Unicaja Banco Sa Ord

Good morning and thank you for attending Unicaja Banco first quarter results. Today, before market open, we have published this presentation and the rest of the quarterly financial information in the CNMV and our corporate website. We know that these are busy days with a lot of results coming out, so we will try to finish in no more than one hour. Pablo González, our chief financial officer, will do a quick presentation and afterwards we will hold the usual Q&A. Pablo, whenever you want.

Thank you, Jaime. And good morning to everyone. I will start in slide four with the main highlights of the quarter. Regarding business activity, total customer funds were very stable at the beginning of the year with private sector deposits growing 0.1% quarter on quarter and year on year. of balance sheet funds grew a bit more at 2.7% compared with the first quarter of 23. On the other hand, private sector loans continued to fall, but at a slower pace compared with previous quarters. However, customer spread continues to grow one more quarter, reaching 2.91% in March which is 17 basis points above the previous quarter and 90 basis points higher than in the first quarter of 2023. In terms of profitability, the beginning of the year has confirmed the expected improvement that we announced last quarter. Net interest income grew 32% year-on-year and 2.7% quarter-on-quarter. The banking margin was 36% above the previous year, something that also was reflected in the cost to income ratio that remained slightly below 49% in March. All these trends led to a net income of 111 million in the quarter, which is more than three times the one in the first quarter of last year. Asset quality trends were also very positive. Stage 3 loans fell an additional 7% in the quarter and 23% in the last 12 months. Foreclosed assets also continued to fall in the quarter, leaving its gross balance 33% below the previous year and representing only 0.3% of total assets. NPA's coverage remained high at 70% and cost of risk fell to 25 basis points. Total provisions, including legal and real estate assets, fell 39% compared with 2023. All of them very positive trends that we will see in more details afterwards. Finally, in terms of solvency and liquidity, it is worth noting that despite the negative impact in the quarter from the share buyback, Our seed one was 14.5%, implying an MDA buffer close to 680 basis points. Total MREL grew above 28%. In liquidity, as you all know, we continue to have very comfortable position with one of the highest LCR of the sector at 294% and a loan-to-deposit ratio of 74%. All in all, as you can see, first quarter 24 trends are very positive and confirm the expected improvement that we anticipated at the end of last year. In slide six, you have the customer funds trends. As you can see, total customer funds were very stable, above $88 billion. Regarding unbalanced sheet funds, public sector deposits continued to fall in the quarter. However, private sector trends were very stable. The mix between site accounts and term deposits continue to grow this quarter, explaining the small increase in the cost of deposit that we will see later. Of balance sheet funds grew 1.6% in the quarter to 21.4 billion owing to a 3.7% increase in mutual funds. If we move to lending on slide seven, you can see how the performing loan book continued to fall in the quarter, but at a much slower pace than in previous quarters. One more quarter, public sector loans were the ones decreasing relatively more. However, private sector trends, despite still decreasing, were falling just a bit, more than 1% in the quarter. This compared with a quarterly drop above 2% in the fourth quarter of 2023 and above 3% in the third quarter of 2023. The mentioned drop, despite improving, it is partially explained by an active risk-reward commercial strategy to maximize offered spreads. It is worth noting that under current environment with more normalized rates, the profitability impact of negative commercial gap is not the same as the one we used to have with negative rates. By segments, corporate loans fell 2.4% in the quarter, still a bit more than loans to individuals that fell 1% in that same period. All in all, total performing loans fell 1.6% in the quarter. On the next slide, we show private sector new lending trends. New lending volumes in corporate loans and mortgages were positive in the first quarter of this year. Total private sector new lending was very similar to the first quarter, 23, but 18% above the previous quarter. On slide nine, a little bit of color on our digital business that continues to improve, partially supported by the new app that we launched some months ago, with an increase in the percentage of digital customers and strong figures in overall digital activity. 43% of the customer new lending, the consumer new lending, and almost one third of our mutual funds come through remote channels. Moving to slide 10, we have an update on sustainability. We continue to make significant progress in the different areas. This is one of the priorities for the whole entity. Let me quickly enumerate some of the recent developments. On the governance front, as we anticipated last quarter, the renewal The board has now been completed and ratified at the AGM. An optimal structure aligned with best practices and a committed and united board. We are also committed to society as we have historically demonstrated, and we continue making progress, always pushing for financial inclusion, keeping our agreements, but thinking about new engagements. On the environmental front, as part of our commitment with the future of our planet, we currently have 1.3 billion in green bonds representing 60% of the total outstanding senior and senior non-preferred bonds. In addition, we continue to develop and improve the way we incorporate sustainability issues with our clients and in our day-to-day credit risk management. Moving now to slide 13, we show the regular P&L details. Net interest income is up 32% in the year and almost 3% in the quarter. As we will see later, the growth is driven by additional repricing of loans and the improved liquidity position, which, as I said before, it is now something profitable again, thanks to the normalized rates levels. Fees fell 2% in the quarter in line with our current guidance and driven by the launch of commercial campaigns that have relaxed on part of the transactional fees to more loyal customers and more competitive mutual funds structures. Other revenues include 79 charge from the banking sector tax. Total costs grew 3.4% in the quarter. The expected increase in personal expenses was partially compensated by lower general costs and stable amortizations. Gross margins improved 4.5% in the quarter and almost 24% in the year. Loan loss charges improved more than 10% year-on-year and quarter-on-quarter with the cost of risk of only 25 basis points. Other provisions confirm the expected improvement announced last quarter following the provision effort made in 2023 Real estate provisions have become non-material, while other provisions fell in line with the expected guidance. All this led to a pre-tax profit of 184 million and a net income that reached 111 million. which is more than three times higher than the first quarter of 23, confirming the improvement in profitability that we announced last quarter. Now we will start reviewing in more details the P&L starting with the net interest income in slide 13. As you can see on the slide, the ongoing repricing of the loan book and a contained cost of deposits improved the customer spread one more quarter. long yield grew 24 basis points in the quarter while the cost of deposits only grew eight basis points as a result the customer spread improved by an additional 17 basis points in the quarter to 2.91 percent which is 90 basis points above one year ago if we move to slide 14 we have the main moving parts of the NII in the quarter. First, and driven by what we were explaining in the previous slide, lending contribution offset the higher cost of deposits. The fixed income portfolio contribution fell 4 million in the quarter. However, this was more than offset by the positive impact of improved liquidity position of the bank. All these explain the almost 3% quarterly improvement. In slide 15, as you can see, total fees fell 2% quarter on quarter, mainly driven by two factors. On one side, as I mentioned before, we have implemented some commercial campaigns to adapt transactional fees to current interest rate environment. the other hand asset under management fees were lower because of the increased demand for mutual funds with a lower risk but also relatively lower fees these two factors were partially mitigated by the strong insurance fees that are usually higher at the beginning of each year if we move now to slide 16, we have the breakdown of other income that includes income different to NII and fees. Here I would like to clarify that income from associates presents a significant improvement compared with the previous year and this is mainly because of an extraordinary impact related to IFRS 17 in our main insurance affiliate unicorp vida which offset the higher banking tax paid that grew from 64 million to 79 million this year moving to slide 17 you have total cost details While administrative costs fell in the quarter and amortizations were stable, personnel costs grew to 135 million, reflecting the impact from the new collective agreement, among others. Total operating expenses grew to 225 million in the quarter, which is the run rate implied in our mid-single-digit growth guidance for 2024. On the right hand side, you have the evolution of our cost to income. It is worth noting that despite higher costs and the banking tax, the positive income trends enabled to improve the efficiency of the bank with the cost to income ratio slightly below 49% compared with 57% of the first quarter of last year. In the next slide, we show the evolution of the cost of risk and other provisions. Regarding long-lost provisions, it has improved further at the beginning of the year to 31 million that represented 25 basis points of cost of risk. This is even slightly below the low range of our guidance that was between 30 and 35 basis points for the whole year. such a positive performance is explained by the low risk profile of our book and its coverage levels in the right hand side of the slide we have included the evolution of total provisions here the most important news is that we are also delivering to what we said last quarter we expect real estate provision to become not material going forward. Regarding the rest of provision, as you can see, they have also fell towards a level in line with our guidance. Total provisions should decrease significantly in 2024, being one of the main drivers of the expected improvement in our profitability from now onwards. On slide 19, We have included our quarterly net income evolution. As you can see, first quarter 24 shows a significant improvement despite the impact of the banking tax. The banking margin that includes NII plus fees plus total cost grew 36% in the first quarter 24 compared with the first quarter of 23. On the right side, you can see that the return on tangible equity grew from around 4% last year to the current 5.4% or 6% when we adjust the excess capital over 12.5%, seed one. fully loaded it is important to take into consideration that we use the last 12 months net income to calculate the return on tangible equity as you can see this trend leaves us on the way of improving return on tangible equity above nine percent as we expect for the full year Let's move now to asset quality, where we have continued our progress during one more quarter. Starting with NPLs, in slide 21, you can see how stage three balances fell an additional 7% this quarter. The NPL ratio fell below 3% despite the drop in loans, with the coverage growing from 64 to 66%. a very comfortable level considering that the big bulk of our NPLs are residential mortgages. In page 22, we have the foreclosed assets and overall NPA's details. Foreclosed assets decreased further to 314 million or 1.2 billion in gross terms. Quarterly sales of 66 million more than offset the 50 million entries. The NPA exposure fell farther this quarter while we kept coverage at the relatively high level. As you can see on the right, total NPAs with a 70% coverage continue falling this quarter another 6% and almost 30% when we compare them with the first quarter of 23. And gross NPA Fail ratio fell to 5.3 or to 1.7 when considering net balances. All in all, the significant decrease in MPS continued during one more quarter. Let's move now to solvency, page 24. Seed 1 fully loaded fell 21 basis points in the quarter to 14.5 percent. On the positive side, retained earnings and lower risk-weighted assets had a combined positive impact of 46 basis points. However, the 34 basis point impact from the share buyback and the mark-to-market of EDP stake through Opidum left seed 1 at 14.5. On slide 25, you have our MREL position. As you can see, our MREL liabilities represented 28% of our risk-weighted assets, a level that includes a comfortable buffer of over our 24.9% requirement. In the right-hand side, you have some additional info, including our MDA buffer that has grown to 679 basis points, a level that implies that we will continue to have comfortable buffers, even if a kind of countercyclical buffer is finally requested in Spain in the future. In the next slide, we have the fixed income portfolio details. As you can see in the slide, there are very small changes in the quarter. The size and the yield were very stable. However, we have increased a little bit the duration from 2.2 year to 2.4 years in order to preserve its contribution going forward. Finally, in slide 27, we update our liquidity position. As you can see, we continue to have a very strong liquidity position with a huge balance of liquid assets, a loan to deposit ratio of 74%. the nsfr at 157 percent and lcr once we have repaid fully repaid the tltros at a significant 294 percent all of them very strong liquidity metrics So that's all from my side. As a final remark, I think it is worth to highlight that the first quarter 24 trends are very positive. Our structural Profitability is improving. We continue to reduce our MPAs at a very good pace. Our solvency position remains very strong despite the negative impacts of the quarter, and we have one of the strongest liquidity position on our peers. All in all, a good set of results that we expect to continue to improve in the coming quarters.

Thank you, Pablo. We will now move to the Q&A. Please remember to ask, if it's possible, only two questions each one, and also remember to mute your line after the questions. Operator, please open the line for the first question.

Thank you. Ladies and gentlemen, we will now begin the Q&A session. If you'd like to ask the question, please press star five on your telephone keypad. If you change your mind, please press star five again. Please ensure that your device is unmuted locally before proceeding with your question. And our first question comes from the line of Max Missing from GB Capital. Please go ahead.

Hi, good morning. Thank you for the presentation and taking our questions. I have two. The first one is on NII guidance. You previously guided for low single-digit growth in 2024 with outlook for higher rates for longer. I was wondering whether you consider to adjusting this guidance. And if so, what kind of outlook for longer growth and customer spreads do you foresee for 2024? And then the second question is on capital. You reported a strong capital position. And I have two questions here. The first one, whether the potential introduction of counter-cyclical buffer can change your internal targets for CET1. And then the second, whether you can update us on the ways you could deploy this capital in the future. Thanks.

Okay. Thank you, Max.

I think regarding NII guidance, it is true that the beginning of the year has been more positive than we initially thought and this has been mainly due to to higher rates and and contain increasing the cost of deposits however we we saw plenty of volatility during the last months in in rates and just to give you some color the the expected arrival for This month, the arrival of 12 in September was 80 basis point higher than in December. And March is 50 basis point higher than in December. So with this volatility, the environment of rates and other moving parts evolving, I think we want to see how these moving parts and interest rate evolution during the following months before we update our guidance if needed. On top of this, it is fair to expect to see the NII falling a little bit from current levels in the coming quarters due to the the arrival level one year ago compared to this month. So the repricing of lungs is almost finished and the cost of deposit, at least within our models, continue to grow a little bit more. so we will update our views and if it is the case the guidance in in the second quarter 24 results once we have a bit more color on on 24 trends and regarding the the customer spread is very similar i think we have uh reached the probably the the peaking in the 291 and the major driver as you can imagine is the Euribor repricing that we expect probably in April still positive and then decreasing in the coming quarter. So obviously it will depend on the new production compared to the back book, but the impact from the Euribor repricing is very significant. So we expect that to come down. But having said that, we still expect the customer spread to be higher than the one that we have on average in 23. And I think the second question was regarding capital and the potential impact of the countercyclical. as I said in the presentation, the level of capital that we have and the cautions and the buffers that we have allows us to withstand any potential countercyclical buffer that could be put in place. So we already consider any potential headwind from the regulatory front. So we are comfortable with the level of capital and to maintain the strategy that we mentioned before.

Thank you, Pablo. Operator, please, next question.

The next question comes from the line of Ignacio Ulargi from BNP Paribas. Please go ahead.

Hi, good morning. Thank you for taking my questions. I have two, if I may. One on the long book evolution, I mean, How do you see lending growth evolving from here, particularly focused on mortgages and corporate lending? And the second question is on other provisions. How do these evolve? Throughout the year, we have seen a very good performance quarter on quarter as well. So we expect this trend to maintain over the coming quarters. Thank you.

Thank you, Nacho.

Regarding the loan book evolution, as you saw in the presentation, loan continued to decrease, but as I said, at a slower pace than previous quarters. This has been improving, although decreasing, but improving in the last few quarters. Public sector, which is more volatile, fell relatively more in the quarter, but the private sector trends are better than in previous quarters. The new production at the beginning of the year improved compared with the last quarter of 2023. Corporate loans that suffered relatively more last year have started in 2024 in a better shape. In mortgage, production has also improved. at the beginning of 24, mainly at the end of the quarter. In March, which is the last month of the three months of the quarter, we formalized more than 200 million of the total 520 million in the first quarter. So little by little, the new lending trends have been improving. It is too soon to change our view for the rest of the year. So we feel comfortable with the guidance at this point. So we will obviously update our views in the next quarter when we have more information. and we are confident that there will be some recovery in the demand from our product offering and attractiveness of our offer to our customers is improving and we're working hard on developing the tools to improve our production. So having said this, obviously it will take some time, and so we maintain the guidance that we gave of low to mid single digit decrease for the 2024, and then probably improving the next year. And regarding the other provision, your second question, we expect other provisions to continue to decrease going forward. In 2023, we book around 110 million for the 2024, as we said, and this is pretty much in line we expect to reduce that between 15% to 20%. Although this quarter has been slightly better, there's some one-off that happened this quarter. So we still maintain the guidance, even with all the mortgage cost evolution that we monitor very closely, as you can imagine.

Thank you, Pablo, and thank you, Nacho. Operator, please, can we go for the next question?

The next question comes from Felipe Munari from Bank of America. Please go ahead.

Yes, morning, everybody, and thank you for taking my question. So a couple of questions from my side, please. The first one on the fixed income portfolio. So the average yield has started to come slightly down in the quarter. I wonder if you could please tell us what are your latest expectations in terms of the contribution from the ALCO this year, and if you expect any material changes in terms of size and hedging strategy on the ALCO going forward. And second question on capital distribution. So, you know, with organic generation and your ordinary payouts, CT1 should keep growing. in the next quarters, can you please maybe comment on your appetite for extraordinary distributions and also if you have any preference in terms of share buybacks or potentially adding some special dividends going forward. Thank you.

Thank you, Felipe. Regarding the ALCO portfolio, I think the size, but also the rate has been quite stable, slight decrease. And the amount decreased only 150 million in the quarter, and the yield is very similar, slightly lower. I think that the major The difference is that the duration of the portfolio has gone up from 2.2 years to 2.4. And this, regarding your question on the hedging strategy, is uh we are using like in the last few quarters uh some restructuring of the hedges and and now we are locking fixed rates for the two to four year period this has small impact on on the contribution in the short term as long as the the short-term rates are above four And if you go and fix them for another period, so the contribution reduces now to improve the devolution in 2025. So, as you can imagine, we expect the overall contribution for the year to be above last year. but slightly decreasing in the coming quarters. On a quarterly basis, slight reduction, to be completely clear, unless we have new opportunities to invest. And this is mainly due to the strategy of locking the fixed rates for the next two to four years and helping to reduce our interest rate sensitivity to lower rates in the coming year. But having said that, with the slightly lower volumes that will depend obviously on the opportunities and the liquidity evolution of the bank. And regarding the second question, we maintain our aim to propose a 50% cash dividend payout. uh which we are also accruing in our solvency ratios and you know and and obviously if the if the board uh decide to propose a different thing uh like increasing the dividend or or shared by back obviously this is uh on them to to design what we can say is that we are currently executing a share by back uh of 100 million uh so on up to now we we already have measure that we announced in the last result presentation so we will continue to to manage our capital and trying to to maximize the the shareholders return but for now we must finish the the one before we think on on on anything else thank you uh filipo let's move to the next question please operator

The next question comes from the line of Borja Ramirez from Citi. Please go ahead.

Hello. Good morning. Can you hear me? Yes, Borja. Go ahead.

Thank you. I have two questions. The first is regarding the foreclosed assets. I see you have a high coverage. I would like to ask if you envisage any disposals and also given the expected decrease in interest rates, if you see any improvement in the demand from investors of foreclosed assets. And then my second question would be, you have a high level of capital, excess capital, and also a level of excess liquidity in the balance sheet. Given the fact that consensus expects a negative operating jobs next year, I would like to ask if it would make sense to maybe utilize the excess capital and excess liquidity, for example, by an inorganic growth or any additional restructuring.

Thank you. Thank you, Borja.

Okay, regarding the NPA disposals, we have been very active during the last quarters. Just to remember, in 2023, we sold different portfolios, Stage 3 portfolios, uh also 200 million and two of 200 million and two different real estate portfolios that represented more than 100 million in sales in in the first quarter uh we have sold again 100 almost 100 million in stage three loans but we haven't done any portfolio disposal of foreclosed assets um We continue to monitor the market and the institutional investor appetite. And although the market expects lower rates, less now than a quarter ago, but still expect lower rates, I think the appetite from institutional investor is not very high. But as you said, we have a high level of coverage and we maintain the market appetite continuously. So we still are looking for potential portfolios of disposal, but I cannot confirm anything now and we will be very careful on not losing potential improvement down the line. I think the good news is we have a level that allows us to be comfortable with the level of provision and to make our shareholders confident that it won't have any significant impact in the P&L going forward. regarding the excess capital. Having this excess capital, we think it's a strength of us that gives us the opportunity to undergo different initiatives to generate value for our shareholders and the bank. The use of this excess capital obviously depends on different conditions, but we expect to continue to generate capital going forward. which will give us additional flexibility and optionality. On the other hand, I think it's worth noting that our capital buffers also help us to maintain and absorb potential negative impact, like the ones that we have in this first quarter with GDP stake. and the full deduction of the share by back. So I think this level of capital is important to have this optionality and to accomplish and to take measures to benefit our shareholders' value. Regarding what you said, the actual use uh we we as i said we are undergoing this share by back and we are always open and analyzing continuously new opportunities organic and inorganic as i said inorganic or growth obviously the the long demand For companies, we expect once we have a more stable economic environment and less doubt on the evolution of the economy, we have seen some improvements in the PMIs, in the leading indicators of the economy in Europe and in Spain as well. So I think corporates and SMEs need to be more confident in the future to engage in long-term investment that will require lending. But we are confident this could come in the coming quarters if the evolution of the economy is as expected. But overall, as I said, we don't expect to have a significant demand from lending growth in organic basis for this year. And regarding inorganic, obviously, we will look at any opportunity in the market, but we will be very careful to make sure that it's value added, any potential deal.

Thanks, Pablo, and thank you, Borja. Let's go to the next question, please.

The next question comes from the line of Ignacio Cerezo from UBS. Please go ahead.

Hi, good morning, and thank you for taking my questions. I've got two. The first one is on NII. There's been, as you suggested in the presentation, improvement on the excess liquidity NII, if we can call it like this. So obviously the amount of excess liquidity is up, but there's also significant reduction of the interbank cost in the quarter. So if you can explain, give a bit of color, basically, what drives that. And then the second thing, a bit more generically, I mean, one of the kind of initiatives that the new CEO mentioned at the beginning of his tenure was the possibility of investing more on the SME and corporate business. So if you can give us an update basically in terms of when can we expect more precise measures on this front. Thank you.

Thank you, Ignacio. As I said, in NAI, One thing that I mentioned is when we have this positive trend that the liquidity from asset resource gathering has improved and the lending is not picking up, so it keeps us with more liquidity. And also we have a very large fixed income portfolio that is not utilized, so it allows us to improve the management of the liquidity. It's a combination, as you said, the better liquidity position, but also the better management of the liquidity and the money market deals that we undertake. And regarding the initiatives mentioned by the CEO, by Isidro, on SMEs and corporates, I think he mentioned And I reiterate, these are medium-term initiatives. We are improving process, tools, and talent of the teams to increase the value proposition for SMEs and corporates. And you have to think, Ignacio, this is a very challenging market in Spain. that the lending yields in the corporate lending is very, very tight regarding the risk. So we have to be very careful to really tap on the really good value added proposition for our customers. And so we keep working on the measures and we will have more details once we we deploy some of them but it's mainly process policies tools and and talent so it's a combination of and we are working in all of them but this as i said and the ceo mentioned this takes time thank you pablo let's move to the next one please the next question comes from the line of hugo cruz from kbw please go ahead

Hi, thank you for the time. I just have one question, which is a bit high level, but you have a very liquid balance sheet. Your loan book is still shrinking a bit. I can see it to recover, but you will still continue to have a very liquid balance sheet and you're targeting still a single digit return on equity. So why are you not paying less for deposits and lose more deposits? but that should improve your RTE. So why do you still pay more for deposits in Q1 than you were doing in Q4? Thank you.

Thank you, Hugo. We fully agree. We have a very, very liquid balance sheet, and this gives us optionality and a lot of potential. And as you can see, we have reduced our public sector deposit by more than one billion this quarter because of the very competitive landscape on this deposit side. But we want to maintain the long term relationship with most of our customers. So it's the more the most price sensitive part. And the other thing that you mentioned is trying to push off balance sheet some of the deposits from our customer base. And I think our position is we try to serve our customer and their needs and their risk appetite the best that we can. and i think that the median to long term is that we we have to to be enabled to have the the kind of product that they want obviously we would like to to improve even further we have increased our uh net uh and gross um mutual fund uh this quarter as i said 800 million gross and and more than 300 million net in mutual funds but obviously as they are you know regarding the market environment and the risk appetite that they're looking more for low-risk money market funds, targeted return fund and the like, which are usually very low uh low risk uh and obviously has a low fees attached so so we we tried to and we are doing uh a smart um training and and for me and you know we do webinars and things like that with our customer base and and our sales team to improve the knowledge and the long-term investment of our customer base, but at the end of the day, it's their choice, and we have to be able to deliver the best product that they want.

Thank you, Pablo, and thank you, Hugo. Let's go for the next question, please, operator.

The next question comes from the line of Fernando Gildes Antibáñez from Westinberg. Please go ahead.

Hi, thank you for taking my questions. Two quick ones, please. One, can you please tell us the sensitivity to 100 basis points increase to the CCIP and to the capital requirements of the bank, please? And the second one, if you can just provide an update on how are the health to collect and realize losses on the ARCA portfolio. Thank you very much.

Thank you. I think the first question was on the interest rate sensitivity. I think you mentioned the, I think the sensitivity you mentioned on NII battles and capital, I will mention both. I think regarding the NII, the impact of rates moving on NII is a complicated estimate and has a lot of moving parts because this is also quite theoretical exercise. And I think it's extremely important to have an accurate assumption in the behavior of the customer deposits that has strong influence and hasn't moved as most of the models were in place a year ago. So in our case, and with all this disclaimer, considering a constant balance sheet and a 100 basis point parallel downshift scenario, we could expect versus the last 12 months a negative impact of around 3% in the year two. once the whole balance sheet is fully repriced. Note that this is slightly higher than the guidance we provided last quarter because the NII that we are considering now as a reference is also higher. The sensitivity of the NII for interest rate movements is actually lower than the last quarter because of the strategy that I mentioned of going fixed for the two to four years adopted in this first quarter. I think it's also worth noting to have the full picture that the scenario that we are assuming is that the cost of deposits for the second year remains at similar levels of the ones that we have in this first quarter, not the whole year, the last 12 months. and regarding the the alco portfolio valuation i think regarding this we we we look at we consider that It's more accurate to analyze the valuation of all the items on the balance sheet. We don't manage the ALCO portfolio, at least the amortized cost portfolio, which is stable and funded by the liabilities of the bank, the commercial liabilities. So we manage on a balance sheet level, not at a specific line. So you have to think that the value of any specific line could bring some misunderstanding of the position and interest rate of the bank. I think in this sense, what I can tell you is the economic value of the bank has grown. last year in a rising rates environment and together with the NII that has improved significantly, which is our main objective. And now what we are doing is trying to implement a strategy to defend this enterprise value, the economic value of the bank in the scenario of potential rates coming down. And obviously, even more important to maintain our NII in a potential lower rate environment.

Thank you, Pablo. And thank you, Fernando. I think we've got time for two more questions. So please, operator, let's go for the next one.

The next question comes from the line of Carlos Peixoto from Casabank. Please go ahead.

Hi, good morning. So first question would actually be on fees and picking up a bit on what you're mentioning before on mutual funds. So basically, we see commissions related with mutual funds falling by 5% year on year, where mutual funds volumes are actually growing. So is this really the mixed effect you're mentioning in going to total fees amount? you were guiding before to a small growth this year. I was wondering whether you see that still achievable in the first few, sorry, whether you still see that achievable given the first few evolution. Then a second question would actually be on cost of risk. So you're trending well below the guidance that you had given for the full year. Do you see here upside to this guidance or should we expect cost of risk to pick up throughout the year? And then finally, and sorry to put a third one, You are getting towards an above 9% return on tangible equity. Of course, this is adjusted by the excess capital, but I was wondering if you could give us some color on how do you see the CG1 ratio evolving throughout the year, at what levels do you expect it to be around year end? Thank you very much.

Thank you, Carlos.

I think on fees, you mentioned, I think, as I said, this has come down 3 million in the quarter. I think the insurance has been very positive. We have to consider on a quarterly basis very high, but this is because of some seasonals on the first quarter. But even on a yearly basis, we have improved more than 10%. And this has contributed with more than 6 million in the quarter. However, as we said, the lower transactional fees, our strategy, with the new interest rate environment regarding our maintenance and other fees related to our retail customers. And also, as I said, the mutual funds appetite and trend that our customers are showing, even with higher volumes and net subscription on growing in mutual funds because most of the new funds are, as I said, low risk funds. obviously when you have a lower risk type of product usually has lower lower fees and and this has a net negative impact and and having said that we we reiterate and we maintain our uh expectation we still think insurance will perform in the year and and will upset the other two major uh you know headwinds and on fees so we maintain a decrease of low single digit for the year. Regarding the cost of risk, I think the risk of 25, which is even lower than the 27 that we have in the previous quarter, and with the NPL entries, which seems to be under control, I think even if we have some restructurings in SMEs, pickup in restructuring in SMEs overall, we already spotted and identified the potential ones. So, on our MPL, it's already under control. And so, we expect this not to have a very significant impact going forward. and because the economy and employment trends are still positive and we have a slightly lower positive than it's slightly less positive than last year but still positive gdp evolution and employment evolution for the whole year although we have some concern obviously but it's already within our expected potential restructure deals in our portfolio. So we, at this moment, we prefer to maintain the 30 to 35 basis points, although the actual evolution is very positive. And regarding your last question, this was the last one.

So I think, operator, we have time for one final question, please.

The next question comes from the line of Cecilia Romero from Barclays. Please go ahead.

Thank you very much for taking my call. I'm sorry to ask again about NII guidance, but you have had a growing cost of deposits in the quarter, but it's slowing down. Your loan deal has performed really well. You gave us a low single-digit growth in NII with a new arrival 12-month assumption of around 2.8%. If you look at your average 12-month forward curve now, it's probably at the 3.4 mark. You haven't changed your expectations on volumes, which you told us that you expected them to be slightly down for that NII guidance. So I'm just wondering, are you being extremely cautious not changing your guidance? Or is there anything in particular that has changed in your view of how NII should evolve in a higher rate environment?

Thank you.

Thank you, Cecilia. I think the reason, as I mentioned on the NAI guidance, is we obviously, when we gave the guidance, it was in a different interest rate environment, as you said, between 2.8 and 2.9 for the whole year of the Euribor. This has another impact we have higher we have reduced our nai sensitivity and this will depend obviously on the deposit cost evolution and and with higher rates probably the the move from from site to term deposit will will go higher as well uh and the the you know the the fixed rates we're doing in the last few quarters for the two to four years so it's locking a little bit our expectation on going up the nii but also going down if rates come down so so we have less interest rate sensitivity and also we have only three months and in as i said if we go back to the to the uri board that was discounted in september by the market it was a lot higher than than it was at the end of the year 80 basis point then in this quarter it has gone up 50 basis point and still uh we we think this volatility is here to to stay for some time i think the the uncertainty in the environment on the inflation front and the growth evolution at European and US level that drives our rates as well. It's extremely high and we have to be open to different scenarios. And as well as we manage the different potential scenario of higher or at least less lower rates than we foresee now, we still have to consider the potential lower rates down the line. As I said, we are confident that we are going in the right direction. And NIA could be, if everything stays as today, could be better than our initial guidance. But we prefer to be prudent on when to come with a new update. And I also don't think to be changing the guidance every quarter. makes sense because the volatility of rates, as I said, is very high. So we will have more color in the second quarter. So I agree. I think that it looks better now, but I think still too much volatility and too many moving parts and the deposit cost that we were expecting could go up as well as the revenue coming from the loan book. So we have to see the evolution of both trends.

Thank you, Pablo, and thank you, Cecilia. Thank you all for attending the conference call. If you want additional info, please do not hesitate to contact the IR team. We are at your disposal. So thank you very much.