net income grew 6.3% compared with the previous year. Net operating revenues with a decrease of 31%, and once again explained by the one-off related with the sale of 80% of millennial financial services. Cost, as Miguel highlighted, went up, and total cost went up 14.7%, and this was mainly influenced by the strong wage inflation that was registered in Poland last year and also this year. CQ1 ratio and total capital improved significantly and stood at 14.9 and 18% respectively and comfortable above the minimum requirements of 8.1 and 12.2. On page 37, some additional detailed information about Banque Millenium, NII increased 7.3% to 313 million euros That compares to 292 million one year ago, and let me also highlight, above the fourth quarter of last year. Needs to that 4.36%. That compares with 4.58% in March 2023. Season commissions were stable, and other income was strongly, as mentioned before, impacted by the sale of millennial financial services. Total costs excluding mandatory contributions went up 14.7%, and as I mentioned before, this was mostly influenced by an increase of almost 18% on staff costs. Mandatory contributions that were booked by Bank Millennium already this year decreased from 19 million in March 2023 to 14.6 million in March 2024. Moving to page 38, related with asset quality in Poland, and it should be also taken in consideration the high level of interest rates, cost of risk to that 63 basis points, same level as the first quarter of 2023, but it should not be seen as the recurrent level for 2024, as Ben-Millel already mentioned on their earnings presentation. Non-performing loans more than 90 days past due stood at 2.2%, which is slightly above the 2% registered one year ago. Coverage by loan loss reserves of non-performing loans stood at 156%. On page 39, and still in Poland, customer funds grew 13% year-on-year. Off-balance sheet grew 30%, and total deposits grew 15%. In terms of loans to customers, gross books to that $17.7 billion, less 1.8% than the first quarter of 2023. And this reduction is mainly explained by the decrease of the CHF mortgage portfolio and also by some decrease on corporate loans due to the strict capital management policy that was in place by Bank Millennium during last year. On page 40, regarding FX mortgage portfolio, it's important to start saying that there was, once again, a significant reduction of the CHF mortgage loan book. And this was 16% on a yearly basis and 5% quarter on quarter. Bank Millennium reached an amount of provisions related with CHF litigation risk of almost 1.7 billion euros. And it should be noticed that by the combination of these provisioning efforts and by the decrease of the CHF loan book through amicable settlements, and of course, also through regular amortizations, Bank Millennium was able to bring the ratio of total provisions against legal risk versus the gross mortgage book to 91.5%. At the same time, Bank Millennium continued their efforts to reach amicable settlements with clients, some of them already in courts, and Bank Millennial was able to achieve more than 1,100 amicable agreements in the first quarter of this year. And it should be also noticed that after the peak in August 2023, the number of new claims are showing a downward trend. Turning to page 41, and now some information related with Mozambique, we can say that Bank Millenium, or Millenium Beam, sorry, even under a challenging environment, continues to be an important and stable contributor for BCP results at group level. Net income stood at 22.6 million, a reduction compared with the last, with the same period of last year. And this is mainly due to the decrease on NAI that was impacted by the reduction on interest rates, as well as the strong increase in terms of mandatory reserves. Capital stood at 36.89. Moving to page 42, NII, and taking into consideration what I just mentioned before, went down 11.6% to a level of 50 million euros, and NIMS stood at 8.1%. That compares with 9.5% in the first quarter of 2023. Costs went up 3.7%, and cost to income stood below 50%. Moving to page 43, and still in Mozambique, non-performing loans 90 days past due at 3.2%, which compares to 7.7% in the same period of last year. Non-performing loans 90 days past due with coverage at 134%, that compares with slightly more than 100% registered in March 2023. Cost of risk to that 99 basis points. Regarding volumes on page 44, you can see that the customer funds registered an increase of 3.6% and loans to customers, a decrease of 8%, meaning that the increase on loans to individuals of 28% was not enough to compensate the decrease on loans to companies of more than 100 million euros. And so thank you very much for your attention. And before we move to Q&A, I will return to Mr. Villabregues for some final remarks.

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

Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. Thank you. We are now going to proceed with our first question. The questions come from the line of Max Mission from JB Capital. Please ask your question. Your line is opened.

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

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

Thank you very much.

Thank you. We are now going to proceed with our next question. The questions come from the line of . Please ask a question. Your line is opened.

Good afternoon, and thank you for taking my questions. I have several on deposits. Sir, I would like to know your thoughts on the demand for term deposits in Portugal.

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

Okay. Is it better now?

A little bit, yes.

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

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

Thank you. We are now going to proceed with our next question. And the questions come from the line of Carlos Peixoto from CaixaBank. Please ask your question.

Yes. Hi. Good afternoon. Can you hear me well?

Yes. Yes.

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

Okay. When I speak about the front book stabilizing, actually, when I speak about the front book coming down, I'm speaking about the March front book vis-à-vis the December front book. So the cost of the new deposits in March is already around 20 basis points below the cost of the front book in December. When I speak about stabilization, I'm speaking about what's happening in the last month, February, March, and so on. So this is the most recent number. In terms of costs, the guidance that we are giving for the full year in Portugal, that we always have been giving, is 15, so aligned with this, but is 15, as we have already given in the beginning of the year, in the last presentation, and for Poland also. So this is more or less where we are in terms of costs. In terms of cost of risk, we are presenting in Portugal. I'm sorry. What I'm saying is not mid-teens, mid-single digits. So in Portugal it's mid-single digits and Poland mid-teens. So cheers for the importance of that. An issue here of English. So Portugal mid single digit, as exactly in the first quarter, the five and a half percent is a good guidance for the year. And in Poland, mid team, so decreasing somewhat from the level that they are having now. Just to make it clear. In terms of cost of risk, We are presenting a cost of risk in Portugal of 48 basis points. We think that this cost of risk between 50 and 40 basis points is a good level of cost of risk for the business profile that we have. I think I've answered your three questions.

Thank you. Thank you.

We are now going to proceed with our next question. The questions come from . Please ask your question.

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

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

Thank you very much.

We are now going to proceed with our next question. The questions come from the line of Alvaro Fernandes Carrizabal from UBS. Please ask your question.

Yeah, hello. Good afternoon, and thanks for taking my questions. I have two. First, a follow-up on NIA in Portugal. You already mentioned that H2 should be better than H1, but I don't know if we could have a little bit more color by quarter. I really don't need you to give numerical guidance, but just to confirm, directional trends going forward. So if my calculations are correct, in the second half of the year, NIAI should inflect upwards as you will be able to manage deposit costs down quite minimally. In fact, last quarter you guided for a year-end deposit cost of around 60 basis points. I don't know if that is still the case. And you will also have tailwinds coming from the cash flow hedge. Therefore, in my head, I would expect a more flattish Q2, maybe still down a bit, but showing much more stability. And then Q3 and Q4 being sequentially higher. So I only wanted to ask if that makes sense to you or not. And also, if you could also say something about 2025, like other European banks have, that would be great. And second, on capital, it's also kind of a follow-up, but just in Q2, we've seen a 60 basis points capital build-up, thanks to securitizations and other initiatives, and you have been quite active in recent quarters in this type of optimization measures. So my question is, for how long you will be able to pull these levers? Basically, when will BCP run out of this optimization capacity? and return to a more normalized quarterly generation. Thanks.

I mean, starting with the last question. What we want to protect here is shareholder value generation. So, we do have material to do securitizations, but we don't need to do securitizations. I think this is important. what we do is that we compare the cost of equity of securitizations, implicitly securitizations, with the cost of equity of the bank. And if we see that it's in the shareholder interest, because the cost of equity is lower, to do a securitization, we do a securitization. But with a 16% of capital ratio, we do not need to do a securitization. So, just for the avoidance of that. We do it because we think it is in the interest of our shareholders. So I think it's not because we need to. It's because we think it's cheaper for our shareholders to have this, and it's accretive for our share price. And up to the moment, considering the evolution of our share price, it has effectively been provided as positive. So our limit is not so much the raw material. Our limit is the interest of the investors in these securitizations to provide us capital at a lower cost of capital than the cost of capital implicit in our share price and material implicit in our share price so that it has a positive impact in terms of shareholder value. So maybe if tomorrow I have here investors willing to engage in securitization deals where the cost of capital is much lower than the one implicit in my share value, in my equity value, of course I will do it. If at some point in time the investors only want to give me this capital at a much higher cost than the shareholder value, the discount rate implicit in our equity price, I will not do it. So that's basically the rational. But thank you very much for asking the question. In terms of the second half of the year being higher than the first half of the year, I have already commented so, so the second half of the year will have a higher value, and I would say that the Q4 will be higher than the Q3. In terms of making specific comments about Q2, because I have here already the information of Q2. I have been advised by compliance not to be specific, not to be specific indication in terms of Q2. Okay? Okay, thank you. Okay, thank you.

Thank you. We are now going to proceed with our next question. The questions come from the line of Sophie Petersens from JP Morgan. Please ask your questions.

Yeah, hi. Here is Sophie from JP Morgan. Thanks a lot for taking my question. Just to flag that some investors who are in the call couldn't hear the first questions because the line was breaking up a little bit. So maybe just going back to net interest income, could you kind of remind us how the hedge that you have in place, how it works and how it should help your net interest income. And also your guidance that fourth quarter net interest income will be higher than the third quarter and the second half will be higher than the first half. On what interest rate assumptions is that basically based? So have you used the forward curve or do you assume something else? So if you could just talk about the kind of assumptions behind. And then your capital position starts to be very strong at 16%. When should we start to hear about share buybacks and extraordinary dividends and that? Do we need to wait until the fourth quarter results, or could you potentially give us an update before year-end numbers? And then kind of the final question would be, how should we think about the single resolution fund cost deposit guarantee fund fee that are coming down in Europe in 2024? how should we think about the impact for BCP and how much reduction year-on-year do you expect in these line items? Thank you.

So, starting with the hedging and the forward curve and so on. So, first, we manage our balance sheet in an integrated way. So we look at our balance sheet and what we want to do is we want to have a situation in which our NII is not exposed or not too exposed to Euribor movements. So the cash flow hedge, the investment in fixed rate securities, the demand deposit hedge are different types of instruments. that are, I would say, substitutes, to some extent they are substitutes, but the end result, with slightly different accounting treatment, but the end result is the same, and what is relevant is the end result. And here the end result is that we are not materially exposed to Uriber movements. So we are not materially exposed. So right now, our exposure to Uriber movements in Portugal, is for each uh 25 basis points of your arrival movements our our exposure is around 15 to 20 million euros so it's a very in terms of of of margin so if there is a an impact uh an impact of 25 basis points we are speaking here about an impact in terms of our nii of around 15 million euros which is very very small so So the way you should look at it is basically it's like giving, it's like having a part of our demand deposits invested that are fixed rate demand deposits because they are non-reminerated. They are remunerated at 0% rate, invested in fixed income securities and sometimes there are fixed income securities and sometimes there are fixed rate mortgages and sometimes these are floating rate mortgages with a cash flow hedge to fixed rate. But at the end of the day, these are substitutes and at some point in time we may use more an instrument than the other. In terms of the capital accretion and so on, I mean, we take governance very, very seriously. And we have a board, a full board, that has six EXCO members, 11 non-executives that represent, a large part of them are independent Some of them are representatives of the largest shareholders and the distribution decisions have to be discussed first at board level for then a decision at the AGM. And governance takes some time, mainly when we are at moments in which there are changes, so to say, in policy. What we have already said is that we are accruing a dividend payout of 50%. And what we have already said is that together with the result presentation of Q3, we will present a strategic plan with new targets. And certainly in the strategic plan with new targets, there will be an additional color in terms of shareholder distribution. It's not year-end, it's after summer. So after you come here to Portugal, to your beautiful home in the Algarve, and then come back to London, you will be surprised with, I hope so, positively surprised with all the work that we have been doing in our strategy. And a part of the strategy will be the distribution to shareholders. And in this context, of course, we do not want to accrue excess capital. This is obvious. Then exactly the level and how we do it, whether more with dividends, more with extra dividends, more with share buybacks and so on, is something that will be discussed with the full board. in which there are independent members representing the shareholders of the market, so to say. But it's not year-end. We are speaking about after summer. And summer will be very, very speedy. In terms of the single resolution funds, in 2022, as far as I understand, as far as I recall, we had a cost of 26 million. In 23, we had a cost of around 18 million. In 24, we are expecting the cost of around 10 million. So give or take. So this is the evolution that we have very much aligned with what's happening in other European banks.

That's very clear. Can I just, sorry, ask one final question? In terms of your net interest income in Poland, it was very strong, up 6%, quarter and quarter. How should I think about the NII performance in Poland going forward? Could you maybe just also remind us your rate sensitivity in Poland, as the expectation is... coming down?

I mean, in Poland, in Poland, as I commented, we also have an NII very much hedged. So in Poland, the sensitivity of the NII for each 100 basis points is around 2%. Right now, we are sensing some stability with a small decrease in interest rates. compared to what was expected around four to five months ago, where people were expecting the sharper decrease in interest rates. Right now, due to several reasons, including the resilience of the inflation, we are not expecting a sharp drop in the Polish interest rates. So our base case in Poland is stability in the coming months.

Yeah, that's very clear.

Thank you.

Okay, thank you.

We are now going to proceed with our next question. The questions come from . From Alan , please ask a question.

Yes, thank you. I wanted to ask about the bond portfolio, which has increased over 3 billion quarter-on-quarter. which is almost 60% of the demand deposits of the group, over four times the tangible bulk of the bank, if you can comment on the size and duration that you are targeting for this portfolio and any limits in their interest rate strategy that you impose yourself. Second question, if you can update... your best guess on the provisioning effort and litigation costs pending in Poland related to the CHF portfolio. And then just a follow-up on this securitization strategy, I appreciate the financial merits of doing this transaction. It's cheaper than the cost of equity of the bank, but you already have excess capital at the bank, so I would only understand resorting to securitizations if you were to optimize the CET1. So, you can please elaborate on this strategy on securitization and CET1 optimization.

Thank you. I mean, the decisions, starting with your last questions, the decisions to originate capital and to get capital are not necessarily taken exactly when you need it, are taken with a trade-off of need, and conditions that are suited for your shareholders. Because if you wait until the moment in which you really need it, probably it will not be in the best interest of the shareholders to get it. So we have to take a look at the capital optimization strategy over the long term and mainly when you are speaking about decisions that are not one year or two year decisions. And this goes back to the question that I have commented of the capital distribution policy, which we will disclose together with the strategic plan. In terms of the bond portfolio and the limits and so on, what I would like here to stress is the following the bond portfolio or the government bond portfolio is not is not an objective per se I would say what is our objective is customer business and is relationships with customer and obtain I would say a balanced a balanced return from our customer business both for us and for our customers so this is what we want okay then the the bond portfolio fulfills two objectives one objective is if we get deposits and if we want to invest in credit but the the the cost of capital implicit in this credit is higher and the expected loss, then what we get in a bond portfolio, instead of giving credit, I mean, we invest these deposits in a bond portfolio, but the bond portfolio is a consequence of the deposits. It's not a business per se, okay? So we compare the other, and if at some point in time, what happens is that we see a good opportunity to increase materially our credit portfolio with a balanced risk-return profile, we will tend to sell a part of our portfolio and invest in credit. So that's the way to look at it. So it is like the balance sheet has to square, so to say. And as long as we are generating value from our relationship with the customers, we will not simply close the bank and say we don't want your deposits. because we cannot invest in credit. We want the deposit, but if we cannot invest in credit in a good, balanced risk return trade-off, what we do is that we invest in the bond portfolio. So it is a consequence of the commercial relationships with customers on the liability side and not an objective process. So we do not have an objective in terms of government debt portfolio. It is, so to say, the last plug in the balance sheet to close the balance sheet. Another objective of the bond portfolio is exactly for the interest rate risk management. And the bond portfolio together with the cash flow hedge and together with the demand deposit hedge is a way to hedge the volatility of our NII and of our value, so to say, to intersect movement. So, and what we typically want here to have using these three instruments, what I have here commented, is that typically we are in, with exposures of an AI sensitivity between 50 and 150 million euros for each 100 basis points of arrival movements. normally very close to 100 million. In the last years, we have been very close to 100 million. Right now, we are closer to 60 million because we want to have our balance sheet even more hedged than in the past. But the way we have to look at it in terms of interest rate risk management is that this is the contribution for the interest rate risk management that we expect. And this is the main limit that I would say influences it. Then, of course, we have We have country limits and so on. Our bond portfolio are of investment rates, European countries, and the average maturity of our bond portfolio right now is around four and a half years, give or take. Excluding treasury bills, with treasury bills closer to three years, okay.

Yes, sorry, I also ask about the provisioning effort and litigation costs left in Poland.

The litigation costs in Poland, as we have been saying and also our banking firm has been saying, is that this year will still be a year of high costs in terms of litigation, albeit lower than last year. So this is our expectation, this is our base case, and this is what our team in Poland is communicating to the market. And I cannot go very much beyond that, except to say that in terms of next year, we do expect, I mean, to be materially lower than this year. So we expect next year to be the last year of important CHF provision.

Okay.

Thank you very much.

We are now going to take our last question. And the questions come from the line of Carlos Peixoto from CaixaBank. Please ask your question.

Yes. Hi, good afternoon. First question, and then so sorry to come back again, but the first question, the question would be on fees outlook for the year, and particularly looking into the breakdown of fee solution in Portugal. I noticed that cards and transfers are down year-on-year. I was wondering whether this is mainly related to pricing effects or it's actually volume-driven. And basically on the bank assurance as well, what are the drivers there? And then a follow-up on the guidance or on the outlook you gave on the NI in Poland. When you refer to stable NII throughout the year, you're basically referring to the first Q being the reference for the remaining of the year. So, we'll be probably talking about roughly 10% increase in NII in local currency. Did I understood that correctly? Thank you very much.

Yes. Starting with your last question, the stable means that our base case right now is that the next quarters will be aligned with the first quarters as you are saying. terms of the commissions in in portugal what happens is that there is i mean we want to be a key bank in terms of the daily banking of the customers and of course when the demand deposits are more profitable we tend to be more against understanding in terms of of of charging daily banking fees to customers because of the of the profitability of the demand deposits so There is some trade-off here. This is mainly what explains what is happening more than volumes and so on, is the flexibility in terms of we have a lot of package accounts, but of course, If a customer that has a high demand deposit rate wants to have or if we need to retain the customer with some type of discount in the package, it's easier to do that when you have a positive interest rate than when you have a negative interest rate because we are having the remuneration for our service through the 0% demand account. So that's a little bit, so everything, this is on the hand. On the other hand, there are some regulatory, as you may know, Carlos, there have been some regulatory restrictions to fees in Portugal. This also affects the daily banking fees. So I would say these are the two movements. So everything that has to do with payments but generates demand deposits, we are much more careful in terms of pricing and the regulatory issues linked to that.

We have no further questions at this time. I'll now hand back to you for closing remarks. Thank you.

Thank you. Thank you very much for you all for analyzing the bank. We really appreciate all the effort that you put into understanding our business. We hope sincerely that your clients that use your reports have been able to profit from the important share price that the bank has had last year and this year. And we here want to reiterate our full commitment of our board to shareholder value creation in pursuing this important path of strengthening of the franchise and profitability of the shareholders. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.