Bankinter, S.A. (BKT.MC), a prominent Spanish bank, has reported a strong financial performance for the first half of 2024, with net profits reaching EUR473 million, marking a 13% increase from the same period in the previous year.
The bank has seen growth across all business segments and geographies, with notable increases in its loan book, retail deposit base, and off-balance sheet volumes.
The earnings call highlighted the company's strategic expansion efforts, including the integration of EVO Banco and plans to establish operations in Ireland, as well as its success in maintaining solid risk management and efficiency levels.
Key Takeaways
- Bankinter's net profit rose to EUR473 million in H1 2024, a 13% year-on-year increase.
- Growth was observed in the loan book (5.5%), retail deposit base (4%), and off-balance sheet volumes (20%).
- Net interest income and fee income increased by 9% and 13%, respectively.
- The NPL ratio stood at 2.17%, and the coverage ratio was 68%.
- Return on equity was robust at 17.7%, with market share growth in Spain, Portugal, and Ireland.
- Strategic initiatives include the absorption of EVO Banco and expansion into Ireland.
Company Outlook
- Bankinter expects mid-single-digit growth in net interest income and very high single-digit growth in fee income.
- The company is optimistic about maintaining growth and improving efficiency.
- Plans are underway to establish a branch in Ireland and offer savings products to fund mortgage growth, with approvals expected in H1 2025.
Bearish Highlights
- A 100 basis points rate cut would impact net interest income by less than 3% in the first 12 months, with a similar impact in the following year.
Bullish Highlights
- Bankinter maintains a strong market position in key geographies with increased market share.
- The company is confident in its ability to manage deposit costs and capture new commercial opportunities.
Misses
- No specific misses were reported during the earnings call.
Q&A Highlights
- Bankinter expects to set up a branch in Ireland by mid-2025 to offer savings products.
- The bank applies the same credit policy in Ireland as in Spain, ensuring solid asset quality.
- Growth opportunities are seen in Ireland due to a small market share and potential for new production.
Bankinter's first half of 2024 financial results demonstrate the bank's continued growth and commitment to strategic expansion. With profits on the rise and a strong presence in multiple European markets, Bankinter is well-positioned to maintain its trajectory of growth and operational excellence. The bank's effective risk management and efficiency levels underscore its ability to navigate the financial landscape while capitalizing on new opportunities in Ireland and other regions. As Bankinter sets its sights on further digitalization and geographic expansion, investors and customers alike can anticipate the bank's sustained performance in the upcoming periods.
Full transcript - None (BKIMF) Q2 2024:
Operator: Good morning. This is Laurie Shepard. On behalf of Investor Relations at Bankinter, it's our pleasure to welcome you all to the Bankinter's Earnings Call for the First Half of 2024. Please note that our related financial statements were posted with market authorities earlier this morning. This presentation is also available on our corporate website. On today's call, we are joined again by Bankinter's Chief Executive Officer, Gloria Ortiz; and Chief Financial Officer, Jacobo Diaz. At the end of the presentation, they will be available to respond to questions in a live Q&A. [Operator Instructions] Please refer to disclaimer in the presentation and note that this call is being recorded. I will now turn over to Gloria Ortiz to review highlights.
Gloria Portero: Thank you, Laurie, and good morning to everyone on the call. Before starting, I would like to emphasize that the results on this first half of 2024 are very satisfactory and show very significant growth in activity in all business and geographies in which we operate. Our first half of the year of intense commercial activity that translates into a result after tax of EUR473 million, 13% above that we reported in the first half of 2023. In addition, these results are supported by solid management ratios from return on capital through efficiency as well as all the ratios related to the bank risk profile. Well, having made this preamble, I will start the presentation with a review of the highlights of the first half of 2024 and share with you some important trends in our commercial activity that drive growth in business volumes and revenues. Then, I will hand over to Jacobo to review in depth the financial results and the performance of our businesses across Spain, Portugal and Ireland. Let's start with some key highlights on Page 5, where I would like to emphasize four key pillars that underpin our strategy. Firstly, we continue to differentiate ourselves through diversified business volume growth with our customers across the different segments as well as geographies. In this first half of the year, we have grown our loan book by 5.5%, our retail deposit base by 4% and we report a robust 20% increase in off balance sheet volumes as a result of a successful strategy of saving relocation from deposit to value added products. Secondly, backed by the strong commercial activity, all the revenues in the income statement continued to grow. Net interest income rose by 9% compared to June 2023 despite the decline in Euribor in the period. Euribor was at 3.68% compared to 3.88% in the second quarter of 2023. This is 20 bps less. The growth of net interest income is supported by volume growth, the management of customer margins that remains stable and an active asset and liability management that has reduced the sensitivity of the balance sheet to rate movements. On the other hand, fee income grew by double digits, a solid 13% due to the good performance of off balance sheet funds and customer transactional activity. Third, all this growth has been achieved while keeping our risk appetite impact, which is reflected in the improvement in the NPL ratio, which stands at 2.17% and increase in the coverage ratio by 2 percentage points that stands at the end of June at 68%. Lastly, we preserve best-in-class efficiency levels at 37%, a robust return on equity ratio, which in the last 12 months stands at 17.7%, improving the ratio reported in the first half of this year. I fully believe that we have achieved these solid results by adhering and consistently delivering on our long-term strategy. The reported volume growth is particularly commendable because we have managed to continue growing in shrinking markets, gaining market share year after year in a diversified and profitable manner. On the top of the page, you can see two graphs that show the evolution of growth rates both for the sector and Bankinter in Spain. We have clearly outperformed the system in our core market, where we have grown 26 percentage points above the industry, both in loans and retail deposits. This growth financial with the industry also happens in Portugal, where we have grown 62% since 2019, while the sector reports 10% growth in that same period. In the case of Ireland, where we have started our mortgage business in 2021, we have reached a market share of 2.2% in the back book that stands now at EUR2.6 billion. In Slide 7, we can see the solid growth in business volumes across the group. If we add lending retail funds and off balance sheet funds, the total business volume amounts to EUR212 billion at the end of June 2024, an 8% or EUR16 billion increase year-on-year. Going into detail, lending stood at EUR79 billion at the end of the quarter, which is EUR4 billion more than in June 2023 and represents 5% growth. On the other hand, retail funds amount to EUR81 billion, EUR3 billion more than in the first half of 2023, and we have added EUR9 billion to the off-balance sheet business, which stands at EUR53 billion, an impressive 20% growth rate in the last 12 months. This intense commercial activity translates into strong increases in fee income. On Slide 8, you can see the chart, a chart that shows the evolution of business volumes since 2019. This is the sum of lending on and off-balance sheet funds from clients as well as the evolution of fee income. Business volumes have grown by 43% in the period, and this represented a solid annual compounded growth rate of 7.4%, while there is a clear correlation between business volumes and fee income, as you can see. Moreover, fee income is well diversified. And based on value-added products like wealth management, advice brokerage and custody, that represents circa 60% of net fees, but also is based on transactional activities from clients that account for 40% of net fee income. Sustained and diversified growth is what allows us to report net results in the first half of the year of EUR473 million, 13% above last year and 75% more than in the first half of 2022. We continue to increase the return on equity that reached a robust 17.7% in the last 12 months, improving the figure reported in 2023 as well as above 2022. We, therefore, continue to generate shareholder value, both in terms of dividend yield, which stands at 6.4% and in retained value in the business since the tangible book value stands at EUR5.94 per share, which is 11% more than last year. In summary, a solid and increasing second quarter earnings resulting from a consistent delivery of a unique business model. I trust that we will continue to deliver successful growth in the future and remain confident that we will continue to create value for our shareholders by adhering to our strategy. Well, I cannot end this chapter of highlights of the period without mentioning several strategic decisions that we have taken this quarter. These are long-term investment decisions that aim to maintain the pace of diversified business growth in the future. The first decision has to do with the absorption of EVO Banco into Bankinter. This decision is part of a firm commitment to digital business and customer growth. EVO has done an extraordinary job in the last five years since its acquisition, proving that it is possible to grow profitably with a 100% digital model and a simple value proposition. However, the fact is that it is a completely separate legal entity and it presented two problems; first, that Bankinter's customers did not benefit from the innovations and digitalization that were taking place in EVO, and second, that EVO lacks the benefits of scale needed in a digital business. At this stage, we want to make a winning and decisive leap forward in digital banking. By combining the best of both worlds, EVO's talents and digital experience with Bankinter greater investment muscle and scale. The absorption of EVO is accompanied by the creation of a digital organization that joins the 11 already existing organizations in Spain and that has set ambitious growth goals. The second relevant decision has to do with Ireland. In Ireland, as you know, we acquired Avant Money in 2019, which was a consumer finance operation, to which we have added quite successfully residential mortgage business in recent years. We believe that there is a great opportunity for growth in Ireland, and this is why we have decided to turn the consumer operation into a bank. To this end, we have already registered with the Central Bank of Ireland, the file to open a Bankinter branch in Ireland and absorb Avant Money operations into it. This will allow us to expand the offer of our products and services to our customers, and therefore, continue to grow and diversify the business in Ireland. Finally, we have launched an ambitious digitalization project in Portugal, where in the coming years, we will prioritize in the group a sizeable investment with the aim of improving the digital experience of our customers, gaining efficiency and productivity to continue growing profitably. While this was all from my part, Jacobo now over to you, please.
Jacobo Díaz: Thank you, Gloria. Good morning. I will talk through the financial results of this quarter. On Page 11, you can see that revenue lines continue to perform particularly well and support our increased optimism for the year with higher for longer rates, resilient margin and excellent fee growth. With a 9% increase in NII and 13% increase in net fees, we reached total gross operating income of EUR1.4 billion, an increase of 10%. Operating expenses remain at plus 6% year-on-year, as we look to support business growth and projects, but also intend to move to more equally smooth total year expenses, volumes over each quarter while maintaining our positive operating jobs this year. Cost of risk has increased 7% year-on-year, reflecting provisions for additional growth this quarter. Our profit before taxes reaches EUR715 million and net profit EUR473 million, an important increase of 13% year-on-year. On Slide 13, you can find an additional table with the comparison between quarters. Here, I would like to highlight that we have been able to deliver an increase of NII quarter-on-quarter, resulting from our ability to continue to grow volumes as well as manage customer margins that I will comment on the next page. Again, delivering a strong net fee results, both on a quarter-on-quarter basis of plus 6%, but also a seasonally strong Q2 this year versus the second quarter of 2023 with a 17% increase. Other income and expenses line has reduced this quarter due to the payment of the bank charge last quarter as well as the benefit of not having to fund the single resolution fund this year in Q2. Now, I'd like to provide some additional details into each of the results categories. Net interest income reached another record level of EUR583 million. We have continued to grow versus last quarter by 1% and up 7% versus second quarter of 2023. Our customer margin remains resilient at 301 basis points, up 3 basis points versus last quarter and at similar levels to 2023. On the asset side, customer credit yield is performing well at 441 basis points as we see that recent interest rate reduction may impact us more gradually than initially expected. Containment in deposit costs has been achieved with a similar mix of deposits between site and term deposit versus prior quarter. Here, we will continue to manage this cost closely in following quarters. In terms of our net interest margin, we have also been able to maintain stability above the 2% level, consistently one of the highest in the Spanish market when considering our peers over time. Our NIM, in the first half of the year, was an average 208 basis points. In terms of our outlook for the future, we're committed to maintaining resiliency at current levels in both customer margin as well as NIM. Next page, next slide, we continue to strengthen, diversify and increase gross and net fee revenue sources. As Gloria mentioned at the beginning of this presentation, our business model and volume growth are the drivers for not only fee growth in our asset management and brokerage business, where we see increases of 20% and 8%, respectively, but across the board in all transactional fee lines, where we are performing strongly across the board in payments, risk and insurance category. Even our FX fee line are now increasing after a lower first quarter. All these factors contribute to our capacity to deliver a substantial accumulated increase of 13% in net fees year-on-year, contributing 24% to gross income. We continued to exceed last quarter results reaching EUR176 million in this quarter, a record quarter in recurrent net fees and a clear tendency of our expectations for coming quarters. Fees in an area of the bank where we have increased optimism for the following year, given our unique business model that leads to this exceptional future generational results in a consistent and diversified manner. Moving on to the other income and expenses lines, I would only highlight that we have reported lower trading income and dividends versus last year, mainly due to seasonality and variances due to our regulatory charges that I have already mentioned. Moving to the next slide. The total operating income, up 10% year-on-year, a EUR133 million increase versus the first half of 2023 and a 14% or EUR93 million increase versus the first quarter. Moving on to operating expenses. Considering we ended 2023 with an already best-in-class cost-to-income ratio of 37.3%, significant improvement has been achieved to reach current levels of 36.6% on a last 12-month basis. This is a direct result and proof of our continued focus on efficiency and productivity in the group. As I previously mentioned, we are looking to smooth our expenses across quarters, while still delivering positive operating jobs quarter-on-quarter with operating expenses growth at 6% currently this year. This can be compared to our gross operating income growth at 10%, allowing us quarter-on-quarter to improve our cost-to-income ratio, despite our current projects at hand. We maintain leadership across the industry with exceptional levels of 34.1% on year-to-date. This figure for the year even includes the bank charge paid in the first quarter. On Page 19, we share the key asset quality metrics. Loan loss provisions totaled EUR176 million, with cost of risk at the high end of our annual guidance at 40 basis points. However, do feel this is a result of some additional seasonality of the quarter due to our asset growth levels. In other provisions, we continue to see a downward trend year-on-year with some stabilization of volumes on a quarterly basis this year. We currently have no evidence of any negative impact to consider modifying our annual guidelines in cost of risk. So in summary, on Page 20, another strong financial quarter, reaching EUR715 million in profit before taxes, this is plus 14%, and total group net income of EUR473 million, growing quarter-on-quarter by 13% on a year-on-year basis. Now, moving on to the pages on credit risk and solvency. Page 21, the group's NPL ratio stands at the comfortable levels at 2.17% and in Spain at 2.5%. Both data points at the group and Spain level have decreased versus last quarter. Our NPL ratios continue to be considerably lower from the sector average in Spain at 3.6%, where we see an improvement in households and stability in corporates. I also would like to highlight our prudent coverage ratio at 68% currently, increasing from 64% last quarter, and this is a new record high in our case. These figures clearly outline the excellent asset quality of our book and reflect upon our prudent risk management policies, not only in Spain but also in Portugal and in Ireland. On Page 22, with the growing loan book, accompanied by increases in deposit base in the quarter, our commercial gap regained levels similar to the end of June 23. As a result, loan-to-deposit ratio in the quarter ended at 95.6%, similar levels to a year ago. Since in the first quarter of this year, we have repaid our last outstanding delta program, we have no further maturities this year. On the following page, last slide in this section, details our fully loaded CET1 ratio, finishing the quarter at 12.44%, an increase of 14 basis points from the end of the year given the strong retained earnings generation of 66 basis points. We remain well ahead of the 7.85% CET1 minimum requirement set for the group, the fifth lowest across Europe and lowest in Spain with a strong capital buffers as well as adequate MREL and leverage ratio, we continue to meet our regulatory requirements by far. Moving into the next section. Let's move and see and review the geographies and business. I will give an overview of the commercial activity and performance of each. In Bankinter Spain, our core business, we continued to grow our loan book year-on-year, reaching now EUR62 billion, supported by a strong growth rates in corporate SME loans of plus 6% and a recovering and now stable retail banking book. The outlook for growth is also quite positive with improving growth forecast at 2.4% by the International Monetary Fund announced a couple of days ago with Spain leading growth across Europe. Deposits grew a solid 5% year-on-year, even with a strong savings reallocation to off-balance sheet funds where we see growth rates of 20% year-on-year. As for the income statement, we maintain growth for both NII and fees to reach EUR1.2 billion in gross operating income, an increase of 10% year-on-year. In this year, we have been able to maintain cost-to-income ratio at an impressive level, below 30%, reinforcing the efficiency as well as the scalability of our business model. Profit before tax, up 14%, up to EUR686 million, a very solid contribution from our core business in Spain. Moving into Portugal, this is our quite admirable and growing franchise in Portugal. We continue to deliver exceptional double-digit business volume growth and a robust financial results across the board, our loan book increasing up 12%, now at EUR10 billion. Retail banking increased by 6%. Corporate SME banking also continued to grow by an impressive 25% year-on-year. Deposits, up to EUR8 billion, an increase of 13% from a year ago in an increasingly competitive environment. Just as with Spain, the business model to reallocate savings to off-balance sheet products continues to be successful, reaching EUR5 billion, up 24% year-on-year. As for the income statement, gross operating income grew by 17%, supported by double-digit growth, both in NII and fees. We continue to improve efficiency with cost growing below revenues to maintain exceptional levels of cost to income below 30% in the year. All the above made possible for Portugal to deliver profit before taxes of EUR102 million, a 20% increase year-on-year. So now moving into the Irish operation. We continue to see remarkable loan growth across mortgages, up 51%, and consumer credit, mainly consumer loans, up 19% year-on-year. Total new loan origination this year in Ireland almost doubled versus last year to reach EUR600 million in June. In terms of the income statement, we are delivering growth in NII and fees, have positive operating jobs and contained loan loss levels, contributing in profit before taxes, EUR20 million, up 20% versus last year. In summary, the franchise in Ireland that has all the levers to grow and where we will continue to invest. Now, moving into the corporate and SME business. The corporate and SME loan book in the group continues to grow year-on-year by 7%, fueled by double-digit growth in Portugal of 25% and our International Banking segment, noting that in both countries, we are well above the market growth rates for the industry. In terms of additional drivers for commercial activity and growth, we have the International Business segment loan book up by 17%, closing in to reach EUR10 billion and supply chain finance multiplying volumes by four year-on-year, expanding to and attracting new international customers to the bank with a unique product and servicing model. These international activity together with Portugal and the increased financing and pipeline from the next-generation EU funds will continue to provide relevant sources of growth in our corporate and SME banking business line in the future. Moving to the next page. Let's have a look at the Wealth Management and Retail Business line. We can see the total customer wealth under management increased by EUR14 billion this past year to reach record levels of EUR122 billion in June, when combining the wealth management with the retail banking segments together. This is an increase of 12% year-on-year. If we look only at the increase in 2024, customer wealth under management increased by EUR9 billion, where almost half of it is the net new money inflows into the bank. The other half of increase is or come from the market effect. In total, we have increased with the net new money a total of EUR4.3 billion this year so far. In the past, on average, we have increased between EUR5 billion to EUR7 billion in a year, which means we are well on the way to reach new record levels in the net new money inflows this year. Continuing with the Wealth Management and Retail Banking Business line on Slide 30, we can see the highly diversified mix of products that comprise off balance sheet funds. In total, a considerable increase of EUR8.9 billion, a 20% increase year-on-year. As a reminder, within our off balance sheet fund offering to customers, we offer an open architecture with a diversified product offering. All product classes are growing double digit. We are currently especially strong, not only in third-party funds, but also in our proprietary bank interfunds and advisory management services, where we have higher average fees from asset management, custody and distribution. Turning into the next page, salary accounts in the group continued to grow at a steady pace of plus 4% year-on-year with good levels of new customers, both acquired and in the pipeline. New mortgage production, initially impacted by weaker demand in the first quarter, is now seeing a recovery in the second quarter. We are proud of our strong market positions in Portugal, Spain, Ireland and we have achieved new residential market share from 9% plus 10% this year, also still performing well above industry growth rates across each geography. Our total group mortgage back book continues to grow quarterly reaching over EUR35.6 billion in June, showing an increase of 4% year-on-year and above December '23 figures as well as above March '24 levels. So before I hand back to Gloria for closing remarks, I would like to review our expectations for the year in light of the review of our first half results. Related to loan volumes, we expect continued growth in all geographies and businesses. Portugal in all three businesses, mortgage, corporate and consumer loan books. Ireland, continued focus on mortgages and growth in consumer credit. And for Spain, we are seeing a pickup in mortgage lending and short-term financing in the corporate book. That means that we are optimistic with our ability to keep growing our loan book at the same levels. We do believe there is an upside risk with NII in a higher-for-longer rate environment, supported by loan growth and with resilience in client margins, albeit with the need to continue to manage deposit costs. For these reasons, we upgrade our guidance from stable to close to mid-single digit for the year. Fee income results are going well, and we remain very optimistic with our very high single-digit guidance. Group's cost will grow to support our new projects, but should end lower than the rate of growth of incomes and provide positive operating jobs this year. We may be closer to the upper range of our guidance of low to mid-single digit by the end of the year. And finally, for cost of risk, we still expect to finish the year '24 within our annual guidance of 35 basis points to 40 basis points. In summary, we believe NII will provide better-than-expected results, fees will reach better-than-expected income and costs will stay at mid-single digit due to the new growth initiative. So, Gloria, I will hand that back to you for closing remarks.
Gloria Portero: Thank you, Jacobo. To close the presentation, I would like to highlight that we are once again presenting a solid set of results that are the consequence of a successful execution of a consistent long-term growth strategy. We are growing steadily in all businesses and geographies in which we operate, keeping our risk appetite intact and improving the risk profile of the loan portfolio. We continue to invest in projects and initiatives that allow us to keep up with the pace of business growth. And despite this, we'll maintain positive jobs and improve efficiency. Volume growth, interest rate margin management are consistent and prudent approach to risk management, and continued focus on operational efficiency and productivity is what allows us to report a robust return on equity on a consistent basis. On Page 34, we have included our key KPIs for the first half of the year. To summarize, consistent and diversified business volume growth across the board with extremely positive growth of our balance sheet products, solid recurrent income and financial results as shown in the upper right-hand corner, strong and improved set of management ratios with comfortable solvency levels and improving NPLs, underpinned by our best-in-class cost-to-income ratio. At 17.7% return on equity and an increase of 11% in book value year-on-year, delivering to our shareholders at 6.4% dividend yield in the past 12 months. Well, this is all from my part, and now, it is on to you, Laurie.
Operator: Thank you, Gloria and Jacobo. We will now move into the live Q&A. [Operator Instructions] The first call on the line is Maks Mishyn from JB Capital. Maks, please go ahead.
Maksym Mishyn: Thank you. Hi. Good morning. Thank you for the presentation and taking our questions. Two questions for me. The first one is on customer spreads. Last quarter, you mentioned you saw deposit costs declining in March versus December. Could you please update us on how you have seen monthly evolution in the second quarter? And what do you expect for the rest of the year? And the second is on fees. Could you kind of share more color on the quarterly evolution? Were there any one-offs? Is growth in AUM fees driven by mix effect or you also increased prices? And what prevents you from improving guidance for 2024? Thank you.
Jacobo Díaz: Hi. Thank you. I might start with the second question. Regarding your fees, basically, there is no one-off fees in this quarter, just basically, this is a result of our strong commercial activity. As you have seen across the presentation, our commercial activity in bringing net new money to the bank and having the capacity or capability to transform it into value-added products has a properly results in the strong fee generation. We have increased strongly our assets under management fees. Our brokerage fee, we had, again, an excellent quarter in intermediation with securities or fixed income securities or any other type of product that we have in our online broker, and that's it. I mean, nothing extraordinary. Yes, very strong position. You ask us what is preventing us of increasing our guidance. So we will review it in the next quarter, and we will see. And regarding the -- I think the first question is regarding the cost of the deposits. I think as you know that, as I did mention, this is an -- capturing deposit is an important part of our business model, so capturing new funds and convert them into off balance sheet value-added products for our customers. This is quite important for us. So we'll continue to compete and price our deposits to capture new funds, as you have seen in this presentation. So the mix between site and term deposit has changed. So we will still feel that we have the ability to manage customer margins and deposit costs going forward as the terms of the term deposits come up to renewal. We keep managing the cost of deposits thinking in terms of reducing the duration of these term deposits. In the corporate banking, duration is below 90 days. And in the commercial banking, activity is around in average six months. So that give us the ability to keep competing and attracting new funds and making sure that we'll convert into other value-added products that will bring us more income for the future.
Operator: Thank you, Jacobo. Our next question comes from Antonio Reale from Bank of America (NYSE:BAC). Antonio, please go ahead.
Antonio Reale: Good morning. It's Antonio from Bank of America. I have two questions, please. My first one is on NII guidance. You've guided to mid-single-digit growth this year. It would be great if you could shed a little bit more color on your key assumptions, Euribor, volumes, deposit cost and your strategy on the ALCO book, please. Any more color will be great. My second question is really linked to the first one. From your comment on volumes, it seems like we're reaching an inflection point on new loan origination and that deposits have finally stabilized, even growing this quarter. Can you share what you're seeing from competition, especially since the BBVA (BME:BBVA) bid for Sabadell and your expectation both on loans and the positive dynamic in Spain, in particular, please? Thank you.
Jacobo Díaz: Okay. I will answer the first one, in terms of the NII guidance. So basically, we are assuming that there will be probably an additional official rate cut, probably in September and probably another one by the end of the year, we don't know exactly, somewhere in probably in September or probably in January. So these assumptions are made based on what we think the market is expecting. So Euribor, as you know, has been behaving better than expected. And we do expect that at the end of the year, the Euribor might finish somewhere around, I don't know, 3.30% probably. So this gives us a good average Euribor for this year. As I did mention, we think there is a strong client margin resilience and strong -- and NIM resilience, and I think that will provide us a very good outlook compared to the -- or combined with an increase of volumes. As I did mention, volume growth in this first half of the year has been strong. We are quite confident that we can keep those same levels of growth for the end of the year. NII sensitivity has reduced a little bit. So today, our NII sensitivity for a decline of 100 basis points parallel shift is below 3% in 12 months. So that means that the NII sensitivity -- I mean, the impact of reduction in rates is quite minimum. This combined with growth, as I did mention, and with expectations that we have for Euribor, give us some more optimism in NII in order to improve our guidance. And additionally, you mentioned the ALCO portfolio, the ALCO portfolio size has increased. The yield is now at 2.5. So all these items combined will provide us that increase in our guidance.
Gloria Portero: Well, I will take the question regarding volumes. Well, basically, what we have seen is, well, we are nicely growing in enterprises in general, particularly in corporates and the bigger, mid-size enterprises. This growth is very much focused and linked to working capital financing as well as, as you have seen also, international trade. We are also seeing some pickup in everything that has to do with European funds. So that is -- we are growing very nicely as you have seen. We have seen also a recovery of the mortgage financing in Spain where we had dropped in the first quarter. And we think that with the reduction in interest rates, there will be more activity in that market. And with regard to competition, well, the competition is steady, is, as you know, Spain is a very competitive market. We also see competition recovering in Portugal. And, well, we are a new entrant in Ireland, so we have impressive growth rates there, but I think it's normal for a new entrant. With regard to deposits, competition is stable. I think that Jacobo has already gone through it. It's part of our strategy. What we do is, obviously, we fund our balance sheet, but we also gather funds in order to convert them into higher value products of balance sheet, which is actually what drives our growth in fee income together with obviously the transactional activity that is linked to this working capital financing of our corporates. So in general, I think that volumes are behaving well. We are very optimistic, looking forward. And competition, obviously, is there and is hard, but we are accustomed to that.
Operator: Thank you. Our next question comes from Sofie Peterzens from JPMorgan (NYSE:JPM). Sofie, please go ahead.
Sofie Peterzens: Yeah. Hi. This is Sofie from JPMorgan. My first question would be around Ireland and the kind of banking license that you're applying for in Ireland. How should we think about kind of your plans there, like when getting started with your deposit offering, how much are you planning to potentially pay for the prospects? Are you going to target more kind of savings deposits or transaction accounts in Ireland and also kind of the growth levels you're seeing in Ireland look quite impressive, over 50% mortgage loan growth? But how do you ensure that the asset quality is solid and you can end up having problems with asset quality later on? And then my second question would be that you mentioned in the previous question that the year one indices from 100 basis points decline in rates is 3%, but does this mean that we should also expect a minus 3% leverage in terms of the income kind of in year two or will the year two impact be larger, if you could just comment on this?
Jacobo Díaz: Good morning, Sofie. I'll try to answer your question on Ireland. I think you've touched many points. I'll probably start with the ones -- the last one, I think you were mentioning something regarding the asset quality, how we are ensuring the asset quality. I think the way we do business in Ireland, as you know, the NPL ratio in Ireland is almost close to 0% because we normally do recurrent sales of portfolio of NPL positions that allow us the capability to keep those NPL levels always very, very low. Secondly, in the mortgage business, as you know, the credit policy is the similar policy -- credit policy that we have here in Spain, everything is centralized. Therefore, we target the same, similar risk profiles in Ireland that we target in Spain. And we apply the same, let's put it that way, risk scoring processes than in Spain. That means that the quality of our book -- of our mortgage book in Ireland is exactly or quite similar to the one in Spain. That means that it's very safe. So we are continuing to grow in Ireland. We have very good expectations. We just have barely 2% of market share. We do think there is good opportunities in new production. We are reaching above 9% of market share in new production. That means there is space and room for us. So we are competing, always making sure that we meet our minimum return levels. So by the probably mid of the year -- mid of 2025, we will set up the branch. And therefore, we'll start offering products regarding savings. That was another of your question. So we are ambitious in that process. We think there is a very good opportunity to start offering those savings products to start capturing deposits from the Irish economy and also to have capability to fund all our growth in mortgages that we have in Ireland with those deposits in Ireland. So we will slowly, but -- we will increase our product offering in Ireland once we get all the approvals that we expect to receive them somewhere in the first half of 2025.
Operator: Sofie, could you help us and repeat the end of your second question, please? We heard that you're asking about the NII sensitivity. We just didn't get the last phrase you said. Could you repeat it, please?
Sofie Peterzens: Yes, of course, sorry. So just what the year two impact in the net interest income sensitivities? So if it's minus 3, for instance, from 100 basis points cut in year one, what is the year two impact?
Jacobo Díaz: Yeah. It is minus -- it is below 3% with a parallel shift of 100 basis points in the first 12 months.
Sofie Peterzens: And after the first 12 months, like 15 months, like 24 months later, is it still the same or is it larger?
Jacobo Díaz: No. It would be the same. Basically, it will be the same. I mean, we are managing the structure of the balance sheet in the asset side and the liability side just to make sure that sensitivity to rate reduction of 100 basis points is limited below 3% in the following 12 months. And today's picture is similar if you apply that for the following 12 months.
Sofie Peterzens: Okay. That’s very clear. That was my question. Thank you.
Operator: Thank you, Sofie. Our next question comes from Francisco Riquel from Alantra. Francisco, please go ahead.
Francisco Riquel: Yes. Thank you so much. First question is on fees. The fees paid to agents are down 3.5% year-on-year even if third-party AUM is around almost 20% and business is growing on all fronts. I wonder if you can explain what is driving this trend, if we should expect any catch-up here in the fees paid to agents in the second half of the year and if that would be consistent with the fee income guidance for that year. My second question is about Ireland. NII is growing by just 8% in the first half of the year against a 40% jump in the loan book. So if you can comment on the margin dynamics in this market. And then if you allow me, just a follow-up on the cost of deposits because the shift to time deposits has stabilized. But I wonder how sticky do you see these stock of time of deposits in a higher-for-longer interest rate environment. And for the resilient guidance for the customer spread, what are you inferring in terms of deposit mix and deposit beta in your assumptions? Thanks.
Jacobo Díaz: Regarding the agent fees, exactly, I mean this is -- the business is with agencies, not just based on assets under management, but it's also based on loans. So that means that some of the fees that we pay to the agents are not just recorded on that line, but they are recorded in different lights across the P&L. And as the income can change across quarters versus last year in terms of how do we make business with these agents, that means that you might have some reduction in the payments of agents in this quarter, but it could be more payments in other lines of the P&L. So basically, this is nothing which is different. It's just the way the business is performed with these agents and the way these fees that we pay to them are recorded in the P&L.
Gloria Portero: I will take the question regarding Ireland, well, in Ireland, as you know, we don't have retail deposits. So basically, what we are doing is funding Ireland with a transfer cost of funds, which is much higher, obviously, because it takes into account our external financing than it is for Spain. So with regard to the margins on the products, which is what really matters because at the end of the day, this is an internal transfer cost. The margins in the mortgages there are much higher than they are in Spain. I mean, just for -- to give you a little bit of color, the public price of a 30-year fixed in, in Spain is 2.99% at present. And the price of a mortgage in Ireland that normally reprices in the seventh or 10th year is around 3.8%. So it is almost 100 basis points better margin than in Spain. And this is obviously, what we take into account difference in the margin because at the end of the day, the financing is at a corporate level.
Jacobo Díaz: And I'll take the other one. I think it was related to the term deposits and this higher-for-longer rate, how we will manage the resilient client margin. I think we have demonstrated over the past quarters that we are able to manage these client margins. I think we -- again, we have shortened our durations in either -- both the commercial -- the retail banking business and the corporate banking business. So we are closely monitoring and managing these cost of deposits. I'd like to remind that we linked the way we see the cost of deposits with the fees. For us, the both concepts need to be together. There is plenty of cross-selling alternatives, plenty of opportunities for bringing new clients on board. And there is a strong ability or capability to transform into assets under management or assets under custody wherever deposits we bring into the bank. So we don't mind if from a commercial perspective we need to tailor some prices to some specific clients. And bear in mind again that our level of cost of deposits compared to others is a little bit higher, and that means that we have much better opportunity to reduce this cost of deposits in the coming quarters to make sure that we keep resilient our client margin. So we have much more room for reduction than others. Although, again, we link this activity to the business that can be transformed into more value-added products in the long term. And as a result, that's why we are presenting such a strong figures in terms of fees.
Operator: Thank you, Jacobo and Gloria. Our next question comes from Alvaro Serrano from Morgan Stanley (NYSE:MS). Alvaro, please go ahead.
Alvaro Serrano: Good morning. I guess these are two follow-up questions, one on deposits and another one on Ireland. The deposit yield in the quarter was flat despite Euribor has been down and your mix has actually improved because I can see the growth has been in current accounts in the quarter. Have you increased any offers during the quarter as a competition or is it just a lag, it will take or see the deposit yield fall later on? And the second question, a follow-up on Ireland, is basically on what could we expect. Do you think you're going to build the deposits, sort of balances as fast as you build the mortgage balances, which has been remarkably fast because, I guess, if we're heading towards, I don't know, 2.5% rate environment according to the forward curve or slightly lower, it's going to be difficult to do that profitably and quickly. And I guess more longer term, does the model in Spain work in Ireland because, Gloria, you mentioned some of the differential in spreads, but clearly in Spain, you could do a lot of cross-selling than typically you've been able to do in Ireland, so some thoughts around the business model. Thank you.
Jacobo Díaz: Okay. I'll take the first one. Again, I think the cost of deposit has been flat because we think there are opportunities. As you have seen, we've grown in our deposit base. We've grown in our loan book. Again. We've had a very strong first -- second quarter. So we have the capability to bring money to the bank, to bring wealth, assets of our clients. And when there is opportunity, we try to capture it because there are plenty of commercial activity around it. So for us, again, we don't see the cost of deposit by itself, we just link it to plenty of other commercial activities. We have the ability to manage this level, and we have the ability to transform it. So when we see opportunities, we try to focus on a specific and tailored value propositions to our clients. And even if the Euribor, you mentioned that it has gone down in -- lately in the last probably month or two months. Again, we have very short durations, and we will have the capability to adapt this cost of deposit to the reality of the market and to make sure that we keep our client margin resilient across time.
Gloria Portero: Well, if you want I can take the Ireland question. Well, I think we have to be clear. I mean we are not doing what we're doing just for gathering deposits. I mean this is a long-term investment decision that has to do with the strategy of diversified growth, and we really think there is an opportunity in Ireland to do what we've done in Portugal. We are starting by deposits and current accounts, and we obviously have the intention to cross-sell starting from consumer finance to the new clients, of course, credit cards and also everything that has to do with insurance. I mean, once you are a bank, you are allowed to sell basically to do all the cross-selling that we already do in Portugal or in Spain. Obviously, it's a question of developing the products. No, we don't have any -- I don't think it's going to be as quickly as mortgages. But I think that we have a great opportunity that we will show nice growth rates in Ireland when we'll start with the operations there.
Operator: Thank you. Our next question comes from Ignacio Ulargui from BNP Paribas (OTC:BNPQY) Exane. Please go ahead.
Ignacio Ulargui: Hi. Good morning. Thanks for taking my questions. I have two questions. The first one is on the savings from EVO Banco, and there will be potential cost implications from the integration of EVO Banco over the coming three years once you get the regulatory approvals. And a follow-up on cost. And then, how do you see the costs evolving into '24-'25? And then, would you expect in the context of lower rates to deliver positive operating jobs and as the bank has been doing historically or it will be more challenging in an environment of 150 basis points rate cuts? That is broadly what the market is embedding here. And then a second one on deposit cost, I mean, you provided in 1Q at the end of the quarter, March, cost of deposits was below the year end. Could you give us some sense of the evolution of the cost of the deposits throughout the quarter? Thank you.
Jacobo Díaz: Hi. Good morning, Ignacio. I'll start with the last one. Yes, I mean basically, it was stable. I mean, the March figure and the June figure is probably exactly the same. Again, I'd like to remind that we are managing the cost of deposits. Just bear in mind that, for example, this quarter, we have a little bit less proportion of term deposits in the overall. So we have reduced the overall volume of term deposit in this quarter. As I mentioned, the duration is short or is shortening. That means that the short-term prices incentive is always probably higher than a long-term deposit or a long-term price that, as I did mention, we are not offering. And of course, we are managing the payroll accounts and any other stable of funds that are improving. So basically, these are items that would allow us or is allowing us to manage the cost of deposit at the level where we have a good clearing between the strong opportunity in commercial activity versus the resilience of the margin. Regarding the operating jobs, 2024, you will have some operating jobs, as we mentioned before. We haven't provided yet guidance for 2025, as you can imagine, this is our aim, and we will -- we feel we have excellent levels of cost-to-income ratio, which we ambition to maintain around the levels. As I mentioned, we are not in a place to set guidance for 2025. I will have to ensure we size our expenses, budgets to source projects to grow our revenues. But in any case, our ambition is to continue to be the market leader in efficiency levels in coming years, and we will ensure that when we provide our guidance in 2025, we'll ensure you have a better view on the positive jobs for 2025.
Operator: Thank you. Our next question come…
Jacobo Díaz: Sorry there. He made a question of EVO Banco as well. Sorry.
Gloria Portero: Okay. I will take that one if you want. I mean, I think what we're doing the absorption of EVO Banco is a decision that doesn't have to do with cost synergies, first. It more has to do with growth and decisive investments in digital. Anyway, obviously, EVO is a separate legal entity. And once it is absorbed and there will be savings, mainly in technology, where -- I mean, they will be in the order of about EUR15 million to EUR20 million, but we are talking more about the end of 2025 and 2026.
Operator: Our next question comes from Borja Ramirez from Citi. Borja, please go ahead.
Borja Ramirez: Hello. Good morning. Can you hear me?
Operator: Yes, we can.
Borja Ramirez: Perfect. Thank you very much. I have two questions. Firstly, there has been a strong increase in the ALCO portfolio during the quarter. The average volume is up 10% quarter-on-quarter. I would like to ask if you could give details on the yield and the duration of the net purchases during the quarter and also if this could continue to grow. And then my second question would be in a follow-up on the 2025. If I remember well, in your previous conference call in the previous quarter, you mentioned that the margin should remain stable in 2025, so gross margin. Currently, consensus has a 1% drop in margin and a 4% drop in pre-provision profit in 2025, which seems to be more conservative than your guidance, if I understood well. I would like to ask if you could give more details. Thank you.
Jacobo Díaz: Hi. Good morning. Regarding the ALCO portfolio, as you know, we have a risk capital framework that sets our limits to the size of the ALCO portfolio. These limits have been there for many, many years, which are somewhere between 2 to 2.5 times our equity. So that means that the size should be somewhere between around EUR10 billion to EUR15 billion. So even if we have increased some amount during this quarter, everything is under our risk appetite framework and very, I would say, limited in terms of size. Even if the size has grown during this quarter, there is no major expectations about expecting additional increases in the volume in the ALCO portfolio because we still are within our risk appetite framework. The yield is around 2.5%. It has been increasing across the past quarters. And the average duration hasn't really changed so much. We have a total of five years average duration, which is pretty similar to the figure that we have in the past. And regarding the 2025, I did mention that we are not providing guidance for 2025, although, as you can engine, we do expect growth in terms of overall income. We will provide you more insight, probably as we come closer to the end of the year. But as you can imagine, fees are behaving quite strongly, and NII, as I did mention, is behaving with very strong resilience in terms of client margins. So we'll provide you more guidance. But as you can imagine, we do expect growth in income lines for 2025.
Operator: Thank you. Our next question comes from Britta Schmidt from Autonomous Research. Britta, please go ahead.
Britta Schmidt: Yeah. Hello. Good morning. Thank you for taking my questions. Two fairly quick ones. Just coming back to the fee growth again, there was a very strong increase in payment and collection services, and you were mentioning the linkages of transactionality to volume growth. Maybe you can perhaps break down the growth a little bit and talk about whether there is any seasonality here or whether you can grow on these sort of numbers? And then secondly, I think you also talked about smoothing costs -- your cost base. I was just wondering whether you're referring to the quarterly cost base and what are you planning there. Thank you.
Jacobo Díaz: Good morning, Britta. Regarding the payment and collections, I mean, there is no special seasonality. I mean this type of, what we call, transactional fees are related to commercial activity, and payments and collection is something which is obviously quite linked to the economic behavior of the country and of our clients. So when we have, I mean, a good level of GDP growth in Spain and a strong level of activity that has some sort of good correlations in these payments and collections, so there are no one-offs in there, just basically the level of economic transactions that our corporate clients and our retail clients perform. And there is nothing special. In this concept, of course, we have also things related to endorsements of other things, of activities related to granting new loans. So this is the type of fees that we call as a transactional where payment and collection is a very good example.
Gloria Portero: I will take the one regarding costs. I mean, as you know, we have a very strong seasonality in costs in the fourth quarter, traditionally, and what we are trying to do is to actually smooth costs along the different quarters of the year. So you can expect a little bit less of cost than normally in the fourth quarter.
Operator: Thank you. Our next question comes from Carlos Peixoto from CaixaBank BPI. Go ahead, Carlos.
Carlos Peixoto: Yes. Hi. Good morning. Well, most of my questions have already been answered, but just a couple of quick ones, so which will be on capital. One of detail, basically, if I’m correct, in the quarter, you have 9 basis points negative impact on CET1 from intangible and others. I was just wondering if you could give some color on what happened there given that the evolution of intangibles was relatively small in the quarter as far as I can tell. And then the second question would be basically on -- or looking a bit to RWA groups, basically you have RWAs of 9% year-on-year where volume growth is around 5% year-on-year. Is this higher pace of growth in RWAs a reflection of riskier loan growth or are there other factors weighing in here a bit on RWA growth? And basically, how should we think about it for the second half of the year? Thank you.
Jacobo Díaz: Hi. Good morning, Carlos. I'll answer the first one. Regarding the CET1, basically, these are -- these intangibles are related to the level of investments that we have in IT and also the level of, what we call, some technicalities regarding the IRB shortfall. So these are, I would say, seasonality effects, again. And that's it, that's the detail. More or less, it's -- half of it is each of them, so basically acceleration of IT investments and IRB shortfalls that, as you know, is just expectations of the difference of expected loss versus current loss, that this is something that always happens in some quarters. Some quarters have positive behavior, some quarters have negative behaviors.
Gloria Portero: Okay. I will take the one about risk-weighted assets. Effectively, we are growing 5.5% in the loan book and 9% in risk-weighted assets. This growth in risk-weighted assets, that is higher to the loan book, has to do also with the change in the mix of the loan book. We are growing faster incorporates than we are doing in mortgages, and we are growing faster in Portugal and in Ireland than we're doing in Spain. And this has -- these are investments that have higher risk-weighted asset density. It is also the explanation of why going down the Euribor in the quarter, we have managed to even increase by 3 basis points the margins in the credit side.
Operator: Thank you. Our next question comes from Alberto Nigro from Mediobanca (OTC:MDIBY). Alberto, please go ahead.
Alberto Nigro: Yes. Thanks for taking my question. The first one is on Portugal, if you can give us more color on the quarter-on-quarter evolution of the loan book. From the presentation, I can see a reduction of both retail and corporate. And sorry to come back again on the cost of deposits. I would like to see -- to hear your thoughts on the evolution of cost of deposits next year. How fast can you transfer to clients [Technical Difficulty] cost of deposits under your NII sensitivity?
Jacobo Díaz: Yes. Good morning. In Portugal, as you see, the first half of the year has delivered a quite strong growth of EUR1 billion. There are some positions which are linked to the corporate banking activity and to working capital facilities. So there is more volatility in that side. So this is normally things that happens at the end of every quarter. So in this case, there is a reduction on the level of growth of this quarter, but this is basically to some large positions that come and go and dependent on the moment. It can happen right in the middle of a closing of a quarter, so at the end of the day, nothing to worry about. We see Portugal growing the loan book at double-digit levels, above $1 billion in year versus year. And since December, it's growing almost EUR0.5 billion. So things are running well in Portugal, and this is just basically short-term positions that can go and live. And regarding the cost of deposits, I mean, it's, again, difficult to provide you some guidance for the next year. We -- as I did mention, we are with a very stable, even reducing the level of term deposits versus the overall resources. This is something that should give some comfort about how are we managing cost of deposits. Again, shorter in duration means that probably the pricing is higher for a short-term position versus a long-term position. And this is exactly what we're doing. And again, we hope that you understand that when there are commercial activities or commercial opportunities to bring wealth to the bank, we'll take it. And we will capture it. We have new great clients onboard, and we will do plenty of new businesses. So we try to look, and we look both the NII and the fees line all together. And this is how we manage our long-term view on long-term relationship with our clients and long-term profitability of the bank.
Operator: Thank you. Our last question comes from Hugo Cruz from KBW. Hugo, please go ahead.
Hugo Cruz: Hi. Thank you for the time. Yeah. I just want to focus on the loan rates that you mentioned, that actually went up Q-on-Q, if you could give a bit more color. I know you said that you were driven by changing mix. But I wonder if there's any repricing in their effect as well, and also, what expect for the coming quarters? Thank you.
Jacobo Díaz: Yeah. I think your questions were related to the level of loan growth and the level of loan yields. If I'm wrong, just let me know. But basically, I mean, as you've seen, the loan yields have been quite resilient over the different quarters. So we are today at good levels of loan yields. There is still the Euribor curve, which is the one that we follow. In June, the rolling 12-month Euribor curve, it stays at 3.86%. That means that in June, the average Euribor loans for the last 12 months is at 3.86%, which is just 3 basis points below the figure in March, but it's exactly the same that the figure that we have in December '23. And when we compare to the figure of June '23, the Euribor -- the rolling Euribor, 12 months, is at 2.95%. So that means that there is a very similar levels of Euribor moving average for figures for June. And we do expect very limited reduction over the following months. Since June, we ended up with an average Euribor of 3.65%, and probably we ended up July in a figure of around 3.60%. So the moving average of Euribor 12 months will probably slightly go down, but we'll definitely stay much higher levels than one year ago.
Operator: Thank you to everyone who has participated. And on behalf of the entire Bankinter team, we thank you for your interest and your participation. As a reminder, Investor Relations will be available after the webcast to answer any questions you may have. Thank you all, and have a wonderful day.
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