Unicaja Banco SA

MAD:UNI

Earnings Call Transcript

[Jaime Marcos, executive]

Good morning, everyone, and thank you very much for joining us today for the results presentation of the fourth quarter 2024 at Unicaja. We will be presenting a summary of our strategic priorities for '25, '27 as well. The presentation today has been uploaded to our corporate website, prior to the opening of the market, and it's also on the CNMV website.

There are five sections today. Our CEO, Isidro Rubiales to my right; and Pablo Gonzalez, our CFO, is also present. They will be going through the presentation. Isidro will start with a brief summary of the year. Pablo then will give a bit more color on the financial key figures. And then, Isidro will take the floor again to share a bit more information about our ambition going forward, the new strategic plan for the next 3 years, and then, we will conclude the presentation and open the Q&A round.

We will first give the floor to people asking questions here in person. And then, we will give the floor to questions over the phone, first in Spanish and then in English. And if there are any further questions after that, we will check via the Zoom link whether there are any questions.

Without further ado, Isidro, you may take the floor.

[Isidro Gil, executive]

Thank you, Jaime, for the introduction. Good morning. Thank you for attending this results presentation. Given the fact that close in the fiscal year and a period was particularly relevant. We decided to hold this presentation in this press room in order to share this event with all of you, those who are here on site and those who are connected remotely.

Let me start out with a quick introduction that shows where we are standing and where we come from. We have embarked upon a process after completing the integration of a corporate transaction with Liberbank, after going through a number of difficulties, but we have come to the end of that process.

We wanted to change our image and our logo, therefore, placing our odds on the process of changing our culture in the organization, while preserving the values that have accompanied us throughout the process.

Therefore, [indiscernible] we now have 40% of female senior managers in our Board of Directors, and there are also independent directors right now. We have completed our senior management team. We are fully satisfied with the final composition of our team, because we have brought on board a lot of outside talent. Luis Colorado, Juan Medina and Estrella Botas have joined senior management of Unicaja in order to develop our strategic plan.

We are also leveraging ourselves upon some key strengths. We continue to be close to customers in the territories with financial ratios that are very sound, which from a capital perspective and liquidity perspective, enable us to phase our strategic plan standing on grounds in order to carry out different actions. And we have been prudent in managing risk. As you know, and after the presentation, you will see that we have been able to keep cost of risk at a moderate level.

From that standpoint, we are now ambitious, and we are embarking upon a new scenario going forward in the next 3 years with a special focus on our commercial activity with two key strategic pillars: transforming retail banking on the one hand and also transforming corporate banking.

Our goal is to reach sustained structural profit. Our income statement in 2024 reflects some of these results after a number of steps taken in 2023. You can see our structural profitability, always adjusting our results to the credit profile of the institution.

Now that we have set out the solvency levels of the organization, our structural profitability target. We want to increase shareholder remuneration, one of the highlights of 2024 is our capacity to fulfill our shareholder remuneration target. So that is where we are coming from, and this is where we are heading to. This is a picture of 2024 and our results by year-end, which show how we have established structural profitability, aiming at sustainable profitability over time.

These are some figures. We have paid out an interim dividend last year that accounted for EUR 0.06 per share. Now the Board of Directors will approve a final share of EUR 0.074 per share. Therefore, if we compare this with EUR 0.05 per share that we paid the fiscal -- the prior fiscal year, we are multiplying the shareholder remuneration by 2.7x year-on-year. We have been able to do this, thanks to increased profitability and an increased payout. Therefore, in 2024, dividend will account for 60%. Also based on our credit book quality and the capital ratios achieved over the year.

As for shareholder remuneration. This accounts for a profitability of 11% in terms of payment in cash. If we add EUR 100 million as a result of the share buyback program remuneration for shareholders will reach EUR 444 million, EUR 344 million for dividends and EUR 100 million as a result of the share buyback.

Therefore, we will be with 100 -- actually, this will be 14% higher compared to EUR 132 million paid in 2023. Therefore, we are talking about an increase of 14% year-on-year and 77% as for shareholder remuneration and dividend payout for 2024.

Now after this quick introduction, we are going to discuss the business activity during fiscal 2024. And here, we have four key headlines showing the highlights achieved during 2024 as for business activity. Customer business volume improved by 2% over the period, mainly leveraged by increased deposits by nearly 5% of balance sheet funds reached 7.1% year-on-year and new lending in the private sector afterwards, Pablo will give you more color on this. This accounted for an 18% growth year-on-year. However, credit volumes came down slightly, even though there was some stabilization in terms of private lending.

From a profitability perspective, we reached a net profit of EUR 573 million, with two-fold 2023 results. And we believe that as of 2023, and thanks to actions taken in 2024, we have been able to reach sustainable results for the medium and long term, EUR 573 million, that with the net profit, 115% more vis-a-vis 2023, therefore, exceeding our guidance. ROTE just be at 12.5% is now higher, and therefore, the cost to income is now 44%, therefore, 4 points less year-on-year. We have been able to achieve all these results providing positive credit quality at the same time. We have been reducing NPAs for a long time.

In 2024, we were able to reduce NPAs by 18%, our foreclosed assets by 28% and we have done this through NPA coverage, which have grown up to 71% vis-a-vis 68% in Q4 2023. And the cost of risk has been controlled, therefore, falling to 23 basis points. We have been able to do this boost in solvency and liquidity with a CET1 FL ratio accounting for 15.1% or plus 40 basis points vis-a-vis Q4 2023 with a total remuneration in 2024 of 77%. We have been doing this by keeping liquidity ratios, which account for some of the best in the European banking system.

And now let me hand over to Pablo, who will give you more details about 2024 results. We -- this is our guidance performance. Except for commissions and costs, we can say that most of our financials performed according to guidance with net interest income standing at 14%. We were able to improve our guidance by year-end. Growth eventually was 14%, commissions fell by 4%, as you know, during 2024, we were particularly focused on retaining customers and writing off any commissions that do not add value. As for costs, they grew by 5%. As you know, in this case, there are several agreements that were particularly important talking about agreements with individuals. The cost of risk reached 23 basis by contrast with 30 to 35 basis points, which was the guidance. As for ROTE, it stood at 10.4%.

Now Pablo, I give you the floor.

[Pablo Gonzalez Martin, executive]

Thank you, Isidro. Let's now go through the commercial activity. We're going to start with customer funds and I would highlight as a strength of our franchise, the increase by more than 5% of total customer funds. This is broken down in 4.7% growth in balanced customer funds and 7% of balance sheet funds.

Moving on to Wealth Management and Insurance. I would highlight a 12% increase in assets under management since 2022 and a 20% if you consider mutual funds exclusively, which is our main line of work. I would highlight that if you look at net subscriptions, we've been growing steadily for 2 years. And this year, we have grown by EUR 1.7 million (sic) [ EUR 1.7 billion. ] The boost we've given to asset management is actually very relevant. And we -- it's starting to yield fruit, and we see our market share improve as well. Thanks to this, we've improved our revenue from asset management and insurance by more than 10% and it's now account for 17% of the gross income.

If you look at lending, following on Isidro's remarks, I would highlight the -- a stable drop this quarter, slightly above 1% and 4% for the year. This is basically half of the drop that we had last year. I would like to highlight that if you look at corporate loans, 8% -- well, half of that is the amortization of the ICO loans. We have some EUR 940 million left out. This will make the book very stable. And starting next year, we can have a very positive outlook, even growth, considering growth of the lending book. This is stabilization of lending, which we have observed for two quarters now is driven by the growth in new subscriptions. And this happens across all lending books at around some 20%. And I would highlight particularly corporates and freelancers who grow by 30% this year.

Moving on to the P&L. I would highlight the growth this quarter. I would highlight how the margin -- the NII is very stable at 8%. This yields a 14% year-on-year growth basically. We were foreseeing a slight increase, and it's eventually become a significant increase of our net income, and this proves our capabilities to create margin. And then, fees have increased by 4.7% this quarter. And thanks to that, we've been able to offset the 5% drop we mentioned earlier. All this drives the gross margin up by 15%, and the operating margin, taking into account the 5% increase of operating expenses is at 14%. All in all, profit before taxes is at 120%, EUR 815 million, EUR 573 million after taxes which is more than double the net income last year.

Now if we go into the details of the P&L, let's start digging into the NII as we normally do. I would highlight that through the year, from the end of '23 to date, the Euribor has dropped by 140 basis points over 12 months, approx and it's the main rate used in our portfolios, particularly our mortgage portfolio. And as a result, this has yielded a 13-point drop in the yield from customers, 12 points are accounted by the fact that this all happens earlier on in the year. So we've been able to stabilize the cost of deposits through the year.

And then, there is one relevant point I would like to highlight, which is that if we want to look at the real picture of our -- the margin we get from our clients, we need to look at the cost of deposits and lending, and we've added also all the assets and the liabilities as cost and income as could be, for example, fixed income portfolio, the loan to deposits, to duly reflect the margin than some clients generate, particularly liability clients. We need to take into account all investments, right? So I think, that the improvement of this margin is quite telling. If you look at the evolution of the interest rate, we've been able to make our customer yield is stable at around 18.

Now if we move on to the bridge or and the evolution this quarter, I would say the cost of deposits is more expensive at around EUR 1 million. This is due to greater deposits in balance. The average cost, as you can see, has not increased, but the EUR 1 billion additional deposits that we have, have impact, because they are deposited, let's say, in the Central Bank, that would be the EUR 7 million in impact meaning the evolution of deposits, you might think it's negative, but it is positive, because it's a greater ability to get revenue. And you can see this in the liquidity line, there's EUR 11 million in recoveries.

The more significant negative impact is the reappreciation of loans, and you see a EUR 23 million drop in lending, EUR 18 million out of that is a price effect. It's due to the price and the rest due to the volume. The fact that our lending book is smaller.

Additionally, I would mention two more points that offsets the drop. Mission issuances are done at a better cost. We not only need to see the impact on clients, because the way to partially offset less revenue from the lending book is done through issuances, which are issued at a variable rate. So they offset further EUR 7 million. And then, with excess liquidity, we've been able to beef up our fixed income portfolio by EUR 2 million.

So beyond the customer spread, there are other variables to make the NII stable, I would say, in a nutshell. If you look at fee income, it's positive through the quarter, 4.7%. Basically, this is driven by the non-banking fees, particularly mutual funds and insurance. And I would also mention that payments and accounts have progressed in a very steady manner. We've been making an effort through the year, as Isidro has mentioned, to manage fees from these services, and we've tried to steer them towards higher added value services such as non-banking fees. That's the outcome of that 8% in the year that you see.

Because of this, the evolution and the contribution of non-banking fees amounts to 41% and 45%, respectively. They're slightly below the fees we get from transactional fees. But starting next year, we do think that the weight of non-banking fees will be greater. We assume this trend will continue into 2025 and beyond.

Moving on to other income. I would highlight a significant improvement this year, driven by less contributions to the deposit guarantee fund amounting to EUR 88 million in Q4 '24 -- '23. They are none this year, and the contribution to the SRF have also dropped. This is partially offset by an increase of the windfall tax up to EUR 68 million in 2023 and EUR 88 million in 2024, and we've been doing -- and the operations we've been doing this year.

If you look at operating expenses, I would highlight that growth is fairly in line at 5.5%. That's the increase in operating expenses, and this is driven by personnel expenses. We've reached agreements with the representatives of our headcount, and we have updated the remuneration of our employees, and we also see a better -- because we have a better profitability, we've been able to offer variable pay to part of our employees. So this increase in operating expenses comes along with a better cost-to-income ratio, we've moved from 48% to 44%.

Another silver lining, the cost of risk this quarter is at 24 basis points -- that 20 basis points, sorry, and 23 basis points for the year. We were actually considered gearing 35 basis points, and this is basically driven by the high quality of the assets.

If you look at the total provisions and its evolution, they have improved significantly from EUR 546 million to EUR 319 million. This is basically driven by less, well, extraordinary provisions that we had to do for foreclosed real estate. We've gone from EUR 286 million to EUR 15 million only.

And if you look at loan loss provisions, they are less than what we had to provision last year. And if you look at other provisions, there is a slight increase there driven by two factors: the EUR 9 million, the adjustment of the tax that took place last year and then the restructuring costs that we've registered this quarter to renew the headcount.

Now moving on to profitability. I would highlight a significant improvement in profitability basically driven by bigger income, a 15% bump up in revenues and provisions have dropped by 42%, which more than offset that 5% increase in costs that I mentioned. We've moved from EUR 371 million to EUR 816 million in profit before taxes and EUR 573 million after taxes, as mentioned, as a result. This is all reflected in our regular profitability ratios.

The return on tangible equity is moving up to 9% from a 4% adjusted to a 12.5% percent ratio -- CET ratio, it yields a 10.4% ROTE well above our initial guidance.

Now another piece of good news is regarding non-performing loans. This has been a focus of our management in-house. We've been able to reduce non-performing loans. And also for closed assets. So there is an 18% reduction year-on-year and 4% quarter-on-quarter in NPLs. And then the NPL ratio is down at 2.7%.

We compare very well vis-a-vis our peers. And the NPL coverage has increased by 2% this quarter and 4% year-to-date. This NPL coverage is very cautious, particularly taking into account that more than 50% of our NPLs are assets backed.

And if you look at non-performing loans, particularly foreclosed assets, the reduction is even greater. It stands at 28%. And the total reduction of non-performing assets and foreclosed assets is 22% -- non-performing assets is 22%. And this incoming flow is relatively low, I would add.

The net accounting value, meaning the outstanding risk of foreclosed assets is at EUR 220 million, and the coverage ratio is 77%. Now if you look at the whole picture, we're going from EUR 1.8 million to EUR 1.2 million approx and with increase coverage, we've gone from 74% to 71%.

So the net NPA ratio, the actual real risk we have on balance is at 1.4%. These numbers give us peace of mind and this removes the legacy we have with all those corporate operations in the past.

Looking at solvency, I think Isidro has touched upon this already. This year, we've distributed more than 150 basis points in capital. And also, we've been able to improve our fully loaded capital ratio by 40 basis points. This says that we are very capable of creating value for shareholders sustainably. We have 40 basis points an improvement this quarter. If you look at the fully loaded ratio, this has been offset in the dividend payout. We were paying out 50% and as the policy has changed or rather the Board has proposed to increase the payout to 60%, once we've made the adjustment for the year, it has absorbed the capital income for this quarter.

The reason why there is a 30 basis point drop this year. This is a result of the adjustment -- devaluation adjustments and the drop that has taken place this quarter.

Now moving on to the MREL ratios. They are up this year slightly by at 26.9%. And we still have a reasonable buffer in the CET1 and the MDA buffer. I don't want to go into the details of liquidity as Isidro has mentioned already. We remain one of the financial entities with the best liquidity ratios. Loan-to-deposit is at 67% and the NSFR at 159%. And the request is at 100%. So we are very much accustomed to very high levels, and we don't really see the operational leverage capacity that Unicaja has.

If you look at the fixed income portfolio, we've increased the portfolio slightly and we've generated liquidity team, we've gone from EUR 27.3 billion to EUR 27.8 billion. Remember that 85% of this portfolio is at an amortized cost, meaning it's a structural portfolio that manages their returns we obtained from managing our clients' liabilities. The performance has increased slightly at 2.6%. That's a yield evolution, and we managed the interest rates actively to maximize as much as possible the yield. I will just mention that. Well, the makeup of the portfolio is basically public debt and the risk profile is very low.

And with that, I will give the floor back to Isidro. He will discuss the main lines of our strategic plan and conclusions.

[Isidro Gil, executive]

Thank you, Pablo. Well, to kick off, we have been able to stabilize our situation after some difficult times as it is normally the case when you have to do operational integration. Since the beginning of the crisis, we have been engaged in different integration processes as a result of which we have been able to become an institution with a national footprint.

Fiscal 2024, enabled us to report structural profitability adjusted to our risk profile. We are now very excited to embark upon a new cycle for the next 3 years. We intend to become a universal bank that is close to all driving profitability in a sustained manner, building capacities to guarantee that we may continue being both solvent and leaders in the future, always leveraging ourselves upon the territories where we are present, always being close to our customers without compromising our commercial activity in other territories.

So we intend to remain leaders while building business capacities. We are going to carry out this plan by continuing to carry out a number of structural measures as we have been doing so far, also leveraging ourselves upon our strengths. We have been able to build capital. We have been able to maintain financial positions in terms of liquidity. In a very solvent manner, we also intend to improve where we can improve. We intend to diversify our revenue sources when we have leeway to do so. This is our plan and our aim, and we are going to implement strategic lines. We intend to transform retail banking, and we intend to grow in terms of business and corporate banking.

We have a number of drivers for that purpose. We will leverage ourselves upon people, technology, agility and operational excellence. We have been taking clear steps. We want to take a customer-centric approach. We want to give value to customers, and we want to turn or become our -- the benchmark institution for our customers.

There are also some cross-cutting pillars in order to boost other lines of business. For example, sustainability, AI, customer experience, digital banking, risk models, distribution models and the possibility of entering new partnerships and launching new products in order to act as business catalysts. This sustainable business model should enable us to render more than EUR 1.6 billion in sustainable profitability in the coming years. This will provide an year-end shareholder remuneration. In 2024, we reached 77%. Our commitment is to provide a return above 85% in the next 3 years.

We shall do so by keeping solvency levels, excess of the minimum 12%, which is the reference. I'm talking about CET1 fully loaded capital that is going to be in excess of 14% in the coming years.

Now let me share with you some key concepts concerning our main lines of action. First, we're going to engage in retail banking transformation. So far, we have been implementing a number of structural changes and measures in order to focus on the Retail Banking segment. For us, this is a core line of business. We want this transformation to lead to a new customer experience for Unicaja's clients. We want to become the #1 bank of choice for our customers.

We are going to talk about customers again and again, because we want to use this approach to improve our strategy, our customer experience, the customer satisfaction level. We have some new channels in place in order to enhance our relationship with customers, simplifying our product offering, reengineering processes, all that will eventually lead to an enhanced customer experience.

There are three key areas concerning retail banking, where we intend to continue improving. Mortgages on the one hand, this is going to be a core product for us. The market share was 6%, in the past, we want to regain 6% market share. Therefore, we have to grow by 40 basis points.

As for consumer loans, as you know, our starting point was quite small. Our aim is to twofold our production, so that -- in the past months, we have been able to produce more and more consumer loans by leveraging ourselves upon acquiring new customers. As a result, pre-granted loans have increased. We also have a multichannel approach. We, therefore, can distribute products, both through our branches and through the online channels. We also seek new strategic partnerships that can be true catalysts.

We have reached two agreements, one with Santa Lucia. We want to grow by 25% in new insurance premiums in the next 3 years.

As for private and personal banking, we will also focus on a number of action plans. We will be launching new products such as a roboadvisor and broker and planning tools in order to provide better quality planning and advice for customers. We will also strengthen our own asset manager. We surpassed EUR 10 billion in resources under management just recently. So we want to reach 30% all-in-all in terms of balance sheet resources. This is what we have been doing over the past months.

Pablo mentioned that we now have positive subscriptions amounting to EUR 700 million as of 2024. We intend to continue engaging in new partnerships to provide better services, while exploring any other scenarios that might enable us to formalize other agreements in order to act as true catalysts for our banking and non-banking businesses.

Eventually, our goal is to increase our diversification in terms of revenue sources. We have a big focus on mortgage loans. But as a result of the strategic plan, we want to diversify our revenue sources by leveraging ourselves on retail banking, self-employed customers and also through commissions and fees. We have also been challenged by growth in the Business and Corporate Banking segment. In order to set our strategic ambition for the next 3 years and even though the stock has come down, actually, that drop has been stabilized.

As Pablo said, the drop in credit in early 2025 was 8%. But now we have been able to increase production through new lending, we have been able to grow by 31%. We have been able to stabilize this figure at 4%, thanks to the amortization of some ICO-guaranteed loans, which accounted for a big stock and which have somehow offset the capacity of reaching new lending formalizations.

We also intend to leverage ourselves upon current customers in order to grow in terms of the lending book by 25%. That's our goal in terms of share of wallet lending to clients. We also intend to keep on enhancing our customer base with some clear cut measures. We want to improve customer experience among corporates. And one of the key elements is to make progress in order to introduce substantial improvements to our online banking system. We also intend to grow in terms of market share among SMEs and corporate customers.

We will increase our production with current customers. We have been doing so reaching 25% in the national territory, but we will try to go beyond Madrid and Barcelona. We intend to become, again, catalysts in order to boost activity. We have also focused on increasing the weight of our Corporate Banking segment in terms of working capital right now. We intend to move from 11% to 24%, as you can see on the slide. That is the best way to be close to corporates and render a better service. We believe that we need to provide specialized services or specialized segment oriented services.

We also intend to reinforce our results apart from the product developments and technological enhancements, we will also reinforce all of the team members that are engaged in wholesale banking, and we intend to increase the number of SMEs and corporates by 300.

Okay. Here, you can see some business enablers. This is critical for any institution that wants to enhance its activity. We are going to focus on Technology and AI. We intend to invest in infrastructure and service security. We also intend to reinforce everything that is concerned with process resilience. We know that sometimes customers have some issues using digital banking. Therefore, our goal is to render digital banking, more resilient and efficient.

We have been able to make some improvements to enhance our online banking tool for retail banking customers. We will continue driving digital banking, because we believe that this concept is complementary to providing on site service, and we believe that having a good relationship with customers and a one-channel approach is key in order to continue promoting online banking.

Agility and operational excellence. There are already some use cases concerning AI. We believe that AI can be used in order to enhance processes and improve the relationship with customers so that the interaction of between customers and the institution can be better. We have identified 30 strategic projects that should enable us to boost our capacities, improve our processes and eventually provide a better customer experience.

In addition to these 30 strategic projects, right now, we are also helping people to carry out their activity, but using AI-driven tools we will see how this all evolves in the future and how it will be embedded into our activities across the board. Again, we also want to build a new commercial management portal, we are going to design and implement an operational excellence center, because operational excellence will be key. This will also be connected to AI as a tool to enhance processes.

And finally, we will also focus on talent and culture. I believe that we are now transforming our organization from a cultural perspective after overcoming a number of road blocks, we had to focus on improving our relationship with our employees. I believe that we have carried out some key developments in order to reach true engagement by our employees. We want to continue working in that respect.

We are committed to engage our employees so that they have a true sense of belonging. We intend to do some reskilling initiatives, so that at least 600 employees can be trained for some specific areas, we want them to be trained on new capacities. We will also hire some new employees. We intend to hire more than 350 employees for different areas concerned, for example, with IA, user experience, customer experience, technology and risk, respectively.

We have -- we made a big effort at the end of 2024, in order to allocate provisions so that we can make an additional investment to hire more people, to hire more than 330 people, as I said before.

We are also making extra efforts in the amount of EUR 350 million for recurrent expenses. And despite the increased costs, thanks to the sustainability of recurring costs, our income to cost-to-income ratio will be below 50% between 2025 and 2027. We will continue to focus on sustainability in 2024. We already showed our commitment to the environment through the issuance of green bonds.

Our goal is to reach EUR 1.6 billion. We also have some decarbonization targets for three portfolios accounting for 70% of lending to the private sector. We are also committed to society, Unicaja shareholder composition. As you know, is characterized by many shareholder foundations, which keep us close to the territory. And they are also a catalyst to remain to our customers.

Now we have been able to pay out more than EUR 135 million in dividends for shareholder foundations, which in addition to EUR 132 million on account of taxes show our commitment to society. We will continue to provide financial education to our customers. We also intend to contribute to a more sustainable world by providing great finance to corporates and individuals. We keep -- we remain committed to our employees and our clients.

As for employees, we continue to provide incentive plans and different KPIs from a sustainability perspective. In 2024, we carried out all these actions, which will keep unaltered here in 2025. We will have a new transition plan, and we will have new functionalities, new features in order to calculate our footprint. This will remain the fourth strategic target for us.

All these aspects are aimed securing that our achievements in 2024 are sustainable over time from a profitability standpoint. Therefore, today, we are committing ourselves to reaching these profitability targets in the next 3 years.

On the left-hand side, you can see that over the past years, we posted EUR 1.117 billion, but our commitment for the next years is to grow by 40% reaching EUR 1.6 billion or more. All these results will always be in excess of EUR 500 million. This is not a one-off, even though 2024 was an exceptional year, not for us, but actually for the whole financial system. As a result of interest rates, we are now being faced by challenging interest rates with a Euribor fall, Euribor been on an average of 2.1%. We are managing, however, our interest rate levels, and we believe that we will be able to reach EUR 500 million -- more than EUR 500 million in 2025, always being in excess of EUR 1.4 billion and a cost-to-income ratio below 50%.

So this share -- this sustainable structural profitability will boost. Our shareholder remuneration coupled with very high solvency and liquidity parameters. We closed our fiscal year 2024 with EUR 77 million result distribution out of EUR 573 million, and our shareholder remuneration will be in excess of 85% in the coming 3 years for the next cumulative period.

And we shall do this by keeping our payout, which will be subjected to the consideration of our AGM. We, therefore, intend to keep this level at 60%. 25% will come from additional payment. We will decide whether these are share buyback programs or whether we'll be using any other extraordinary dividends. We will keep a CET1 fully loaded, capital of 14%, which is far above the minimum required amounts. This accounts for more than 40% of shareholder remuneration for the next 3 years, more than 9% in terms of annual ordinary dividend yields without considering any extraordinary remuneration.

We shall not carry out any share buyback program in 2025, because the payout has already been increased to 60%. We are going to remain seasonal in the short term. But as of 2026 and subject to relevant supervisory authorizations, we might engage in share buyback programs or any other programs to pay additional dividends in excess of that 60% that we implemented in 2024 and that we are committing ourselves to maintain in the next 3 years during which the strategic plan will be enforced.

Before we start with the Q&A session, and I'm sure that you look forward to asking questions, because I understand that you were able to go through the presentation before this conference.

Let me, however, wrap up with the following remarks. This is the guidance for 2025. As I said before, net interest income will be about EUR 1.4 billion after we offset the full in commissions and fees reported in 2024. As Pablo said, that was mainly due to the fact that we did not -- we don't want to charge fees and commissions that do not add value to our relationships with customers. Therefore, 2025 would remain flat.

Costs will grow by nearly 5%. The cost of risk will be in the north of 23 basis points. Other provisions, especially after what happened over the past quarter and due to the fact that some employees agreed to retire voluntarily. We understand that after the efforts made in 2024 concerning legal risk provisions in 2025, this amount will be below EUR 100 million. Business volume will grew by 2% year-on-year, and the royalty will be close to 10% by the closing of 2025.

Okay. Some final remarks to close off. I believe that we have already mentioned this. We have been able to post a historical result by 2024 year-end. We will be remunerating our shareholders with the highest dividends ever in our history. We were able to make steady progress throughout this strategic plan by implementing a number of parameters to develop our commercial activity, more effectively standing on solid grounds. Therefore, we are not ready to face the next 3-year period, implementing our strategy, which we deem to be quite ambitious and will enable us to improve our customer experience, our employee experience, improving our relationship with customers at the same time while boosting shareholder remuneration.

We want to scale up to the greater structural profitability, reaching an ROTE about 10%. We also want to keep up with our profitability levels with a high solvency level. We have been able to generate capital over the past 3 years. We are committed to, therefore, keeping our shareholder remuneration by creating more capital as we have been doing so far. Therefore, in 2024, we were able to provide a shareholder remuneration that was 77% over our results. In 2025, 2027, we intend to go all the way up to 85%, always keeping our profitability at a stable level. Now we are going to open the floor for any questions that you may have.

[Jaime Hernández Marcos, executive]

Thank you very much, Isidro and Pablo, we're going to start with questions here in the room. If you may, please introduce yourselves, we'll start with Paco here. Please state your name for those of us listening from afar, and we're going to limit it to two questions each, okay? Just to make sure everybody has time. Paco?

[Francisco Riquel, analyst]

Paco from Alantra. My first question, the fact that you have a capital ratio above 15%, you haven't announced a share buyback program the same way you did a year ago. You're committed to doing this in 2026 and you say, you want to have short-term options. Therefore, my question is, are you considering any inorganic operations? And along that line, could you share the criteria for any inorganic operation or a deal you would consider? Are you seeking diversification, integration of synergies and financially speaking, does any M&A operation compete with the potential returns of a share buyback or other strategic criteria? That was my first question.

And my second question regarding the corporate business. The book continues to shrink less than earlier in the year, but it's still shrinking. Your ambition is to grow. Therefore, my question to you is what is needed to turn this around and go back to growth. You have the human resources, the technology, the risk resources all in line? Or do you still have work to do there? Where will growth be coming from? And can you quantify it? We're talking about a 50 basis point market share, but where do you really see that growth? And can you compare the profitability of our corporate -- the Corporate segment with Retail segment?

[Isidro Gil, executive]

Thank you, Paco. We have not announced a share buyback program. The good news that we are sharing today is an increase to payout -- dividend payout at 60%. And I think, it's a relevant point also.

Why aren't we committed to a share buyback? Well, we are committed to doing a lot of things in this 3-year period with supervisors. We are committing to returns over 85% and there is a commitment to remunerate and return the capital that we generate to our shareholders. The truth is that as part of the need for improvement in this entity, we are analyzing potential catalysts that might help us -- that might help us increase profitability. Now this requires analyzing the room for improvement. We're talking about consumption, assets and corporate.

We're not talking about corporate operations per se. We're talking about tactical solutions to invest part of that capital in tools, portfolios, agreements, alliances, partnerships that might help us with our purpose in the short-term strategy. We have short-term strategy with the improved remuneration to shareholders. And we do need this 1-year short-term window to look into options that might yield a better return to our shareholders. So we're making headway among many areas, there is nothing specific. Otherwise, we would communicate it to you.

Now what are we going to do with our corporate segment? I understand it is a challenge, a big one, and you have questions about it. So our ambition, our commitment is to do it. We have started working on it. We haven't developed many of the things in our strategic plan yet. I said that, we've seen a significant drop in the lending book, and most of that is driven by the amortization of the portfolio given in the time, there's an exceptional volume of ICO-backed loans that well has now been repaid. So stabilization comes from our ability to produce at present without really sharing the value of what we're going to do going forward.

Our ambition is to continue to grow, and this will be progressive. Of course, first, we need to put our capabilities in place and then, we need to deliver on the growth.

Now one of the main components to take into account is the economy itself. We're moving towards lower interest rates for many years. Companies have been demanding for working capital rather than investments. We do think that in the current rate scenario and in the current economy, companies will need further funding. And there are some important catalysts we need to focus on.

First, our clients. We have low rates of participation with our own clients. So that's our natural pool to grow. We need to increase our share of wallet with 25%. We've developed many systems to develop the limits up to -- our growth limits, and we're going to increase lending to current clients based in these limits. And then, we will be creating digital capabilities and products to grow in working capital. Over the last few years, we have not been active in working capital. And our clients are -- can help us grow there, too.

Then we need to reinforce our commitment. This more than -- we're going to increase our headcount of more than 300 people for a company our size. This is a significant effort. An important part of these resources will come from hiring a specialist and there will be a segment and we want to look for specialists in specific segments. The Agri sector, for example, is key in our initial market. We've had a small activity compared to the market share we have there. So we want to be very active in the Agro business. It is essential in many regions.

And we're going to deliver quarter-by-quarter, of course, we will make an investment effort. We will make an effort to acquire clients. We will make an effort to specialize per segment and then we will step up our ambition regarding the share of wallet we want to have with each client and that will all help us change the direction of our lending book from a drop to a stabilization. And we will be well, delivering year-by-year. I think, I have addressed both your questions, right? I hope satisfactorily to you.

[Ignacio Ulargui, analyst]

My name is Ignacio from BNP Paribas. I have two questions. One regarding increased lending in your plan. You said you want to increase your business volume by 3%. And I understand -- well, I just want to confirm how you see the lending growth over the next few years? Can you share a bit more color on the market share translated into volume?

And the second question is regarding the partnerships, such as the one with Fiserv. What impact will this have on the P&L? Do we see less expenses, less fees? The P&L remains the same, more volume? Could you explain a little bit better the banking and non-banking partnerships and the impact they have on the P&L?

[Isidro Gil, executive]

So growth will be gradual. We start with certain segments in lending, where we're starting small in consumer loans. For example, we want to multiply our income 2x. So growth will be progressive. That 3% figure you mentioned is, growth is slightly below our growth in deposits this year. For example, we want to maintain growth we've delivered in 2024. And then, we want to grow somewhat -- but we are -- while remaining relatively conservative in corporate lending.

Now this starting point, well, these capabilities are still in its infant stages. So initially, our ambition will be less than later on. There is something that should help us grow not only in retail, but also among corporates. There's an agreement with Fiserv that will not only deliver savings but more income from fees in payment methods. We do believe this partnership will step up our capabilities, products, technologies, experience with our clients.

And as you can very well imagine, this is having a lot of impact on freelancers and SMEs. And this is where we want to grow in corporate lending, especially with our clients, with current clients, because this is the segment where we stay closer through the network. It's not really about cost savings. It's about offering better products and services and improving our customer experience, so that we have more clients and therefore, more income from that segment.

And the segments, once again, are SMEs and freelancers, that's what makes most sense. And we want to improve the customer experience with that technology. Fiserv is a worldwide leader in payment methods, and this is a great commitment for us. And they are coming to Spain with us. And this is an agreement we've been working on for quite a long time, and it showcases our effort to seek the best partners to deliver the best products, efficiency and quality of service to our clients.

[Maksym Mishyn, analyst]

Maksym Mishyn, JB Capital. I have two questions. First, regarding other provisions. Could you please share more color about employee exits, how much -- what was the cost of that? And what are the savings? And do you -- have you included your forecasting a 5% increase to personnel costs? And then, regarding the cost of risk, do you expect an increase in the cost of risk in 2025? Where would that coming from? And how could we expect that?

[Isidro Gil, executive]

Well, let me just clarify. Close to 50% of the provisions this quarter have been allocated to the voluntary exit plan. This is not a cost-saving decision. This is a decided approach to hire 150 people more that will help us enhance the profile of our headcount. It is not a cost-saving plan. It's a change plan and it accounts for 50% of the effort this quarter in other provisions in that line.

We do believe it is necessary to bring new talent, have a younger headcount and enable older employees to leave voluntarily in good terms. But we're not doing this to save on costs, but rather, because we want more muscle to hire the talent we need, particularly in highly specialized resources that we need for our plans. And then, the cost of risk, there are two components I would like to mention.

The cost of risk tends to be at around 30%. That's our profile. We do have an ambition to grow in consumer loans and corporates, 30 basis points. The speaker corrects himself, 30 basis points, not 30%, sorry. So we want to be conservative and this is a result of our risk profile. For good and bad, our risk profile is low. We offer guarantees and we've withstood a few complicated macro scenarios, COVID, wars, inflation and still, our unique hub portfolio has withstood the blows fairly well.

Unemployment has been a key variable and at the end of the day, the cost was always below what we expected. The truth is that we are evolving towards greater diversification. We want to grow in consumer loans. We want to grow in corporate. And it seems reasonable that the cost of risk will remain at around 30 basis points. Pablo, would you care to comment?

[Pablo Gonzalez Martin, executive]

So we're talking about businesses with greater profitability but also a greater cost of risk. So as these businesses grow, we will have to accommodate to the cost of risk. And the evolution will very much depend on the evolution of the economy. So making an effort or a forecast that is too optimistic on the cost of risk assumes no uncertainty. But the macro uncertainty is given right now. And we've reflected this in the NNI forecast, we -- they're not give any numbers, just the bare minimum that we can comfortably cover, but it's really hard to do more than that. We pride ourselves in being realistic.

[Unknown Analyst]

Marisa [indiscernible]. I would like to ask about NPL coverage ratios and portfolios in lower interest rates -- interest rate scenario, I believe that NPL and ICO coverage ratio is very important, 2.5 years seems too low. So what's your estimate as for NPL coverage ratio and the real duration? I would like to know whether you are going to increase this book or not? And also, I would like to learn about the public debt that will be depreciated in view of higher interest rates in the ICO portfolio.

[Isidro Gil, executive]

Okay. Pablo, I'm sure that you can cover this question better than I.

[Pablo Gonzalez Martin, executive]

Well, as for portfolios and coverage ratios in managing portfolios in stabilizing the NIM, we estimated that interest rates could go up. So the duration of movements are triggered shifting from 2.1% to 2.7% means that we would be increasing the coverage ratio to March. At the beginning of the year, this number was low, but we have been shifting towards almost steady points. So we are now stabilizing income coming from these books of portfolios. On the asset side, income is coming down due to the mortgage loan depreciation that is offset by a more stable loan portfolio and by a reduction of the cost of liabilities. So somehow, this is also offset through issuances, with us trying to strike a balance.

As for the stock of the coverage ratio, we said that it could be 50% to 50% at the beginning of the year, but we now believe that it's going to be 85% in terms of these portfolios. We have also allocated some coverage to the mortgage loan book that is no longer tied to a floating rate, but to a fixed rate for the next years.

We expected lower interest rate scenario. We believe that neutral rates might be around 2.7% according to the guidance of central banks. So actually, they believe that it's going to be between 1.75% and 2.5%. Do we need more of a neutral rate? Perhaps the answer is yes. Given growth expectations in the Eurozone, it seems that the Eurozone is expected to grow by 1%, which goes beyond the 0.7% reported year-to-date. But we believe that it's going to end at 2.25%. Since we prefer to be prudent, we are preparing ourselves in case we have to experience a low interest rate scenario. We continue generating liquidity through our franchisees and deposit stocks.

In fact, as for this low interest rate scenario. I believe that the goal is 2.5% in terms of deposits. Since we are aiming a structural profitability, some bonds are going to mature shortly. And therefore, this maturity will offset by downward interest rates. And this renewal is partial, but since we envisage some structural liquidity, we believe that the commercial portfolio will not grow so much, but we are talking about more than EUR 5 billion in liquidity, that we can use in order to stabilize that margin.

And of course, we will act in a tactical fashion. We believe that the market will give us good opportunities. They have been no slop in the curve as of late, but now that is going to change, and therefore, we believe that the NIM might grow. We, therefore, have a factor in which you have said, but not the renewal as such.

[Jaime Marcos, executive]

Alfredo, you're always quick asking questions.

[Alfredo Alonso Estudillo, analyst]

Alfredo Alonso from Deutsche Bank. Along the lines of Marisa's remarks, and concerning your 2025 guidance, it seems that you are more aggressive as for full estimates compared to the prior guidance. And as Pablo said, it seems that you're not aiming at greater sensitivity. What's the reason behind that? Is this due to an increased cost in terms of the NPL coverage ratio? Do you think that this is going to be the case until interest rates go down or do you think that this is due to the fact that NII may slide further? As for mortgage loans, you intend to regain part of your market share. However, this is a segment where we have observed a lot of price pressure over the past 3 years.

How do you consider that growth in your guidance? Have you factored this in? Do you think the yield might be adjusted even though if the volumes are better, this figure might be offset? You are also operating in certain territories such as Malaga, where there is plenty of real estate development. It seems that today, banking institutions are not well prepared to take advantage of that circumstance. As we speak, no major risk might be envisaged due to the fact that real estate demand is going up. Do you think that this could boost your growth estimates going forward? Or have you already considered that as part of your strategic plan?

[Isidro Gil, executive]

Okay. Let me answer the question concerning lending. One of the key problems concerning mortgage loans has to do with price competition, which affects us. We have performed -- we performed very well in 2024, despite the fact that the mortgage loan book was affected very often, fierce price competition in that segment, and also the fact that the supply of this kind of mortgage loans is low.

Sometimes it's difficult to be truly competitive. However, we're talking about a core product here. And therefore, this is key in order to build a long-lasting relationship with customers. Also due to our territorial footprint. We believe that in a low interest rate scenario, the small margin that you can earn from mortgage loans should actually be reversed, because competition is higher in high interest rate scenarios. At the end of the day, we are talking about a product that is profitable.

Sometimes, we are competing at challenging prices. But from a financial maturity perspective, customers also change their behavior throughout their financial life. We have been able to deliver one of the best results in our history despite the fact that we have lost some market share. This is nonetheless still a core product for us. So we are thinking not only about profitability, but also about the engagement that we can obtain with customers by granting mortgage loans. We have some relevant territories.

Today, we can participate in those segments where perhaps you do not have a lead in position, because if you have the right channels in place or the right processes in place, we can grant mortgage loans in some of our non-core territories.

I didn't quite understand your question about real estate credits. Well, real estate developers seem to be sort of a damped work, because they were considered to be the reason for the big crisis. Then, real estate business where we do not manage big volumes, we intend to reverse that. Today, real estate developers finance themselves. Sometimes they set their own terms and conditions. There is no speculation right now.

And of course, they try to take advantage of the current loans. However, when granting loans, there is also a difference between individual customers and real estate developers. Therefore, in order to keep on focusing on this core product in those locations where we are physically present by using digital channels, we expect to regain that 6% market share that we lost over the past years. I think that -- those products will be more profitable in a low interest rate scenario according to current market spreads. And I believe that in order to reach new customers, we can use this Real Estate Development segment.

Okay. As for margin, what are the hypothesis underlying our decisions? You should take into account that the mortgage loan repricing continues. We always lack behind a little bit, even though this quarter, we were going to see an impact on the lending book.

The average Euribor of this portfolio is near 3% or 2.50%. So we still have some lead way. However, our current hypothesis establishes a Euribor rate of 2.12%, 2.14% over the year. So by year-end, the curve is expected to be more or less the same as the one we have today or the one in November last year. So with that curve, there will be a book repricing. We still have two or three quarters to go for the mortgage loan book depreciation.

Issuances are also taking place faster. They are tied to Euribor at 6 months. Therefore, they are also depreciating faster. We still have some room to keep on pushing deposits up. Up until October, the deposits grew, afterwards they began to fall. The reduction of the cost of deposits is now lower compared to the portfolio yield. Therefore, we have been able -- we have been working in order to stabilize that situation, but we are not going to reach EUR 1.5 billion.

However, we intend to stabilize that result even if we reach EUR 1.75 million. Even though the -- we consider 2.12% as part of our guidance, we have been able to offset the sensitivity of our balance sheet.

Pablo, let me clarify that this 1.4% is just a reference. It's not our landing point.

[Unknown Analyst]

I'm Alberto from UBS. I have two questions. The first question is concerned with the customer spread which is the landing point of the customer spread? And can you give us the breakdown between the customer -- between the yield and the customer spread. And as for ICO guaranteed loans, I would like to know about its deleveraging ratio.

[Pablo Gonzalez Martin, executive]

As for the customer spread, even though it is relevant, it's not the single variable that we factored in. When calculating NIM, if we analyze the good profitability, the fully deposit offsets the fall in the customer margin. Usually, we take into account credit profitability. We are at 3.3%. It's going to keep on going down. It is true that the corporate book is above the bank book. And there so, there is some offset in there, but the difference is not big. It might continue to fall down to 2.70% with 50 basis points drop in terms of loan profitability. However, deposit yield might go from 70 to 50. That is the estimated fall. That's the ballpark figure.

However, this is partially offset, because issuances are tied to a floating interest rate, whereas the portfolio is tied to a fixed interest rate. Therefore, the NIM might go down, but a little bit more than the customer spread. These are our estimates without actually managing the interest rate risk actively. This is quite a structural component.

And usually, we take a medium- and long-term strategic view to handle this component. Right now, there is a lot of macroeconomic uncertainty. Interest rates go up and down constantly, we are talking about a range of 50 basis points all the time, quite frequently. Therefore, it would be too risky to say otherwise.

Last year, we changed the NIM 3x, because we thought that interest rates were actually leading to a big discount. Now we have to wait and see how things evolve in the course of 2025.

[Jaime Marcos, executive]

We are going to allow a few more questions, because we are running out of time. So now we're going to give the floor to the operator for those analysts who are connected remotely to ask questions if they have any.

[Operator]

[Operator Instructions] Carlos Joaquin Peixoto from CaixaBank is going to ask the first question, please go ahead.

[Carlos Peixoto, analyst]

I have two questions. The first question is concerning fees, banking fees. In 2025, you said that fees will remain flat. I would like to know what lines of business will be affecting fees in 2025? And your estimates as to fees performance between 2025 and 2027, according to the strategic plan. And now, my apologies if I repeat the question, you spoke about 12.5% in terms of the return on the common equity Tier 1, but then you have also mentioned that it could reach 14%. Do you think that 12.5% is the reference value for Unicaja's right capital level or do you think that you might be distributing capital to reach 14% between now and 2027?

[Isidro Gil, executive]

Thank you, Carlos. Okay. We believe that fees will continue to perform on a flat basis, because in 2025 -- '24, sorry, we made a number of efforts that still have some spillover effects. For example, maintaining our fees, but that will be offset by some increase arising from diversification. So we intend to increase this fees, but mainly in the area of -- in the case of insurance and in the case of customer funds on balance. That's why fees will remain flat in 2025 throughout the strategic plan. However, this sacrifice stage will count to an end. We still need to complete the 12-month cycle. Afterwards, we believe that fees will go up as a result of increased activity.

We are reaching some agreements with Fiserv, as I said before, which will also lead to some improvements. But there are two sources that will enable us to increase fees as part of our strategic plan. And they will come to the non-banking activity, most surely as well as from customer funds on balance or any similar resources.

Regarding capital, we have been keeping the minimum of 12.5%. That's our reference value. That's not our target however. And then 14%, that is the target under our strategic plan. It's not a target as such, actually, but we just want to confirm that despite the fact we intend to increase shareholder remuneration by paying out 85% over our result. If we want to grow, we will also be using up more capital. These two elements, remuneration and risk-weighted assets that will lead to ratios above 14% at any point in time.

I believe that we are pretty comfortable keeping that gap between 14% under the plan and the minimum reference of 12.5%, but always with a good buffer taking into account regulatory requirements.

[Jaime Marcos, executive]

We have time for one more question before we wrap up at 11 since we have press conference coming up.

[Operator]

Next question is by Borja Ramirez from Citi.

[Borja Ramirez Segura, analyst]

I have two questions, please. First, could you remind me what is the sensitivity of the margin to the rate? And what part of the book is floating after coverage? That's the first question. And the second question is regarding capital. I think, the shareholder remuneration is really good. My question is, could you give more information on the evolution of risk-weighted assets in 2025? If I look at the result and a payout increase, will you still have your capital north of 14%? So I'm just trying to see if there's any upside there?

[Isidro Gil, executive]

Let me talk about the sensitivity. The sensitivity analysis, as we've verified over the past few years has -- is worth what it's worth. It is a constant analysis that assumes a reinvestment of what is coming up to maturity at the rates of the time, fixed or variable equally. But we've -- there's been a transformation from variable to fixed rate in mortgages and the sensitivity to rates has been different to what the models forecasted.

That said, it's not that I don't want to answer your question on sensitivity, but there is a shift in scale, as I've mentioned, and then, there is a stabilization. That stabilization means that, if the change is 100 basis points, it's at 4%. If it drops more than we expected, then the impact after 12 months, and once the whole book has been repriced will be at around 3% or 4%, despite reductions through the year.

Bear in mind that we're managing interest rate risk, can we shift to fixed rate as we can. We in sight deposits which is the greatest amount, the duration doesn't change every year, it's the same. But other assets with term with 2- or 3-year terms, after 1 year, the term is 1/3 less. So managing interest rate risk is limited by the term of the liabilities. It is a behavior rather than contractual duration. So we need to be cautious there.

That said, I think, I've been pretty clear regarding where we think lending and deposits might be and how, where do we get stabilized. And the masses are a consequence of that, the masses of the portfolio with the coverage is slightly -- fixed is a slightly higher than variable. When you add up mortgage, corporate and others.

Regarding your question on capital, the evolution of capital in 2025 will be marked by the results paid out or not. We've already said we're going to pay out 60%. We've talked about inorganic growth, and there will be a slight increase in risk-weighted assets as we want to not lose any more risk-weighted assets. And if there are rates, we want them to be a little aggressive and we want to increase risk weighted asset consumption. And then we have the CRR issue which will generate 15 to 20 basis points. So I would say we will generate some capital all-in-all. And we will remain in a comfortable position vis-a-vis, well, in a comfortable position to attain the goals of our strategic plan.

In 2025, we want to keep our options open, as we've said. Just in case any catalysts or deals come our way, any tactical solutions that might help us further diversify our sources of revenue and help us move towards our ambition in certain segments.

[Jaime Hernández Marcos, executive]

Thank you very much, Isidro, Pablo and everyone. Our apologies. I know the other analysts had questions. The Investor Relations team will reach out to you as soon as we're finished. Thank you very much for your time and interest.