Unicaja Banco Sa Ord

Good morning, everyone, and thank you very much for attending our first quarter 2025 presentation. This morning, as usually, before market opening, we published this presentation along with the rest of our usual financial information at the CNMV and our corporate website. Today, we have with us our Chief Financial Officer, Pablo González, that will be this time the one going through the slides. So without further delay, I'll give the floor to him. Pablo, whenever you want.

Thank you very much, Jaime. I will start on page three, where we show the main highlights for the quarter. Starting with commercial activity, I would like to highlight that business volumes improved by 2.4% year on year, supported by some positive trends that have been confirmed in the first quarter of 2025. where of balance sheet funds grew 3.8%, but also thanks to much more stable trends in performing loans that grew 0.3% quarter on quarter. Such loan growth was explained by an impressive improvement in private sector new lending that in the first three months of the year was 44% above the first three months of last year. Regarding profitability, net income grew 43% year-on-year in Q1 2025 to €158 million, representing a return on tangible equity adjusted by excess of capital of 11%. The positive dynamics at the beginning of the year are also reflected in the cost-to-income ratio that improved 3 percentage points in the year to 46%. The start of the year on credit quality terms was also very positive. NPL fell 5% quarter-on-quarter and foreclosed assets fell 7% in that same period. This left total NPAs 22% below first quarter 24%. A significant decrease of NPAs that has taken place while we also increased their coverage from 71% at the end of 2024 to the current 73%. The cost of risk was 27 basis points in the first quarter of 25 below current annual guidance of around 30 basis points. Finally, the bank's solvency and liquidity have also been strengthened. Seed 1 improved by 27 basis points in the quarter to 15.4% despite the accrual of 60% dividend payout. The loan-to-deposit ratio remained below 70% and the liquidity coverage ratio stands at 270%. I will continue with the commercial activity on page five. As you can see, the total customer funds fell 1.2% year to date, owing to the regular quarterly seasonality. However, they were 4.9% above first quarter of 24. With unbalanced sheet funds, 3.4% above first quarter of 24. and of balance sheet funds, 9.4% above last year. Of balance sheet funds, trends continue to be very positive in the first three months of the year, with mutual funds reaching 14.4 billion euros. That is almost 7% above the previous quarter and 22% above the previous year. On the following page, we show you the details of the assets under management and insurance. As I mentioned before, and you can see on the left-hand side, assets under management have grown 9% year on year, and in the case of mutual funds, the growth has been 22%. It is worth noting the significant improvement that we have had in net inflows. As we show at the bottom, net inflows continue to improve during the beginning of 2025 to almost 1 billion, representing a 9% market share. On the right, we show assets under management and insurance revenues that have improved 14% in the last two years, representing 18% of total quarterly revenues. With regard to loans, during the quarter, total performing loans were stable, growing by 0.3% quarter on quarter, confirming better trends than the ones we have reported in previous quarters. Such an improvement is mainly explained by the significant increase in new loans that we will see in the following slide. But before that, let me review with you the loan growth by segments. Private sector loans were flat in the quarter with positive trends from both corporate and individual loans. On the corporate side, the quarterly growth was 1% when excluding developers. On household loans, residential mortgages fell 0.3% in the quarter, while consumer loans grew by 1.4%. As you can see, there is a positive trend that has been improving during the last quarter, supported by higher new loan production, as we show in the following slide. On page eight, we show the credit formalizations. Private sector lending grew 44% year-on-year to 2.3 billion, showing positive trends in all segments. As you can see, the business and self-employed segment is particularly noteworthy, where formalizations in the first three months grew from 0.9 billion to almost 1.4 billion, representing almost 50% increase. In mortgages, new lending grew 37%, and in consumer lending, another 33%. In slide 9, we show you some ESG figures that highlight the significant progress we are making in our transition plan. We continue to grow our sustainable business, which we are also financing with the issuance of green bonds. We have ambitious decarbonisation targets for both our own carbon footprint and emissions finance, which already cover 70% of the risk to the private sector and new targets in other portfolios have been approved and will increase this coverage. We maintain our commitment to society, focusing on groups at risk of exclusion, advancing in financial education, increasing the number of people rich. In addition, we continue to increase our tax contribution and our contribution to shareholder foundations through dividend payments. Finally, I would like to highlight the recognition we have received with the highest rating from AENOR for our good corporate governance. We now continue with the review of the P&L in the next section. As we show in slide 11, Net interest income fell 3% quarter-on-quarter to $369 million, impacted by the lower day count and the ongoing repricing of loans. However, this was partially mitigated by lower cost of liabilities. Income showed a positive 1% quarterly growth supported by mutual funds and insurance contribution. On the rest of the revenues, the most relevant impact comes from the change in the accounting of the new banking tax. Last year, the former levy was booked in other operating charges and accounted in full in the first quarter of 2024. Now, the new tax is accounted in the tax line and it is accrued through the whole year. All in all, the gross margin reached 550 million, quite stable compared with the previous quarter and 11.5% above the previous year. Total costs grew 4.5% in line with our guidance and mainly reflecting the agreement on salary increase and some of the investments considered in the initiatives of our business plan, leaving pre-provision profit 18% above the previous year at $280 million. Long-lost charges reached 32 million, representing 27 basis points cost of risk, slightly below our 30 basis points guidance for the year. Other provisions were stable and within our guidance that is considering less than 100 million for the full year. All this left pre-tax profit at 227 million, which is 40% above the previous quarter and 23% above the previous year. Total taxes of 69 million include 5 million of the new banking tax that will be now booked through the year, explaining the higher effective tax rate. Finally, net income reached 158 million, which is 30% above last quarter and 43% above the first quarter of 2024. We will now review the P&L in some more detail, starting with net interest income. On the next page, we have the customer spread evolution. As you can see, lower rates explain a 20 basis point decrease in our loan book. However, this was partially compensated by eight basis point lower cost of deposits, leaving first quarter 25 customer spread at around 250 basis points and net interest income at 170 basis point, which is 11 basis points below first quarter 24. On the following page, we show the details regarding the quarterly evolution of NII that fell 3.1% or 1.8% when excluding the lower day count of the quarter that represented around 5 million. On top of the calendar effect, the lower cost of deposits that had a positive impact of around 14 million, partially mitigating the negative impact of the repricing of loans that was 31 million. On top of this, and following the liquidity generation in recent quarters, we have considered higher structural liquidity, so we have increased the size of our debt portfolio. This effect has also increased its contribution to NAI. However, in exchange for lower income from liquidity, leaving both effects together very stable this quarter, improving one million net of the calendar effect. Finally, the lower rates were also reflected in the lower cost of wholesale funding. If we move now to fees, we can see how they maintain a positive evolution in the quarter with a 1% growth compared with fourth quarter 24 and 1.6% above the first quarter of 2024, mainly explained by higher income from mutual funds and insurance that are the two businesses pushing up total fees and compensating the lower transactional fees following the implementation of lower payment and collection fees for more loyal customers. Following the review of the P&L, we now show you the details of the rest of revenues, which also shows a positive evolution in the year due to the new banking tax, which is now included in the tax line of the P&L while the 2024 was booked in other operating charges. Regarding total cost, personal expenses, grew due to the salary improvements agreed with the unions. Other administrative expenses also reflect some of the initiatives needed to execute our business plan, leaving total quarterly costs 4.5% above the previous year, in line with our mid single digit growth guidance for this year. In the right hand side, you have our cost to income ratio that continue to improve to 46% in the first three months of the year. On the next page, we continue with the cost of risk and other provisions which remain very stable compared with last year. Overall provisions were 53 million in line with first quarter 24 and well below the first quarter 23 where we book 88 million. The cost of risk for the quarter was 27 basis points, slightly below our 30 basis point guidance. Other provisions were 22 million that if we analyze, they were also in line with our current guidance that is considering total other provisions below 100 million for the whole year. On slide 18, we finish the P&L review with some profitability metrics. On the left hand side, You have the net income evolution for the last four years. In 2025, net income is 2.5 times the one in 2022 and more than four times the one in 2023 and 1.4 times the one we reported last year. A significant change in scale that is also reflected on the right-hand side where we show the return on tangible equity trends. Our profitability has improved from 4% in 2023 to 6% in 2024, to the current around 10% or slightly above 11% when considering the 12.5 seed one. As you can see, this is a very positive and important improvement achieved in the last two years. Let's move now onto the credit quality section. where we continue to see very positive evolution. As you can see on the slide, non-performing loans fell again this quarter by 5%, representing a year-on-year decline of 16%. All in all, NPL ratio reached a new low of 2.6%. In addition, it is worth noting the very remarkable evolution of the coverage ratio, which was again reinforced this quarter by another two percentage points, reaching a level of 70%, a very high and conservative level, considering, as we always remember, that more than half of the non-performing risk has additional collateral. Moving to foreclosed assets, we can also see how the evolution continues to be very positive. Gross balances fell another 7% in the quarter and 30% in the year, reaching 843 million. If we also consider that these assets have a coverage ratio of 76%, in net terms, the balance is reduced to levels close to 200 million. In terms of NPAs, which group together NPLs and foreclosed assets, the drop in the year was 22%, with coverage improving from 71% to 73%. This positive evolution has allowed the NPA ratio in net terms to reach a level of 1.2%, which is now not material. Let's move now to the last section of the presentation to see solvency and liquidity. Starting with solvency, on page 23, you can see the further strengthening of our seed-1 fully loaded ratio this quarter by 27 basis points, which increases to 88 basis points in the last 12 months. In the quarter, the improvement, mainly explained by organic generation through retained earnings, to which we deduct the accrual of the dividend, that, as you know, we have increased to 60% payout. The rest of the moving parts of the quarter are not material because the small CRR3 fully loaded impact is compensated by lower risk weighted assets. So seed one fully loaded under CRR3 reach 15.4%. And if we consider the transitional arrangements of CRR3, The seed-one-face-in or regulatory ratio improves 12 basis points to 15.5%, one of the highest among Spanish banks. On the next page, we show you our MREL position. As you can see, our MREL ratio stands at 27.4% in the quarter, maintaining an ample buffer against the main requirements that you have on the right-hand side. Among them, an MDA buffer that has grown to 689 basis points. Regarding liquidity, we continue to have a very strong position with a significant amount of liquid assets, a loan-to-deposit ratio of 69, the NSFR 15, at 162% and the LCR at 270%. All of them best in class liquidity metrics. Finally, we show you the fixed income portfolio details. As I mentioned before, following the generation of additional structural liquidity in recent quarters, we have increased the size of our portfolio to 30 billion, which is the balance of structural excess of funding of the bank. The portfolio is mainly accounted in the amortized cost portfolio with an stable 2.6% yield and a slightly higher interest rates duration than has reached 2.8 years. To conclude, let me share with you a few quick final remarks before moving on to the questions section. First quarter 2025 result showed an excellent start of the year we continue to confirm a higher structural profitability of the bank. In March 2025, our adjusted return on tangible equity, calculated with the last 12 months' results, has gone slightly above 11%, which compares with 6% return on tangible equity of previous year. We have improved our structural profitability while we continue to further reduce the MPA's balances. An impressive 22% drop in the last 12 months or 6% in the last three months, a significant improvement to levels that are already not material. Higher profitability and better asset quality trends have come together with a strong capital generation that left seed 1 fully loaded at the end of March at 15.4%, 88 basis points above the previous year. And finally, As a consequence, among others of the three improvements mentioned, we decided to increase our payout ratio to 60% at the end of last year, something that has enabled us to pay against 2024 results 13.4 euro cents per share, offering an attractive remuneration to our shareholders. So thank you very much. And I leave it here. And we can now move on to the Q&A. Please, Jaime, whenever you want.

Thank you, Pablo. We will start now the Q&A. Please, remember to ask only two questions each one. 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 5 on your telephone keypad. If you change your mind, please press star 5 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 JP Capital. Please go ahead.

Hi, good morning. Thanks for the presentation and taking our questions. I have two. The first one is on the loan book. Your loan book started to bottom out. We see strong recovery, new production across the board, which is reassuring. Are you doing something different or is it better market trends? And what is the outlook for the rest of the year per segment? And the second question is on capital deployments. Given the positive performance of capital in the first quarter, I was wondering why you want to start additional shareholder remuneration in 2026 and whether you can think of moving it forward. Thanks.

Thank you, Max. Regarding the recovery of the loan book, I think it's a combination of market I think the Spanish economy, as I mentioned in previous occasion, has been improving, and the leverage process stopped sometime some quarter of last year. And now it's picking up. And this, together with all the measures that we are taking to improve our commercial activity, is gaining fruits. And we expect this to keep performing in the coming quarters. As for year-end expectation, let me say and maintain our guidance to be flattish to very low single-digit numbers. growth for the loan book. So it will be the first year that we have some growth in the loan book and in the following years, obviously, this will speed up. But obviously, as we mentioned in our business plan for 2025-2027, we still have work to do in improving our product offering, our commercial activity and our talent acquisition to improve the growth and the quality of the service that we provide to our customers. And regarding capital, as we mentioned in our business plan 2025, we weren't going to take any action on top of the already one that we have taken of increasing our payout to 60%, dividend payout to 60% from 50%. And on top of that, for the following 2026 and 2027. And the main reason behind this is obviously, as we mentioned in the presentation of last quarter, is that we want to have some optionality to speed up the process in our business plan. In our business plan, we want to improve in many lines, in SMEs deployment, in payments, in consumer lending, in asset gathering, in management, asset management. And some of the measures, as you have seen, like the payments agreement with Pfizer or the agreements with some of the largest and best houses in asset management that we have announced, they don't require any capital to speed up the process of improving the product offering and the evolution of our business. business, but some other might need some capital, and that's why we want to maintain some optionality.

Thank you, Pablo. And thank you, Max. Please, let's move to the next question.

A next question comes from the line of Cecilia Romero from Barclays. Please go ahead. Thank you very much.

Thank you, Pablo, for taking my questions. If I understood correctly, bank tax was 5 million euros in the quarter, which was half of what consensus was expecting. Are you expecting to accrue only 5 million every quarter this year? Will we see a similar impact in fiscal year 26? My second question is on cost of deposits, which is falling with decline accelerating. As a result, customer spread obviously has narrowed less than it did in the previous quarter. How do you expect cost of deposit and customer spread to trend for the rest of the year? And also now, terminal rate expectations have fallen versus what we had during your last result. Are you still swapping variable loans to fix, to reduce NII sensitivity, and has the sensitivity changed quarter on quarter? Thank you.

Thank you, Cecilia. Let me go to the first one. Regarding the levy, We're going to accrue on a quarterly basis the tax, and obviously it will depend on the evolution of the metrics, our NII and fee expectations, and obviously the deduction analysis that we have done. For today, obviously, our best estimate is around $5 million per quarter. Obviously, it will depend on the evolution, but I confirm we expect to accrue around $5 million per quarter. If everything stays as is it today. Regarding the cost of deposits, I think we have a positive trend. We are seeing, as you can imagine, basically the public sector and corporate deposits are very linked and they have a high beta regarding the Uribe revolution. And this trend we expect to be maintained in the coming quarters. So it will depend on the evolution of of the market rates. And regarding customer spread, obviously, we still have some repricing coming from the loan book in the coming quarters, and some of that repricing will be offset, and we expect to be offset because it will be due to the reduction on... on rates. Regarding the sensitivity in this quarter, we have continued our strategy of reducing the NII sensitivity to rates. And we have been taking some swaps in the three to five year part of the curve, which we thought was the best strategy to try to reduce our sensitivity to rates.

Thank you, Cecilia, and thank you, Pablo. Please, Abreiro, let's move on to the next question.

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

Hi, good morning, and thank you for taking my questions. They're kind of follow-ups, actually, from the previous ones. The first one is on the deposit side. We have seen basically a decline of both side deposits and time deposits, and what looks like a pretty clear shift, actually, towards our balance sheet. Just curious to see, I mean, what kind of magnitude in that process actually are you expecting in the future? I mean, to what extent actually are you ready to sacrifice part of your deposits to accelerate the shift and obviously save some funding costs basically in the meantime? And then the second question is on the corporate book. Again, holding the line and growing a little bit actually in the quarter. So curious to see what kind of lending demand basically you're seeing right here in terms of large corporates versus SMEs. and what kind of front book, back book you're extracting on that book, new production. Thank you.

Thank you, Ignacio. Well, I think in terms of the... balance between balance sheet deposits and balance sheet, we are guided mainly by our customer desires and appetite. Obviously, the customers, as we have done hedging part of our excess liquidity by medium term bonds, they are also trying to hedge the lower deposits in the coming quarters. How much is it going to go in the coming quarters obviously will depend on the expectation from our customers. And in that sense, it's hard to explain. But let's be clear. There's a lot of seasonality also in the quarter. If you look at the average deposits or unbalanced deposits in the fourth quarter and the first quarter, they were very stable. Only a few millions lower in the first quarter compared to the previous one. So the end numbers, the end of quarter and end of year quarters is affected by the seasonality. to some extent i i agree there's some trend from from customer desire to to go to of balance sheet mainly fixed income mutual funds but also some mixed and there's some good opportunities in the markets for for the customer to lock in some some good opportunities and and regarding the The corporate book, we have maintained more or less our strategy with the customers that we know. We have increased a little bit the ticket size from those customers, but it's mainly our business as usual and trying to be very close to the customer and being forthcoming and willing to engage in new lending with them. and try to gather a better market share of their lending. There's not really new buckets of corporate lending. It's within our strategy.

Thank you, Pablo. Operator, please, let's keep on moving.

Our next question comes from the line of Ignacio Ulargui from BNP Paribas. Please go ahead.

Thanks very much for the presentation and for taking my questions. I have a couple of them. I mean the first one is on fees. I mean if I just look to your guidance for flat fees and the performance that you are showing a bit in the quarter and what we are seeing in terms of asset management inflows. So then we expect a slightly better performance in fees in the year. And the second one is on cost of risk and, I mean, more related to the activity. Have you seen any kind of deterioration of activity during April because of the uncertainties that we have in the economy regarding the tariffs? Thank you.

Thank you, Nacho. Regarding fees, slightly better than initially expected numbers for the quarter. I think it's too early to change our guidance for the year. And obviously we still have some measures within our improving customer experience analysis and how to improve the better perception from our customer base. So especially for those loyal customers, we are improving the zero fee structures or reduce fee structure for those loyal customers. So this will still have some impact on the coming quarter. So we still maintain our flattish fee for the year. And regarding cost of risk, we have 27 basis point cost of risk, which is even below our guidance of 30. Obviously, this guidance was more skewed to the end of the year and the following quarters as we grow in consumer and corporate and SME lending, which requires higher cost of risk. compared to the mortgage and public sector business, obviously. But we haven't seen any deterioration. I think what we are seeing down in the market is, I think, the transmission mechanism of this uncertainty in the tariff and the global economy. You have to think... The economy was performing pretty well. We stopped the deleverage process in the Spanish economy. The saving rate of our customer was at highest level for a long time. And the employment was at very good level. The GDP growth was very good. And so we were seeing very good numbers. The PMIs were in positive territory and confirming growth and the lending was growing. So it was an income and leverage process of growing the economy out. It wasn't based on net export position of the economy, of the Spanish economy. So we are not too worried that this will derail. Obviously, it will have a pause. until we have more certainty and the confidence channel obviously has an impact on the economy but we don't expect to be significant and regarding our portfolio we have double checked our larger borrowers and we don't see any significant risk otherwise we should have taken measures on the larger ticks on tickets and larger borrowers but regarding the Overall, we are still doing some work to double-cross the information that we have on those that have higher exposure to the U.S. market. But we don't expect to be significant, neither for our portfolio or for the Spanish economy as a whole. So we're still positive on asset quality for the year, although this uncertainty doesn't help to grow even faster than initially expected.

Thank you, Pablo. Please, operator, let's continue with the following question.

Our next question comes from the line of Francisco Rico from Alantra. Please, go ahead.

Yes, good morning, Pablo, Jaime. So, thank you for taking my questions. My first one is on new mortgage lending, which is up 37% year-on-year. So you can comment on the front book versus back book pricing dynamics and the overall profitability of the new mortgage lending given the tough competition in the sector in this segment in particular. And then my second question is on fees. The asset management and insurance fees are up 12% year on year compared to the 9% growth in assets under management. The gap was the other way around last year. So you can comment on the asset mix, the margin of the new business, what has to change here, and also related to the distribution agreements that you mentioned before, what is that adding and bringing to the value proposition and to the other contribution. Thank you.

Thank you, Paco. Regarding the new mortgage lending Obviously, the new lending is trending towards fixed rate. The customer are wisely, let me say, viewing the fixed rate as an option to avoid any uncertainty in the future. I think the damage done by the increase in variable rates mortgage has a deep impact impact on our customer base and the whole market as a whole. The only thing that changes, we are moving towards the average of the market in the number of fixed rate compared to variable rates. And regarding the fixed rate, I think that the front book has still higher levels of rates compared to the back book. So we're confident we're improving slightly our book portfolio. And the profitability of that book, you have to consider all the cross-selling. If you look on a standalone, the mortgage, it might be quite tight in terms of profitability. But if you consider together all the cross-selling that we can do through the mortgage, it's still a good and profitable business. And regarding fees and the mix compared to in terms of volumes and revenue, I think we had last year an update on the fee level. It was slightly high compared to our peers on the market. And we have adapted a little bit that throughout the last year. So this year, that negative impact should stabilize a little bit. And so the growth should be positive. And the new agreements, what should it bring? I think it brings the best in class of three different houses in terms of cost and in terms of product breadth. We have now very good product on active management and passive management. that will help our multi-fund strategies from our asset manager, from Unicast. I think it's a good mix, the selection that will help us in improving the information that we give our customer, the education and the marketing of the different investment options that they have. And we expect to improve the financial education and the investment culture of our customers through these agreements.

Thank you very much, Paco and Pablo. Let's keep on moving to the next question, please, operator.

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

Hi, good morning. A couple questions from my side as well. So the first one, still on NII in a bit of a follow-up. So I believe you're reiterating the guidance for your end of above 1.4 billion NII. But I was wondering, how does your NII sensitivity stand as of today? And what levels of interest rates could jeopardize the achievement of that target? Or if in another way, given the timeline of repricing of portfolios, you think that that's pretty much assured for year-end? and lower level of interest rates at most would be only a risk for NI for the following year, just trying to understand the moving parts there. And then the second question on capital, particularly on RWA's evolution and Basel IV impact. So I see a positive impact from RWA in the presentation in the slide. But RWA is basically flat quarter on quarter, give or take. So I was wondering what other effects are included here and also what type of effects from Basel IV were factored in. Thank you.

Thank you, Carlos. Let's explain a little bit our NAI expectation. I think we said we expect that to be above 1.4 billion for the coming years, in every single year, and in 2024. I think 2025 is obviously the easiest one, because part of the year is already done on the evolution So we are quite confident that we can achieve above 1.4 billion in any interest rate environment within the normal, between 1.5 and 2.5, or 2.25 now. And the market now expects to go lower. But if we consider three, four weeks ago, it was considering higher terminal rates. So this is quite volatile. we have taken good opportunities to continue hedging our position. And in two ways, we have taken some swaps from our mortgage book that were fixed and swapped to floating. We cancelled some of those swaps. We also invest part of our excess liquidity in our health and maturity, but also in our available for sale or OCI portfolio. And this is a way to hedge the lower contribution of the excess liquidity that we have. So combining both impact from the mortgage book hedging and from the fixed income portfolio, which already is quite at a fixed rate, we're quite confident that the sensitivity has decreased to very low single digit now. And this helps us to be confident on achieving above 1,400 million for the year. I hope this explained the NII evolution and the sensitivity. And we're confident, let me say. that we can deliver on NAI for the whole year and for the coming years. Obviously, we can only, you know, we're quite confident on 2025. Obviously, 2026 will be also quite positive because of the hedging done. And in 2027, 2028, it will depend on devolution and rates. But in this sense, I'm positive. I think even with lower rates, the ECB and most of the central banks learned that zero bond is not something to be retested because it doesn't help the economy to do a proper capital allocation. And obviously, it has more damage than good for the credit growth. And also on top of that, we have some... steeper slope than in the past that also helped the NII evolution. So we're confident on the evolution on NII today and going forward and we're taking advantage of market volatility to better hedge and improve even our initial expectation on NII. And regarding the capital evolution, I think in the year we have some decrease in risk-weighted assets, mainly from some fixed income investments that mature in the quarter and some evolution. And on top of that, we have the Basel IV, the CRR III impact that offset that positive evolution on risk-weighted assets, leaving the final number very close. on a fully loaded basis, but on a better position on a phasing. I think we still maintain both the fully and the phasing, but obviously the phase is quite long. So maybe we will stick with the phasing going forward, which is the regulatory till probably 2029. But at this moment, we thought it was more transparent to have both numbers in the presentation.

Thank you, Pablo. I think we still have two more questions, so please, Aprelo, let's move to the following one.

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

Hello. Good morning. Thank you for taking my questions. I have two. Firstly, on NII, if you could kindly confirm the rate assumptions behind that, I think In the Q4 results, you mentioned average URI board of 2.12% to 2.14%. This is slightly above the current market pricing. So maybe you may have offset that with a higher fixed income portfolio. And also if you could indicate where you expect the customer spread to land by year end. And then my second question would be if you could please provide a bit more details on your NII gearing to steeper yield curves, for example, the fixed income portfolio or the fixed mortgage loans. Thank you.

Thank you, Jorge. Regarding... I think you're right. We said 2.14% when we ran the numbers for our business plan was the average for 2025. You're right, we're 12 months. Obviously, you're right. I think the number for this year... And now, well, the arrival today is close to 2%. Obviously, it's lower. And the expected number in the coming quarters probably is even lower than that. And what's the impact? You know, it's this level now, but if you look at what was for the two to five year part of the curve in a few weeks ago, it has given us the opportunity to hedge that level for the coming quarters. So even with the levels going down, you know, to 1.5%, we're still confident that we can deliver our guidance of above 1,400 or 1.4 billion with strong confidence on. So even with lower rates at the low end of what we think the market consider, we still can deliver on our NII even, you know, above the the $1.4 billion without any problem. I'm still confident on the NII evolution. And the reason is, as I said, is the hedging that we have done and the low interest rate sensitivity that we have, especially for the next two, three years. And regarding customer spread, obviously this will depend on the evolution on customer deposits, which is always harder to forecast. And what I can say, we expect the long contribution to keep decreasing up until the fourth quarter of this year, the first quarter next year, more give or take, depending on on devolution and obviously the customer spread because we have less sensitivity to rates on deposits because it's offset by wholesale deposits and other parts of our assets. It should come down probably to the 230 basis point. for the end of the year around that level it depends obviously as i said on on on what i say the final level of long repricing and the final level of customer deposit cost thank you pablo and borja operator we have time for one more question please next question comes from the line of fernando gil de santibanes from intesa san paulo please go ahead

Thank you very much. Can you hear me okay?

Hello? Can you hear me okay? Yes, go on, Fernando.

Oh, yes. Sorry, thank you for taking my question. A quick one, again, on NII and the customer spread and liquidity.

If I understood correctly, you have increased your duration in the bond portfolio why decrease the liquidity, but I see on the balancing metrics that the liquidity is pretty much the same. So what is your view on the ECB deposit capacity and how much liquidity we have there as of today and how much you expect to have at the year end? Thank you.

I think the strategy and obviously the liquidity depends. We have like three, four different measures of liquidity. When I say we have taken, it's the excess short-term liquidity. Obviously, if we consider the net liquid assets, we have around 30% of our total balance sheet. That's why we have LCR of 270, one of the highest in our position. It's funded by customer deposits, so it's not funded in the repo market or with the ECB. So our position is the excess liquidity in the interbank and the ECB facility, in the deposit facility from the ECB. And we have reduced that for... you know more or less around two and a half to three billion in in the quarter at the end of the quarter obviously on on average different if you look at the with the amortization it's all around one billion increase in the in the amortized cost portfolio and another billion in the fair value more or less and and but the investment has been more around three billion because we have some amortization on short-term fixed income that we have, especially in our available for sale portfolio, OCI portfolio. So I think this strategy helps us. It doesn't help on the short-term, in the quarter, because the levels were very close to the liquidity position, only slightly, but it helps to stabilize the NII contribution in the coming quarters, which was our target, and to maintain a good level of NII in the coming quarters and coming years. So I think this is Basically, our expectation is to have a slightly positive excess liquidity at the end of the year. But obviously, it will depend on our view. If we think short-term rates might go up, we may have more liquidity. We think rates may come down. We will, again, use our excess liquidity to invest in short-term bonds.

That's great, Pablo. Thank you very much. Thank you all very much for your interest and your time in listening to us. We remain at your disposal for further follow-ups. Do not hesitate to contact the IR team. Thank you very much. See you next quarter.