Good day, and thank you for standing by. Welcome to the Millennium BCP 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Miguel Maya, Vice Chairman and CEO. Please go ahead.

Good afternoon. Miguel Maya speaking. Welcome to BCP earnings conference call. As usually, I will mention the highlights of our performance, and then Miguel Braganca and Bernardo Collaço will follow providing additional detail. Despite being a complex year with significant macroeconomic and geopolitical uncertainties, 2023 also carried relevant positive factors, namely those coming from the normalization of the monetary policy. Against this backdrop, our intense commercial activity, coupled with a robust business model, resulted in €856 million of profit compared with €197 million last year. Although it should be noted that profit in 2022 was negatively influenced by some specific Swiss francs related effects in Poland, namely credit holidays, contribution for the institutional protection scheme and the impairment of Bank Millennium's goodwill, which altogether had a gross impact above €270 million. The earnings in 2023 were mainly driven by a strong increase of 32% of the core profit having reached €2.4 billion, supported by an increase of 23% of core income, coupled with a rigorous cost management that allow us to contain the cost increase of 8.3% in the still markedly inflationary context. The group's net income was still notably affected in 2023 by legal risks in Poland related to FX mortgage, which had an unfavorable impact of €780 million, more than €250 million above last year's impact, driven by the significant increase in provisions, which stood at €623 million, following the application of a more conservative assumptions after the decision of the European Court of Justice. On the positive side, still in Poland, I should be mentioned -- it should be mentioned the one-off effect of €139 million from the sale of 80% of Millennial Financial Services. Nevertheless, with 5 consecutive quarters of profit, Bank Millennial have been consistently confirming the ability to simultaneously manage the significant costs related to Swiss francs, while successfully implement measures to stabilizing the capital position and steer the business model to generate additional value from the activity in Poland. Net income in Poland stood at €127 million compared with a loss of €224 million last year despite the high provision for risks related with the Swiss franc mortgage. The capital ratios in Poland have been reset above regulatory requirements following a rigorous and successful implementation of the recovery plan and positive evolution of core income. In Mozambique, having a very good commercial franchise, high operational efficiency and prudent risk management, our operation continues to show relevant profitable levels. The net income in Mozambique amounted to €105 million, showing a sustained and adequate profitability proven to be resilient in several contexts. In Portugal, the activity showed a remarkable growth, having achieved a profit of €725 million, more than doubling last year's net income and confirming the leadership of BCP in multiple business fronts in the Portuguese market. These results confirm the strong ability of our business models to steadily generate organic capital, which has allowed for the substantial strengthening of our capital position standing at a very robust level. We have capital ratios comfortably above regulatory requirements, with the common equity Tier 1 at 15.4% and total capital at 19.9%. Especially in the current interest rate context in which several clients use part of their savings to prepay loans and in an environment of intense competition for balanced funds, its evolution is a very good indicator of the clients' preference. On-balance customer funds reached €79.2 billion, showing a year-on-year growth of 2.5% and confirming the quality of our franchise. We developed specific competencies and they have a solid track record in managing and enhancing the quality of the balance sheet, consistently reducing the volume of non-productive assets. In 2023, we have managed to reduce almost €400 million in nonperforming assets, of which €266 million in NPEs and €83 million in foreclosed assets. These capabilities, combined with the sustained business growth have led to a continuous trajectory of reduction of NPEs ratio, which stood at 3.4%, having decreased 40 basis points in 2023. The 90 days past due NPL ratio stood at 1.3% and the NPL cash coverage reached 81.8%. Considering real estate collaterals, the coverage is above 120%. Despite the challenges and uncertainties in the operating environment, including the significant provisions related to the legal risk in Poland, we have maintained a very rigorous balance sheet management, keeping cost of risk roughly around 50 basis points. Last year sound earnings marked the end of a transition period for BCP with the normalization of the bank going forward. In 2023, we have achieved adequate profitability levels supported on an outstanding core income performance, having consolidated a strong capital position. Compliance MREL requirements, both in Portugal and Poland, obtained investment-grade notation from 4 major rating agencies. The vitality and growth potential of the bank is also shown by our ability to attract new clients and steadily expand the customer base. We have more than 6.7 million clients at the group level, of which nearly 2.7 million in Portugal. Last year, mobile customers grew 10% at the group level and 12% in Portugal, with mobile customers already accounting for 68% of the group's customer base, which is a good indicator of the success of our digital transformation journey. The quality of our franchise is widely recognized by clients who continue to select and award us. Individual clients distinguished BCP in Portugal as the preferred bank of households for the fourth consecutive year, confirming the bank's ability to meet customer expectations. BCP is also the main bank of companies in Portugal, particularly in the SME segment. Our permanent focus on customer-centric innovation is driving the increased relevance that mobile app gained as the preferred channel of the clients for their daily transactions. Besides continuing to lead the rankings on the most relevant platforms, Millennial app is being intensively used by the clients. Last year, customers carried out 26% more transactions to the app, significantly increasing the number of transfers, savings, personal loans and payments. The priority we gave to the investment in the transformation and modernization of the bank is also reflected in the importance that digital channels play in sales figures. Last year, 82% of the sales were performed through our digital channels, and the number of sales to the app has increased 37% with the emphasis to saving solutions, which increased 39%, and sale of cards, which increased 29%. The year of 2023 marked the end of the transition period of the bank. Currently, BCP is a reference brand in terms of service quality, both in the physical and digital channels, a reference in terms of operating efficiency, has a healthy balance, developed excellent competencies in managing risks and has robust capital ratios. Our profitability already exceeds the cost of equity. And the effect of the eventual reduction in interest rates will be mitigated by the expected reduction in impairment charges, which in 2023 were still at a very high level. We exceeded the main targets defined in the strategic plan more than a year ahead of time. We intend to present a new strategic plan together with this year's third quarter earnings, as I have already said. The Executive Committee already decided to present a dividend proposal to the Board considering a 30% payout over 2023 results to be submitted to the Shareholders General Meetings. As a working assumption, we will consider 50% payout ratio from 2024 results on our interim reports going forward. I stress that this is just a working assumption and that any decision has to be taken first at the Board level and then by the general meeting -- at the general meeting. I conclude by highlighting that shareholders represented on the Board have expressed high appreciation and full support for the path we have taken. The success achieved in transforming the bank allow us to face with confidence the fact that we now have a higher level of refloat, closer to what is normal in the main banks in Eurozone. Miguel, the floor is yours.

Thank you very much. Starting here in Page 8. In our simplified P&L, we see a growth of the net interest income of 31.4%. Our net interest income, as we have commented, has peaked in Q3, but it still proves resilient in Q4, and it's really at a very high level when we compare with the levels it had 10 years ago. What we have seen is that going forward, we expect the net interest income to decline somewhat and to normalize. I had commented beforehand that our expectation is for the '24 net interest income to have a growth rate over the '21 -- over the '22, I'm sorry, of around slightly above 40%, i.e., a cumulative annual growth rate of around 20% in the last -- in these 2 years from '22 to '24. Commission is very resilient in spite of the good net interest income evolution. And as you know, there is a trade-off between these 2 lines. So that the core income increased by 23%. The operating cost, mainly driven by our international operations in which countries there is a higher wage inflation, grew 8.3%, still a very positive jaws, which made the core operating profit increase by around 32%. We had some extraordinaries in '22 and '23, as Miguel Maya has just commented, which implies a very strong, I would say, positive evolution of the other income. This is effectively extraordinary. So this is what explains that the operating net income is growing 46%. Results on modification, impairments and provisions and going forward, we see here still a very important year because of the decisions of the European Court of Justice in terms of the provisioning for the Swiss francs. The loan impairment is still above what I would say is the normal trend for the industry in Portugal, which, of course, gives us some leeway of improvement. So that effectively -- the net income improved from around €200 to around €850 million. How does this translate into our 2 different parts, so the Portuguese part and the international operations? The net interest margin very healthy in '24, growing from 2.46% to 3.36%. And a very good print in the several geographies, with the net interest margin in Portugal going from 1.53 to 2.59. And this is an important point because we try to differentiate ourselves through service quality, through customer loyalty. And what we see is, of course, the upside in terms of the net interest margin in terms of what it can grow. In this year is, of course, slower than for the institutions. But on the other hand, the fact that we are very much a customer focused, retail focused bank helps us also in terms of protecting the downside of the margin. In the international operations, both in Poland and in Mozambique, we also have here a net interest margin that is clearly above what is expected in these markets with values close to 5% in 2023. Fees and commissions in all the different lines, very, very stable, which, of course, is particularly important in such a year. In terms of other income, we had a special capital deal of the sale of Millennium Financial Services in Poland, which had an impact in terms of other income of around €140 million on one hand. And of course, we had also regulatory contributions that were lower this year -- significantly lower this year than what they were last year by more than €124 million. And this is because in Poland we were under a specific plan that waived these regulatory contributions. As you see here, international operations, in 2022, we have regulatory contributions of €121 million, and in 2023, this value was only €13 million. Going forward, we expect these regulatory contributions to reduce because, as you know, in terms of the European Resolution Fund in 2024 there will be no special contribution, which, in our case, was somewhat above €10 million. Cost to income, very important. This is the strength of our franchise. A cost-to-income of 32% that we all agree is extraordinary. 30% in Portugal, as we see here. Still, even with some conversion to more normal levels, what we can see is that we will be clearly one of the top performers in this area in the retail banking market in Europe. Impairment and provision charges. This very, very strong pre-provisioning profit came together with a special effort to make our balance sheet even more robust and with some prudence and conservatism in terms of the impairments and other provision charges. What we see is that the cost of risk in Portugal, the pure cost was stable at around 54 basis points, which for the present situation, I would say, is a prudent ratio. Here we see, of course, some improvement potential when we look at 2024. We still have overlays of around €100 million in Portugal, which gives us some comfort that we will converge in this variable with the remaining of the sector. And in the international operations, what we see is also a very low cost of risk as a proof of the resilience of our business model. And then the Swiss franc provision was particularly high this year because of the negative news coming from the European Court of Justice. But what I would like -- here also like to comment is that we are not seeing and we have not seen a particularly, I would say, strong development in terms of new cases coming to court. So they have stabilized at a somewhat higher level. We expect still to have a high level of provisions in 2024. But absent any special news, which we're not expecting, we would say that the Swiss franc provisions have clearly peaked in 2023 and 2024. We still have a significant number, but clearly below 2023. The NPE is still going down. So the loans past due already at 1.3%, which is, I would say, a good level for any bank in Europe. If we consider also the unlikely to pay, the ratio -- if we only consider loans, is at 3.4%. If we consider the EBA ratio that considers securities and off-balance sheet exposures, we are at 2.2%. So in spite of the challenging macroeconomic environment, a very positive development in all these asset quality metrics. The business activity. Here, in Portugal, we have suffered, so to say, from 2 effects, I would say, in terms of credit mainly from the more restrictive monetary policy and with the [app] and what it implies in terms of the reduction of demand of good quality credit. In terms of customer funds, as we are seeing in this graph, from some competition, mainly in the 3 first months of the year from the retail public web product that was clearly that -- I mean, generated outflows from the system outside of the system -- out of the system to this product in excess of €14 billion. In any case, we have been able to maintain our market shares, which is, I would say, the most important variable in the scenario of contraction of volumes. In terms of capital and liquidity. Of course, when the loans don't grow and when we are really very focused and disciplined in terms of management and when we have a good business model, the capital continues to accrue. So we printed a number for common equity Tier 1 of 15.4%, which compares with a SREP ratio of 9.41%. On top of this SREP ratio, we still have to comply with the sectorial systemic buffer, which represents on a pro forma basis around 28 basis points. But in any case, I would say, a very comfortable position that compares well, I would say -- somewhat below what we see in Europe, but clearly above what we see on average in Iberia and even in France. Leverage ratio, no news. I would say, very strong ratio, as you see here in the Slide 21, which, of course, is also connected with our high RWA density because a good capital ratio in spite of a higher RWA density generates, as we all know, an even better leverage ratio. MREL position. Our MREL ratio that we have to comply by in the 1st of January is 28.15%. We printed 32%, so a very important also evolution. We are executing in a very proactive way our funding plan. We don't need funding. But of course, this is an integral part of our balance sheet management, and we will issue what is needed to remain with a sustainable buffer above the minimum MREL requirements. The pension fund coverage in spite of the reduction of interest rate that, of course, have a negative impact in terms of the liabilities of the pension fund. As you all know, the reduction of the rates was very, very important. We were able to partly offset this with the good performance of the pension fund. So the actual difference in liabilities had an impact, so to say, of 11.6%, and we were able to compensate this partly with a fund profitability of 7.1% effectively, I mean, reducing the risk. And we still have an important excess over the pension fund of around €400 million. This means that there will be no impact from potential reductions of interest rates on the pension fund for the first €400 million of surplus is effectively a buffer for our capital ratio. Liquidity ratio is very, very comfortable as we see here in Page 24, nothing to write home about. And I will pass on the floor here to Bernard.

Thank you, Miguel, and good afternoon, ladies and gentlemen. Starting on Page 26, with Portugal. Net income increased significantly from €343 million to €724 million in 2023. Profitability went up more than 111% and was driven by the stronger net operating revenues that increased almost 30%, and the strict cost management that went up just 2.5% compared with 2022. It should also be noticed the positive contribution to net income from the reduction of 13% in total provisions in Portugal. On Page 27, looking to NII. At the end of 2023, it stood at €1,466 million, meaning 54% up compared with the full year of 2022. The normalization of interest rates provided a positive effect on the repricing of the loan book that together with a higher yield from securities portfolio more than compensates the negative effects relative with cost of deposits and wholesale funding, resulting in a net interest income increase of more than €550 million on a comparable basis. Moving to Page 28, that represents the evolution of fees and commissions as well as other income. Banking fees and commissions were stable year-on-year, although there was a small reduction on banking fees that were compensated by a small increase on market-related fees. Looking to other sources of income. Other operating income were €11 million above 2022, and this positive evolution is explained by the reduction of mandatory contributions. Regarding equity earnings and dividends, the contribution was $60.6 million in 2023. That compares with €67 million in 2022. Regarding trading results in 2023 were significantly lower than in 2022, mainly driven by lower results from sovereign debt gains -- sovereign debt trading gains. Going to Page 29, regarding costs and still in Portugal, the bank continues to apply a strict policy on cost management and total cost just grew 2.5% year-on-year. Evolution on operating costs in the Portuguese activity do not considering -- not considering the effect of specific items reflects the increase of 5.4% in staff costs and 2.6% recorded in other admin costs. Depreciation in turn, contribute favorably to the evolution of operating costs in the activity in Portugal standing 7.6% below the amount recorded in 2022. Regarding employees, the bank was broadly stable, and there was a reduction of 10 branches in 2023. Moving to Page 30, which refers to asset quality. And as it was highlighted before, there was a significant reduction of NPEs. NPEs reduced 18.7% year-on-year, 18.7% year-on-year, meaning more than €250 million, just over 2023. In the last quarter, there was also a reduction of €85 million, and this clearly shows that the bank is still committed with the NPE reduction. In 2023, reduction was done mainly through sales that was responsible for 55% of total NPE reduction. NPEs as of December 2023 stood at €1.1 billion compared with more than €1.35 billion in December 2022. Cost of risk stood at 54 basis points, which is similar to the cost of risk in 2022 and the NPE coverage by loan loss reserves stood at 89% that compares with 69% in 2022. Now let's move to Page 31, which looks at the NPE coverage breakdown. And as you can see, total coverage of NPEs stood at 142%, NPE coverage by loan loss reserves at 89% and total coverage for individuals with high levels of real estate collaterals to that 100% and for companies at 162%. On Page 32, which shows the evolution of foreclosed assets and restructuring funds, there was once again a relevant reduction over 2023. And the net value of foreclosed assets stood at €100 million that compares with €183 million 1 year ago, meaning a reduction of more than 45% or a decrease of more than €80 million. Regarding property sales, there was a significant reduction in terms of number of transactions compared with 2022, which was somehow expected due to the reduction of real estate assets in BCP balance sheet. Regarding restructuring funds, there was a reduction of 11% that is related with mark-to-market of those funds. Now moving to Page 33. Total customer funds decreased 2.33%. Total deposits went down almost 3% and off-balance sheet funds were stable year-on-year, even taking in consideration that in 2023, there were significant maturities of insurance products. It should also be mentioned that customer deposits registered an increase quarter-on-quarter. In terms of gross loans, there was a decrease of almost 4% year-on-year. Loans to companies went down 7%, somehow influenced by the reduction of the NPEs, €250 million and the early reimbursement of credit lines that we guarantee that were provided by the Portuguese government during COVID. Remember that BCP, by that time, has a much higher market share than its natural market share on the first wave of COVID lines. And loans to individuals were almost flattish year-on-year. And I should also highlight that mortgage loans were stable and personal loans increased more than 6% compared with 2022. Going to Page 34, it is possible to see new loans origination by segment and the recognition of BCP as the main bank from Portuguese companies. Performing loans in Portugal went down 3% from 2002. Loans to individuals were stable year-on-year and loans to companies due to the high interest rate environment went down 6%. Let me also reinforce the leadership of BCP in SME program for the sixth consecutive year as well as the Inovadora COTEC programme for the third consecutive year and the recognition of BCP as the best bank for companies from DATAE, among other leadership achievements. Now moving to Page 36 regarding international operations. Results were again impacted by specific effects related with Bank Millennium, although -- and once again, it's important to reinforce that Bank Millennium registered the fifth consecutive quarter with positive results after several quarters with losses. Net income of Bank Millennium stood at €126 million, that compares with a loss of more than €220 million 1 year ago. Contribution from Mozambique was aligned with the last year with a contribution roughly above €100 million. In summary, contributions from international operations after impact from discontinued operations and noncontrolling interest stood at €131 million, which compares to a loss of €44 million in 2022. It's also important to remember that in the first half of 2022, it was registered in the impairment of Bank Millennium goodwill that had a negative impact of €102 million in 2022 results. Excluding specific effects from Poland as costs related with the FX mortgage and the sale of 80% stake in Millennium financial service and goodwill and the goodwill impairment contribution from international operations would have stood at 30.7% higher than 1 year ago. Now on Page 37, which refers to Bank Millennium in Poland. Net income in Poland continued, as I said, to be impacted by costs related with CHF mortgage loans. It's important to highlight that since the fourth quarter of 2022, Bank Millennium had positive results, as I said before. In 2023, net income in Poland stood above €126 million, which compares with a loss of €223 million in 2022. And excluding these specific effects, net income would have stood at €659 million, 34% above the same period of last year. Net operating revenues, excluding the impact of credit holidays on NII, increased 26%. Operating costs, excluding mandatory contributions, went up 14%, and if we consider the reduction of mandatory contributions, total cost in Poland went down by almost 5%. Regarding capital, CET1 and total capital improved significantly and stood at 14.7% and 18.1%, respectively, and comfortable above the minimum requirements of 8.1% and 12.2%. On Page 38, some detailed information about Bank Millennium. NII without credit holidays impact increased 13% to almost €1.16 billion. That compares to €1 billion 1 year ago. This movement is mainly driven by interest rate hikes since the fourth quarter of 2021. NIM increased year-on-year from 4.43% to 4.60%. And as it was anticipated by Bank Millennium, there was a reduction on NIM on the fourth quarter compared with the third quarter '23. Fees and commissions decreased 3% year-on-year to €172 million, and other income was strongly impacted by the positive result from the sale of 80% of Millennium Financial Service in the first quarter of last year. Total costs, excluding mandatory contributions, went up 14% due to high inflation registered in Poland in 2023. As I mentioned before, mandatory contributions in 2023 were much lower than in 2022, and that was due to the activation of the recovery plan by Bank Millennium. Moving to Page 39, related with asset quality in Poland and taking in consideration the high level of interest rates and inflation in 2023. Cost of risk stood at 39 basis points, which is a lower level than it was initially projected by Bank Millennium for 2023, taking into consideration market conditions. Nonperforming loans more than 90 days past due ratio steady year-on-year at a level of just 2% and coverage by loan loss reserves of nonperforming loans stood at 157%, which is fully aligned with the level of December 22. On Page 40, customer funds grew 10% in euros year-on-year, off balance sheet and deposit funds increased significantly in 2023 and once again in euro terms. In terms of loans to customers, gross book stood at €17.5 billion, less 3.6% than in December 2022, and this reduction is explained by the strict capital management policy in place by Bank Millennium during last year. On Page 41, regarding FX mortgage portfolio. It's important to start saying that Bank Millennium has continued the efforts to reduce the weight of the FX mortgage portfolio. On a yearly basis, there was a reduction of 15% and by 5% quarter-on-quarter. At the same time, Bank Millennial increased provisions against legal risk and at the end of December 2023, reached an amount higher than €1.67 billion. It's important to mention that during 2023, Bank Millennium made some adjustments on the provision methodology to incorporate more conservative assumptions. It should also be noticed that by the combination of the creation of these provisions and the decrease of the loan book, Bank Millennium brought the ratio of total provisions against legal risk versus the gross mortgage book of CHF loans to 82.5%. At the same time, as part of the strategy of Bank Millennium, there was the continued efforts to reach amicable settlements with clients. And in the fourth quarter 2023, Bank Millennium was able to achieve once again more than 1,000 extrajudicial agreements. Now turning to Page 44 and related with Mozambique. We can say that Mozambique that once again and still under a challenging environment, Millennium bim continues to be an important and stable contributor for BCP results at group level. Net income stood at €105 million, which is similar than 2022. Net operating revenues increased almost 1.6% and operating costs were 13% higher than last year. Capital ratio stood at almost 37%. Still in Mozambique on Page 43. NII, and once again here in euros for a comparable purpose went up year-on-year 2% to more than €200 million. NIM stood at 8.5% that compares with 8.3% in 2022. Commissions went up 3% and other income decreased by 7%. Moving to Page 44. Nonperforming loans 90 days past due at 3%, which compares to 8% in 2022 and almost 5% in September of last year. Nonperforming loans 90 days past due with coverage at 133% that compares with slightly less than 100% in 2022. Cost of risk in 2023 was influenced by an impairment reversal that was booked on the fourth quarter of last year. Regarding volumes on Page 47, you can see that customer funds registered a decrease of less than 4% and loans to customers were stable year-on-year, although I should highlight the increase on loans to individuals that were not enough to compensate the decrease on loans to companies of more than €50 million. Although the loan book of millennial bim stood at €650 million. So I have to -- I should also thank you for your attention. And before we move to Q&A, I will return to Mr. Miguel Braganca for some final remarks.

Thank you very much, Bernardo. As we always do, we present here how we are performing vis-a-vis our commitments to you, our commitments in terms of the plan. And broadly, I would say we have met the commitments 1 year ahead of the schedule. Our cost to income is slightly above 30%, whereas our target was 40%. Of course, this has benefited from the tailwinds associated to the new interest rate environment, but still we're prepared we were prepared to take a benefit of it. Our cost of risk already at 42 basis points in consolidated terms when we were -- when we had a target of 50 basis in spite of a more challenging environment, our ROE in 2023 of 16%, cost-to-income ratio of 15.4%, when we have in our previous plan that was designed in 2021, a minimum target of 12.5%. Overperforming also in the NPE ratio on the share of mobile customers, on the growth of high engagement customers in the average ESG rating is the only area where we have not overperformed yet. We expect to be very close to this value by end of 2024 as it was our original plan. This has enabled us to normalize the bank. As Miguel Maya, our CEO has commented, the ExCo has prepared a proposal to the Board of a dividend payout of 30%. And we are also working with an assumption of a payout of 50% for the purposes of capital calculations for the years to come. Thank you very much, ladies and gentlemen, let's open the floor to questions.

[Operator Instructions] And your first question comes from the line of Ignacio Alagi from BNP Paribas.

I have two questions and one clarification. In terms of NII, I would just like to get a bit of a sense of how do you feel NII will perform in 2024 in Portugal, Poland and Mozambique, in your key geographies with a particular interest in Portugal and Poland to be frank. Second point is on credit quality. I think the -- if I just look to the coverage ratio and the decline in the NPE ratio, I would just like to get a bit of your feeling of what should we expect in terms of cost of as for 2024 with an 89% coverage ratio and NPE ratio below 3% at this stage. Shouldn't we expect a relevant decline in the cost of risk going forward in Portugal. Linked to that a bit, what is the view that you have Miguel in terms of other provisions for 2024? And then a clarification. You said during the presentation that CHF provisions in Poland are likely to decline substantially. I think it's the work that you used in 2025. I would just like to get a bit of a sense of provided that nothing changes in terms of claims and the regulatory -- the pressure from litigation? What does substantial mean in terms of profitability for Bank Millennium in Poland?

Okay. Thank you very much for your questions. Starting with your first question. Effectively, in terms of the NII performance in Portugal, we were heavily in Portugal to leverage very much on the good interest rate evolution in 2023. But the dynamics of the repricing of the term deposit is somehow normalized the Portuguese market by the end of the year. So when you look at the sum of the 2 years, so the year of 2022 and – sorry, 2023 and 2024, what we would expect is to be broadly aligned with other Iberian banks, i.e. to have a growth of – around the cumulative annual growth rate of 20% in these 2 years, which means slightly above 40% from 2022 to 2024, which is more or less aligned with other Spanish banks, as you know. Some have benefited a little bit more upfront, others a little bit later. But I would say very much aligned with other banks in similar markets. Of course, this means that the margin in Portugal from 2024 to 2023 will have a decrease, which we are expecting for the numbers to be around mid- to high-single-digits, so to say. So there will be a decrease in NII. But as you correctly pointed out, this normalization of the net interest income that we will see on the top line will also be followed by a normalization of the cost of risk and of the cost of the other provisions. So we do expect with what we see right now and with the resilience of the unemployment of the Portuguese consumers or the Portuguese companies to have a normalization on our cost of risk. So we would expect our cost of risk to decrease to levels, I would say, mid 40 basis points in 2024. And the other provisions, which this year have been quite high – there has been also some compensation between the provisions and mark-to-market of assets and trading gains. We will not expect this to occur in 2024. So we would expect the other provisions also to normalize to levels closer to €20 million per quarter. This means that our profit before taxes in Portugal will be – I would say it’s always difficult to say. We are actually at the beginning of the year. But we expect it to be broadly constant during the year in Portugal. I think may decrease a little bit, may increase a little bit. But we expect one effect broadly to compensate the other in Portugal. And in terms of – in terms of the other geographies, as we have commented, our balance sheet in Poland is very, very close to interest rate risk. So we are not expecting any material decrease of NII in Poland. There may be some decrease based on the futures of the interest rates, but nothing material. We are speaking about, if anything, low single-digit. And of course, in Mozambique, we are also expecting it to be broadly stable. In terms of the modeling of the Swiss francs, as you know, Bank Millennium is listed. So we have to be extremely careful with what we say at this moment. And I would not want to be – to go much further beyond that, that what I’m really saying. We think that the Swiss franc provisions have peaked and in 2024 it will be lower. Exactly how much lower, let’s see by the mid of the year exactly how much lower it is. So if for whatever reasons the inflow of cases stops or the customers start to negotiate much more, it could be much lower. If the inflow of cases increases somewhat, this has some leverage effect. This will be, I would say, a value that can be lower than ‘23, more aligned probably with ‘21 or ‘22, okay?

We will now go to the next question. And your next question comes from the line of Maksym Mishyn from JB Capital.

I have three. The first one is a follow-up on the NII guidance. I was just wondering if you could share some more color on what kind of loan book growth you include in the guidance for NII in Portugal in 2024? And also, if you could kindly remind us the sensitivity of the NII to move with interest rates. That would be great. The second question is on trading gains in Portugal. I was just wondering if you could explain the components of the trading gains that you had booked in the fourth quarter. And the final question is on costs. Could you please share your view on what kind of cost inflation should we expect for Portugal in 2024?

Okay. As we have said several times regarding to the sensitivity of the margin in Portugal to interest rate shocks, typically, our margin in Portugal has had a sensitivity between €50 million to €100 million for €1 million for each 1% of interest rate shock. But this is a theoretical shock. This means that if everything reprices immediately at 1%, what is the impact in terms of the margin. It is a low sensitivity in terms of the margin itself and in terms of the interest rate itself. What – the variable that is a little bit more complex to model is not so much the impact of the market interest rate, which is low in our case, is how the market for deposits and for – and how the spread of deposits will evolve over time. And for this, I would say more than sensitivities what we can have here is more scenario analysis, because a lot of it is dependent on the reasonably and on the competition and what different players in the market may do. And that’s why I think it’s better to assume that we are working with a mid- to high-single-digit decrease from ‘23 to ‘24 than to – I mean, to be very much based on this type of metrics that in the present situation are probably less relevant, because our key risk is not so much. The interest rate risk is more the deposit spread risk, if you want. In terms of the working assumptions, the working assumptions that we’re having here for Portugal is a very, very low credit volume growth, low single-digits. We realized it’s difficult, but the margin – because the value is so low is also not very sensitive to it. In terms of trading gains, I mean, the trading gains are – encompass a lot of different gains. It was an extraordinary quarter. A part of it has to do with customer-driven business linked to FX, to portfolio of – to mark-to-market of some of the funds, real estate funds and restructuring funds that we have in our books, and this part that – to sales of credit portfolio. So it is – a large part of it – a part of it, so to say, is also interconnected with the impairments and with the other provisions. When we sell a portfolio, if the portfolio is more provided, of course, we have a higher trading gain, a more positive trading gain. But on the – we had before a more negative impairment. And that’s why I’m commenting that it is some, I would say, compensation between the trading gains and these other provisions. In terms of costs, costs for sure it is an important variable this year in Portugal. We are expecting in Portugal after these years of inflation and, of course, containment a mid single-digit increase, of course, in Portugal. Still all of this is, I would say, consistent with the stability of the profit before taxes in our Portuguese operations.

We will now go to your next question. And your next question comes from the line of Carlos Peixoto from CaixaBank.

The first question would actually be on the fees outlook for 2024. So basically, how -- what type of provision do you expect to see there? I'm thinking particularly in this -- as you saw the new commission coming down a bit, was there...

Carlos, the sound is very poor. If you could speak up closer to the mic, I would appreciate.

Is it better now?

Yes, yes.

Sorry. So I believe you should be hearing me better now. As I was saying, so basically -- and the first question would be on the fees outlook. Mainly with a higher interest rate environment or relatively higher vis-a-vis where we were in the past decade, whether you expect to see further pressure on commissions? I'm thinking about account maintenance and those types of fees. Then the second question would be related to basically a more M&A-related theme, so looking at the valuation of Bank Millennium in Poland. I was wondering whether the disposal of this unit could be an option that we could consider. And within that context, what will be the alternatives for capital allocation in here? I'm thinking on the possibility of the bank being interested in a bank or not? And then, if I may, just a final question. We're at a given point in the political cycle. So I guess this is a bit delicate. But in any case, do you -- how do you see the risks? Or do you see any risk of additional levies on the banking sector being imposed by a new government? Or how should we look at that? Or how are you looking at that?

Carlos, you are -- we know each other. You are Portuguese and you know the -- I would say the uncertainty around the elections in Portugal and what the new government will be. And I think that the last question is particularly difficult to answer in the present moment. So we have to be prepared for everything. What we -- what I can say is that up to the moment even the government that, in theory, are less capital friendly have shown a very responsible attitude vis-a-vis the investments and vis-a-vis the companies in the market. We have to assume, I would say, responsibility of our politicians. But I would not want to say a little bit -- because they have shown that they -- in the several parties, they have shown responsible attitudes in different circumstances even when we compare with situations in other countries that were less investors friendly, I would say. So I would not -- I cannot say much more than that. I don't have any special information on the subject. In terms of Bank Millennium and so on, I mean Bank Millennium is an integral part of the group. We work together a lot. We have joint meetings every month, our ExCo meets the ExCo of Bank Millennium to discuss the results every month. There is a lot of interchange of best practices. And what we -- and we are very satisfied with the management of Bank Millennium. And if you see this year, I mean, Bank Millennium has a capital – and it is already above the threshold of around €1.6 billion. And the net income before Swiss franc is above €800 million. So it is a very -- if it were not for the Swiss francs, it would be a very profitable unit. And we are now close, I would say, to the end, I hope, of this Swiss franc saga. So we are very satisfied with the operation. We think our team is generating a lot of value in terms of Bank Millennium. And -- I mean, I would not like to comment on theoretical M&A possibilities. So of course, in life, you have to analyse everything. But in this specific case, where we have a good management team, where we are generating a lot of menu -- a lot of value, we think if we are not the natural owners, we are close to being the natural owners of Bank Millennium. In terms of fees, when you approach customers in a certain, I would say, commercial strategy, there is a trade-off between fees and NII. And of course, when current accounts are very profitable on the interest rate side, you can waive more fees or you can be -- when -- more transaction fees. When you make a lot of money in deposits and when the customers make a lot of money in deposits, more you, of course, there is less incentive for the customers to buy our -- to buy asset management products. So the two lines, at least in commercial terms, they have to be seen together. So in this scenario where our interest rate is still normalizing, but where the balance sheet solutions are very good both for the clients and for the banks, we don’t think it’s the moment where we could expect the fees to grow a lot. So we expect the fees to grow, I would say, low- to mid-single-digits based on more penetration of customers, more loyalty for customers than price increases, because what we are good at is serving customers, getting the customer preference and serving the clients with more products than more of our competitors. And these I mean naturally make us earn more fees from our customers because we serve them in more needs, not necessarily because we aim to have price increases.

We will now go to the next question. And your next question comes from the line of Alvaro Fernandez-Garayzabal from UBS.

I have three. So first, on capital, in 2023, you generated almost 300 basis points, but almost half of that came via RWA optimizations. So basically, my question is, how are you thinking about capital generation in 2024 and 2025 and the different moving parts? And specifically in terms of earnings, if consensus is right, would it be reasonable to generate around 200 basis points via earnings per annum, so pre-dividends and pre-RWA inflation. And related to this, your capital is already at 15.4%. You don't anticipate major regulatory headwinds. Your MREL is no longer a constraint. And more importantly, your capital generation will continue to be strong. So basically, your excess capital accumulation will continue being quite high. So my question is, what needs to happen or what do you need to see to take a more generous stance when it comes to capital distributions? I don't know if you're considering extraordinary distributions, maybe share buybacks or whatever. Or perhaps you're waiting to see what happens with Novo Banco, maybe in Portugal before returning that excess capital. So please, if you could share your thoughts on this regard, that would be great. Second question would be on NII in Portugal. If you could please provide the details on the average loan yield and the average cost of deposit in Q4 and also December stand-alone? And how do you see both evolving in coming quarters? And third, on the cash flow hedge also in Portugal. If you could please update on the size, duration and tailwinds you expect coming from this portfolio in '24 and '25.

I would say, in terms of NII, I would not like to go into further details from what I have already said. I don’t want also to give more information to my competitors. I think we have been given the appropriate level of information. In terms of capital, of course, when you do the numbers, you get to broadly to these numbers that you are saying that before extraordinaries, before RWA inflation and before dividend distribution we are close to levels of around 200 basis points. I can confirm that these are more or less the numbers that we are getting to. Of course, if we take a 50% payout, the 200 will go to 100. If we have some other inflation, probably this 100 will go to maybe 80 basis points or something like that, 80 to 90 basis points. So this is something that absent a strong change we could expect. In terms of the capital distribution, we have – I mean, we don’t have any prejudices here I think it’s important to say. What we have commented is the following. We wanted to be a benchmarking bank in Europe. What we are saying is that when you look at our common equity Tier 1 ratio, even in spite of the very strong improvement that we had this year, we are still somewhat below the average ratios in Europe. So I think it’s important for us to keep this in mind. So the improvements were very strong. We are still before the – below the benchmark or the average ratios in Europe, of course, above the ratios of Spanish banks on average, but below the average ratios. What we have commented is the following. Beyond a certain hygienical minimum that I would say it’s around the 50% that we are commenting as a working assumption – of course, the decision will have to be taken by the Board and by the general shareholders’ meeting. Beyond that, we have to check what are our strategic alternatives? How much do we want to grow in the different business lines? What will be our capital consumption of investing in new businesses, in unsecured loans, in mortgages? In which business lines do we want to invest more and with what type of profitability? Because this is, I would say, and with what time frame, because at the end of the day, the decision on whether to distribute beyond these hygienic levels, I would say, or not will depend on the business opportunities that we will have and that we will develop. And this is certainly a question. There’s certainly something that we will discuss with you when we present to you the strategic plan with the results of Q3. So right now, what I can tell you is that we are working for 2024 on a working assumption of 50%. And that you are broadly in line with our assumptions of capital generation.

We will now go to your next question. And your next question comes from the line of Noemi Peruch from Mediobanca.

I have a few on NII. So clearly, the forward rate curve changes on a daily basis.

Noemi, I'm sorry, the sound is probably very low. But the Saudis a bit closer to the mic, I'm sorry.

So since the forward curve is kind of changing every day, I would like to ask you for some help in terms of positioning your guidance in Portugal by asking what your assumptions are in terms of rates in terms of Euribor. And then we have seen indeed a competition increasing in Portugal in terms of deposits from Q4. And so I would like to ask you your comment here and what kind of deposit beta you expect for 2024? And then in terms of Mozambique, I've seen that in 2024, the Central Bank started to ease its monetary policy. So if you could give us some color on your rate sensitivity here would be great. And then finally, on systemic charges in Portugal, if you could give us a sense of what you expect for 2024.

By charges, you mean fees as commissions?

No contributions to the European Resolution Fund or the deposit guarantee scheme.

Okay. Okay. So starting with the last one. In terms of contributions, we expect a positive evolution, as I was commenting, because the contribution to the European Resolution Fund will be zero this year where we, last year was slightly above €10 million. So there will be at least this positive evolution. In terms of rate sensitivity, I think I have already commented that the pure interest rate sensitivity in our case in Portugal is quite low. We are typically between €50 million and €100 million for each 100 basis points of rates, which is quite low for our balance sheet. Right now, I can tell you that we are closer to the €50 million than to the €100 million. The betas, the betas, I mean, when interest rates go up and then they go around, the concept – the whole concept of beta is a little bit strange. It depends a lot on how you measure it. What I can tell you is the following

the beta right now for us very much aligned with the Portuguese market is for the sum of term deposits and demand deposits is slightly below 20%. We are expecting our average cost of deposits using term and current deposits in current accounts is around 0.7%. And as we are expecting this value by year-end to decrease around 10 basis points, so December ‘24 I December ‘23. But before it decreases, it may increase somewhat. So it depends a lot on the timing. In terms of the competition in the market, the market in Portugal very competitive, but aligned with, I would say, other markets in Europe. In the first moment, I would say when the interest rates were increasing, it took some time for the Portuguese markets, the banks to respond to these interest rate increases. They have increased. It took – there was probably a higher lagged effect. But now they are still below, I would say, European rates. What I can expect now is also to have some lagging effect in the decrease. I would say if something in the Portuguese market, maybe at least in these specific cases that we are living right now, the lags between the interest rate in the wholesale market and the interest rate deposits are somewhat longer than what you see in other markets. In any case, what we are commenting here is that by 2024, we are expecting this low decrease on the NII that I commented and then on ‘25, even a stabilization or a growth. So we expect then that the NII, of course, it’s difficult right now to speak about ‘25, but that’s our working hypothesis. In terms of the assumptions of interest rates, the assumptions behind these are the book reprices at the present forward rate increases in the market prices. That’s the way that you do the calculations.

We will now go to your next question. And your next question comes from the line of Fernando Gil de Santivanes from Bestinver Securities.

Three quick ones, please. First one is on the bond portfolio and strategy. Have you done any actions during the quarter to decrease sensitivity to NII? I see that you have changed a little bit the mix decreasing Portuguese bonds and increasing Poland bonds. Following on that is what is, the level of the unrealized losses on these bond portfolios? So second question would be on capital. I see that Poland Bank; Bank Millennium is at 14.7% CET1. What is the level of capital target you want to operate the bank as the second? And the final one is on the Swiss franc provisioning and trends. What are the trends that you are seeing since the -- ruling in terms of new low cases and agreement, if you can just elaborate a little bit will help a lot.

Okay. I mean I don't want to go too much into the detail on what we do in our positioning in the same way as most asset management also don't do. But what I can tell you is, yes. We have been reducing our interest rate sensitivity, given the risk of decreasing interest rate as I was just commenting. I mean our interest rate sensitivity of the margin in Poland is around 2% to 3% of between in the NII for each decrease of 1% in the Vivo rates. And in Portugal, we are here between, I would say, 3% to 6%, €50 million and €100 million, for each increase in 1% that we are on the lower part of the internal. So in terms of pure impact of interest rates, we are now with a more closed balance sheet than when we were when the interest rates were increasing. In terms of the capital level, I think, I have already commented that we will present a plan by the third quarter. And in this plan, we will, of course, decide to plan the appropriate governance bodies of the bank. And in this plan, we will highlight what is our capital ratio. Of course, an important part in this definition, are our opportunities of generating value for our shareholders and the capital consumption of these commercial strategies. I think it's important to say that the other banks in Europe are and what we need to have a rating that is, I would say, rating in line with what we think we deserve. But we will present this by the results together with the results of September. In terms of the ECJ, what I can tell you is there has been no -- there has been no names of the cases. That's what I can tell you. So everybody was very much concerned that in the context, in the context of the decision by ECJ, there would be a potential mega inflow of new cases. And what I can tell you is that the month where we have the highest inflow of new cases in Poland was in August. And the new cases that we are having right now, we are typically between 500, 630; 640 per month. Some months a little bit more, some months a little bit less. But they have stabilized at this type of level. And in terms of negotiations, we're even having more negotiations than what we have before. So the message that I would like to have is the best for the moment and message of stability.

[Operator Instructions] We will now go to our next question. And your next question comes from the line of Francisco Riquel from Alantra.

Two questions for me. First one is trying to elaborate a bit more on the NII sensitivity analysis, sorry, I missed here. So you have been very clear on the sensitivity, 2%, 3% in Poland, around 5% in Portugal. But this comes after a big jump in NII over '21 and '23, over 90% in Poland and over 75% in Portugal. So you mentioned also stabilization in '25. So my question is how can you reassure us that there's not going to be a lift in NII when interest rates can go down to normal beyond '24 if there is a major breakdown to come? I understand you are well hedged. But I don't know how big is the hedge and what's the duration? So if you can be more transparent here, could be also much appreciated. And the second question is on loan demand. You mentioned prepayments for corporates [Technical Difficulty] current loan [Technical Difficulty] the loan growth expectations for [Technical Difficulty] category.

Okay. I mean I think I see you’ve joined this conference. I want to congratulate you. I think you are a new name at least. And you have not profited probably from the degree of conservativeness that we have been having in terms of the guidance to the NII that we had last year. So I would say the reassurance that I can give you is more linked with our track record in terms of guidance to the market and in terms of not being too optimistic in terms of NII. And if you see our last conference calls, you can see from these conference calls that if anything, we were not too optimistic in terms of the NII modeling. You were not here, but it is as if you were, jokes apart. So I think it’s our track record on trying not to disappoint market that I can tell you. Of course, it’s difficult to bottle the NII because, as I was commenting, we don’t have a balance sheet that is fully indexed to market interest rates. If we have the balance sheet that is fully indexed to market interest rates, it would be very, very easy. But the problem is that the NII is as much influenced by the level of interest rates as much as it is influenced by the competitive dynamics and by the spread of deposits. So I think this is the important issue. And of course, we are coming from a situation in which, in the past, I mean, we have negative interest rates. So of course, we could have cliff events. If the interest rates became negative again in Portugal compared to what happened in some other countries. When we have negative Euribor, we actually have to give money back to customers. So I think it’s important. So all of this is based, of course, on an interest rate scenario, that is an interest rate scenario of decrease of interest rates, but broadly aligns, broadly aligned with what is implicit in the market, futures in the market forwards, right? So that’s what I can tell you. So based on this, if you see, if you model our deposits this way, you can see that this type of evolution when I say mid- to high single-digit decline is totally normal, because there is, I mean, the amount – the value that is implicit in the decrease of interest rates in the forwards rates is also not so high. And that would bring us to a scenario as we were 2 years ago. Also, when you take a look at the type of guidance that we are giving, mainly when you take a longer horizon, I’m saying that in the last 2 years, broadly a cumulative average growth rate of 20% per year. This is broadly aligned with what most of the banks in Iberia are giving and the business models in Spain and Portugal are similar. So the weight of mortgages and floating rate credit in the balance sheet of Spanish banks is not very different from what you see in Portugal. So another level of comfort that you think can take is that if you take both years together, our guidance is broadly aligned with the guidance of all other institutions. Of course, we cannot be wrong, of course, but it’s less probable that this occurs, okay? In terms of – I think, the loan demand, loan demand right now, we are not seeing a lot of loan demand effectively. But we are hoping that this may change. Here the funds from Europe can due to the multiplier effect in terms of investments. So we are expecting the beginning of the year is broadly stable in terms of the total book. So the loan book is not growing, mainly in companies. We expect as all these new projects get approved through the multiplier effect of the economy. We’ll have some loan demand so that we expect to grow our loan book of companies in the low single-digits. Let’s see. So of course, we are living moments of uncertainty. In any case, what I can tell you is that our NII in ‘24 and ‘25 is not extremely sensitive if instead of growing our loan book by 1.5% to 2%, we don’t grow. So it will not be a drama at least short term, if we don’t grow in terms of our loan book.

We will now go to the next question. And your next question is a follow-up from Noemi Peruch from Mediobanca.

Just one clarification. Indeed, you said that your NII guidance included a forward curve, just to make sure we are talking about the same assumptions. It is basically 100 bps of rate cuts from June 2024.

I will send you the forward curve results today. I don’t have it here with me. But I will send you the forward curve of the Euribor as of today. But it is the forward curve. Our sensitivity is of the NII to the Euribor is somewhat lower than what we had 6 months ago. So as I commented, typically, our sensitivity of the NII is between €50 million and €100 million. In June, we were closer to €100 million. Now we are closer to €50 million for each 100 basis points.

There are currently no further questions. I will hand the call back for any closing remarks.

I would like to thank you very much for following up on the BCP equity story. We are very proud of the results that we are showing. We are very proud on what we are achieving in terms of the development of our franchise and the sustainability of our net income and of our capital accretion. We hope that you as participants in the market and the investors which we all serve will benefit over the long term also from this development of the franchise. Thank you very much, ladies and gentlemen.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.