Operator: Next question from Britta Schmidt from Autonomous.
Britta Schmidt : The first one will be on the NII in Spain. The customer spread widened and you’ve also increased the ALCO portfolio, but the NIM was flat. So maybe you can explain what’s happened there and also give us an update on the ALCO portfolio? And the second one will be on Chile. We’ve seen a big decline in NII here. I think the business has guided to a big decline in profits this year. But what do you think is the outlook there for this year? And also when will the NII improve in 2024?
Hector Grisi : Thank you, Britta. I will start basically give you the overall view and then Jose can give you a little bit of more details on both. I mean, Spain, as you say, is one of the countries that has benefited the most on the higher rates. And we continue to see, as I said, a strong growth from clients. We have 651,000 new customers — net new customers in the last 12 months. We see also a strong contribution from the global businesses. Wealth Management is increasing 84% year-on-year. CIB, 11%. I’m talking about PAT. And CIB is also achieving a substantial growth and net margin growth mid-teens, maintaining a superior profitability levels. So you’re going to see that. We expect double-digit NII growth in ’23. And in terms we see very factors to consider.
We see, as Jose explained to you in detail, assets repricing at least during the first half of ’24, clients continue to grow, and betas will be key in this particular issue. We see no meaningful deposit movements in Spain in reaction to prevailing rates. Our deposit base is extremely atomized. 80% of our deposit base have an average balance of €20,000, which basically contributes to the stability. Also, it’s very important to take into account that the One Transformation I explained is going through in Spain as well, and we’re very focused on the product simplification. As I said, we’re reducing 21% the product portfolio. We’re doing a process of optimization there. But I see that exactly that’s the trend that it’s going to happen, exactly as Jose basically detailed.
I don’t know, Jose, if you would like to complement, but you already gave a lot of detail.
Jose Garcia-Cantera : Yes. Britta, let me tell you, yield on loans — it is the same explanation that we have for Portugal. Quarter-on-quarter, it basically has to do with many — probably many small things. But when you look at yield on loans in Spain from the fourth quarter of last year at 2.5%, first quarter 3.3%, second quarter 3.8%, fourth quarter 4.3%. So very much almost a straight line increase. And in the case of deposits, also the same, 22 basis points, 53 basis points, 72 basis points, 19 basis points, in the last couple of quarters, 18, 19 basis points increase. So very much flat. So the point here is that we still have a substantial part of our balance sheet in Spain that will reprice up in the first half of next year.
I just use the figure for mortgages, it’s €77 billion and around 60% reprices in the first half. So I think the yield on loans will continue. Although the rates — interest rates in Spain might stay or in Europe may stay flat, the repricing of assets in Spain will continue for at least the first half of next year. And in terms of the pressure on the cost of deposits, again, most of institutional deposits, corporate investment banking deposits have already repriced. So the question is to what extent the cash balances in the current accounts will move to time deposits. To what extent customers have excess liquidity in their current accounts to be put aside for time deposits? And we do think that is a limited — is a very limited amount. So we see not a lot of pressure on that particular part of the business for increased cost of deposits.
In Chile, we have 2 balance sheets, so 2 sensitivities to the balance sheet. One is to rates and the other one is to inflation. Obviously, the relative movements of inflation and rates is what explains what we’ve seen. So we have seen already inflation going down, rates going down slower. So as inflation continues to go down and rates follow, we will see the reversal. So we see NII in Brazil actually expanding, again gaining momentum towards the second half of next year, but expanding substantially in the second half of next year relative to the second half of this year because, again, the relative movement that we have between inflation, which is the U.S. and rates.
Operator: Next question from Hugo Cruz from KBW.
Hugo Cruz : Hugo from KBW. Just a couple of questions. Mexico NII, the growth Q-on-Q has been quite strong. I guess I’m not going to ask you why it’s been stronger than expected. But I wonder if you could give guidance on — for the full year, what kind of NII growth you expect in euros? And then finally, on Argentina, quite volatile, and we have elections soon. So I was wondering if you can give what you expect an impact from the elections, but also if you could give guidance on the earnings for this year and the next.
Hector Grisi : Thank you. Okay. Mexico, as you have seen, has been — had a strong growth in NII. It’s a combination of many things. First of all, the rates increase, but most of that is basically because of the change of the mix that we have performed in the country. We saw an opportunity of basically switching a little bit of the portfolio into credit cards and unsecured loans and payroll loans to individuals. So to have a much better structured mix than we used to have before. So Mexico is helped out by the rates, but also by the change of the mix of the portfolio, all right? So it’s quite important to see that. We see that Mexico will continue to have a really good trend. I mean, Mexico, as you have seen, has grown pretty well, pretty nicely over the past few months, and I believe it is going to grow strongly also on ’24.
The important thing to understand exactly how rates are going to perform, and that’s going to depend a little bit on what happens in the U.S., all right? But I see that if rates continue to be stable and the economy performs well, I believe that Mexico should develop very good on ’24 and continue to have very good growth on NII. In terms of Argentina, as you have seen, we have a, I would say, complicated environment to say the least about what’s going on. We really — and I wouldn’t like to basically make a prediction of what could happen, but looks that may — things may stay as they are. We have, as you know, a potential difference between the — in the exchange rate — between the official exchange rate and what’s happening in the black market.
So in that sense, let’s see how it evolves and how the government would like basically to land the difficult task they have in front.
Jose Garcia-Cantera : Just one final comment here. The way we’ve managed Argentina is to — is trying to hedge obviously against inflation and hedging our investment against inflation. And that will continue to be the key element. Obviously, there is a big difference between official exchange rates and nonofficial exchange rates. We are aware of that. We are aware of the impact that a revaluation could have on our books. So we are managing that to minimize the impact, if that was to happen. And obviously, again, the key is to preserve the value of our investment in Brazil, but basically by managing and investing inflation risk.
Operator: Next question from Fernando Gil de Santivañes from Bestinver.
Fernando Gil de Santivañes : Three questions, please. First of all, on Digital Consumer Bank. I see return on tangible book at 11%, still a bit far from the target of 15% that you have for the plan. Can you just cover the outlook for 2024, please? This is the first one. The second would be about the ALCO portfolio. I see an increase of about €10 billion in the quarter. Can you please refer to strategy and the level of unrealized loss that you have on portfolio? And finally, on Poland, if you can please comment on the outlook for the extension on the mortgage volume, please?
