Banco Santander S. A. (NYSE:SAN) Third Quarter 2022 Results Conference Call October 26, 2022 4:00 AMm. ET
Participating companies
Begoña Morenes – Investor Relations
José Antonio Álvarez – General Manager
José García Cantera – Chief Financial Officer
Conference Call Participants
Ignacio Ulargui – BNP Paribas
Francisco Riquel – Alantra
Alvaro Serrano – Morgan Stanley
Sofie Peterzens – JPMorgan
Carlos Cobo Catena – Société Générale
Marta Sánchez Romero – Citi
Carlos Peixoto – CaixaBank
Pamela Zuluaga – Credit Suisse
Begoña Morenes
Good morning to all and welcome to the call for the Banco Santander convention to discuss our monetary effects for the third quarter of 2022. As a reminder, the report and presentation of the effects we will adhere to today are available on our website. With me today is our Director General, Mr. José Antonio Álvarez; and our Chief Financial Officer, Mr. José García Cantera. After your presentations, we will open the ground for any questions you may have in the Q&A session.
With that, I deliver to Alvarez. Señor José Antonio Alvarez, he is yours.
Jose Antonio Alvarez
Thank you Begona. Et good morning to all. Thank you for participating in this conference. So I have to say, to begin this presentation, that while we were developing our business in an uncommon and very dubious macro environment. In this environment, we have been able to continue to increase our number of visitors. base and translate this into volume expansion and profit expansion. Thus, the maximum notable replacement of the quarter was the general acceleration. the back of activity grades and we are just starting to raise interest rates, especially in the Euro Shang, where our exposure to a higher rating or a higher rate is high.
Our profitability has advanced significantly. The return on tangible shares remains at 13. 6%. EPS is up 31%. On the back of profit, we received in the quarter 2. 4 billion euros after serving 181 million euros of minority tax net shares in Poland, the gross number exceeded three hundred million euros similar to the new regulations on paid holidays, excluding the 11% quarter net profit expansion in the 10% quarter on a constant annual basis. Over the past nine months, our profit attributable to profit, we have increased through €7. 3 billion through 25% with a positive currency having an effect on more than 14% in consistent euros. The credit quality of our balance sheet shows no signs of durability so far this quarter overall, as it remains below 1% and we continue to build a smart capital base.
Finally, as you know, we continue to deliver consistent price to our shareholders either in terms of payout consistent with the dividend in charge we announced the Board of Directors approved last month and the expansion in the price of tangible net assets consistent with the consistent percentage that provides a combined dividend within our additional money consistent with a constant percentage of up to 11%. Going into more detail in the region, you can see that the expansion is well distributed in all areas, in the total process, it is a fairly balanced expansion. We can Don’t say we’re developing. Yes, in the business component, we are developing while in general, in consistent euros, loans exceed 2% quarter-on-quarter to 17,000 million euros, which is increasing in almost all countries deposits exceed 2% also the quarter, with some evolution towards linkage policies given the existing interest rate environment. Loans and intellectual losses consistent with the month make 7% and 6% in consistent years.
In terms of the herbal history of our loan portfolio, it is not replaced from quarter to quarter, yes, I remind you that our portfolio is fairly balanced in third place. United Kingdom, which represents more than 50% of the total portfolio. That’s less than a third, only about 30% are customer loans. Most are auto loans in Europe and the United States. And finally, we have a northern exposure of €100 billion from just about 40% of our loan portfolio. Most in SMEs and corporations and in the BFI and you will see that in the field, portfolios grow by 7%, individual real estate loans by 7%, Americans by 6% corporate. That said, the expansion of the balance sheet at all levels.
As for the source of the income statement, we provide you with constant expansion rates in euros and euros so that you can analyze the diversity of sectors in which you can analyze. As you can see, there has been a positive effect on looking at rates. Of about 5%, the 7% emissions are partially offset through the effects right in the middle of the company that are included in the gains from monetary transactions. In consistent years, revenues have grown faster than in the first and second quarters and prices are facing inflationary pressures continue to grow under inflation. Thanks to these two results, the source of net operating income reached 21,000 million euros, a record for the first nine months of the year.
In provisions for credit losses, this is one of the hot topics in this specific environment. Two opposition forces had an effect on year-on-year performance. On the other hand, in 2021, they were trapped in provisions for COVID-19-Similar Insolvencies that were announced at the time and fourth quarter of 2021 due to a better-than-expected credit behavior. On the other hand, in 2022 the provisions for insolvencies arrive with an additional percentage of 1,000 million euros. 1,000 million euros provision similar to the update of macro assumptions, basically in the United States, Spain and the United Kingdom. The profit margin provision was plus or minus €1. 1 billion. Spain represents 200 million euros. United Kingdom, €300 million; and the United States, €500 million and the decreasing countries €100 million, of which €500 million was spent [ph] versus P
So, we see and this is a vital progression the quarter some normalization in the US. As we anticipated. And in the realization of the Brazilian semester of the cause of risk, we elaborated on the prices that will be elaborated this autumn. In addition, this year will bring higher spending such as budget contributions or new solutions to scams, as well as a reduction in minorities and tax loans.
Secondly, our prices have increased due to inflation or reuse in the maximum countries, our power has increased slightly to 45. 5% compared to year 21. effect on prices and revenue benefits from late overpriced lists. Thirdly, in general, we have not noticed any iteration due to race or in key quality burial like the Harriers, we have a very clever race cause in Europe at BCE. And also in North America, where the United States, which is normalizing, and Mexico are doing better than expected.
In South America, Greece’s prices were generally solid. Brazil has risen this year so far in two consecutive quarters, we have been solid and we have already reached the most sensitive peaks and some more signals, we are more constructive in the future. Overall, we are confident that the entire organization will fulfill our role as a threat target. In relation to profitability, I mentioned that our own ROTE is at 13. 6%. With earnings and consistent with percentage buybacks, we repurchased 3. 2% and amortized 3. 2% of our organization’s equity.
Finally, on the shareholder remuneration policy for 2022, I will say that we intend that the Board of Directors already approves 40% to pay part of them a monetary fine of € 8. 83 in money and € 979 million in bailouts that we are waiting to be approved through the ECB. soon and we will start operating as soon as it is approved. As a result, the overall remuneration provided in this first dividend will be €1. 9 billion positive in our functionality and discussed above, which increases over several quarters in a row given the functionality of the group’s profitability, a more constructive combined exchange rate.
Finally, in terms of capital, we are very pleased that our Tier One Core Equity Tier One index remains above 12%. Regularization of the long-term monetary dividend. The accumulation was partially offset by negative effects on available-for-sale market portfolios. Some of the models are basically more markets and models. At the same time, we continue to deliver on our commitment to this undeniable field of net capital localization.
As you can see on the slide, risk-weighted assets grow well with loan growth, higher e-book returns, and declining weighting of risk-weighted assets, so we’re back to equity under the equity charge.
Now I go to CFO, Mr. José García Cantera will see the effects in more detail.
Jose Garcia Cantera
Thank you, Antonio, and good morning to all. After the CEO presentation, I’ll move on to more details about our functionality in the quarter. And we look at the progress in terms of country and business starting with earnings on the right side, you can see the upward trend in profitability, driven mainly by earnings that grew by 5% the quarter. This accumulation has been supported by AI that has also risen by 5% which, as we see, has accelerated in the last two quarters, basically as Spain and Portugal begin to take advantage of construction interest rates, in addition to the expansion that we have already noticed in countries such as the United Kingdom, Poland, United States, etc.
In North America, 6% in a row, with countries developing at roughly the same rate. And in South America, a 5% increase supported by a strong expansion in Argentina, while Chile and Brazil show a negative rate sensitivity, specifically in Chile, where we had a decrease in inflation in the quarter. In Brazil, AI remained solid after declines in recent quarters. I’ll tell you this in a little more detail when we cross Brazil. Digital customer banking was practically solid due to, although we have an unbiased stance on rates at the ECB. It’s slightly negative in the first two trimesters, and then it’s unbiased and that’s what this behavior is.
Net profit remained solid in the quarter, mainly due to weak functionality in Europe due to seasonality. We have minimised fees charged on deposits from CIB’s giant corporate clients and a reduction on credit cards in the current quarter in the UK. On the other hand, South America grew by 5% with fair functionality in Chile and Argentina. Capital gains in monetary operations were driven to a greater extent through CIB, clearly the quarterly comparison of other sources of income was affected by the contribution to the Single Resolution Fund at the fourth moment.
It is the sensitivity of our source of net interest income to rates. This is consistent with what we have shown in previous quarters. This time, we thought it would be better to look at forward rates than sensitivity to a hundred-basis-point change. Therefore, it is the sensitivity of anticipated rates to rates that remain robust over the next 12 months. Obviously, it is fully compatible since the anticipated rates are now close to two hundred base issues. And the sensitivity we showed in the last quarter was a hundred problem bases for the dominance of the euro, for example. Therefore, the sensitivity of future rates to rates that remain robust is again questioned. As expected, we obviously have a very high sensitivity in euros. Compared to existing levels, however, notoriously, the higher the rates, the higher the beta as well. So, the beta we have here is around 50%, 50% to 60% this exercise.
And in Brazil, while interest rates remain stable, the revaluation of assets progressively compensates for the accumulation of the deposit charge which, as you know, appreciates almost automatically. It is important to note that sensitivity is based on maintaining TLT or Row Deposit Situations that exist today and we all know they will be replaced tomorrow. We don’t know what the replacement will be, so we’ll adjust it accordingly in the next presentation.
Looking at the prices. The CEO has already commented that prices are emerging under inflation which, as you know, is one of our objectives. And as you can see in the slide, we are doing very well with the transformation plans underway in all countries, specifically in Europe. In Europe, we have seen a four-percentage-point improvement in the charge relative to income at the same time that prices automatically adjust for inflation in emerging markets. It takes a little longer in Europe for that to happen. South America, the accumulation of prices is explained through the auto: the automatic adjustment of prices to inflation, especially in wages in Brazil, Chile or Argentina. Even so, prices in the region have fallen in genuine terms and the power remains adequate despite a slight construction. In North America, it’s worth mentioning the investments we continue to make in Mexico to modernize our infrastructure.
In terms of credit quality, we don’t see any significant deterioration. NPA and hedging ratios have been strong in recent quarters, and the burden of prestige exposures 3 against threats is expanding in line with the loan portfolio. , you can see COVID-19-like provisions releases in the current quarter and fourth quarter of 21. And more than one billion additional macro provisions in 22. M. part of it was reclassifications that in the past had created COVID-like provisions. Compared to 2021, there have been increases in provisions for long-term loans in the UK, US, Brazil and Poland, but completely in line with our expectations.
To learn a little more about the quality of our portfolio, we have a low-risk balance sheet. It basically concentrates 80% of the total exposure in mature markets with approximately 65% of unsecured loans basically through collateral. , the key macroeconomic variables affecting our business, namely unemployment, are expected to become more resilient across our footprint again. If we look at the main countries of Spain, 75% of our floating loan portfolios, we have reduced the average loan at price and the percentage of loans with placements above 80% and the corporate portfolio improves its rating.
And as you know, ECHO Wallet plays very well and better than expected. Unemployment is low and solid and deserves to remain so. Housing affordability has advanced significantly in recent years and space costs are on average 30% lower in real terms than in 2008. In the UK, 12% of portfolios float. The undeniable average loan to loan price is 40%. And less than 5% have loans priced above 80% compared to 12% in 2015. In macro terms, the UK has very low unemployment, which will help prevent a sharp drop in price. Also, affordability is now 34%, down ten percent from 2008. Higher quality portfolio. The prices of used cars are clearly above the old levels and deserve to normalize gradually, but this normalization deserves to take positions little by little, as I said, due to the city of new vehicles. And also, the unemployment rate in the United States is very low and deserves to increase a little, but by no means reach the levels of the last crisis.
Finally, in Brazil, activity is gradually recovering. We accumulate losses on low-risk products. 65% of the individual portfolio is safe. The average maturity of our balance sheet in Brazil is just under 1. 5 years, which means that the deterioration of quality is manifesting itself very quickly. In short, we remain constructive in the long term in the quality of our assets. Little more about the main countries. Starting with Spain, we continue to see a very dynamic market. Net customer, we have noticed a positive expansion in the number of net consumers each and every month since December 2021. We developed transactionality and saw physically powerful volume expansion.
Year-over-year earnings were reported through our power plans, the charge to earnings was reduced by 2. 4 percentage issues and provisions for credit losses were reduced. profit, NII under pressure in the first part of the year. It began to calm down in the 3rd quarter, emerging 10% quarter-on-quarter, beginning to reflect emerging interest rates.
Looking ahead to the coming months, we continue to see positive trends in the decline of the NII charge base in absolute terms and we are controlling the risk charge. It delivered double-digit cash expansion and strict charge control. Costs decreased 6% in real terms, resulting in a more than 4% improvement in charge relative to cash and fueling strong operational functionality that increased by up to 20%. And the line’s profit was solid due to higher provisions for credit losses compared to unlocks in 2021. We are confident that we will achieve our goals, whether it’s a tangible return on equity and a strong double-digit charge year after year. year of expansion in AI. fresh.
As for the US, thanks to a very strong corporate economy in both loans and deposits, underlying profit remains maximum, at €1500 million, well above pre-pandemic average grades, despite a year-on-year decline after a nine-month record of 21 affected by festival pricing and clearly the normalisation of the risk rate. We continue to work on the normalization of our capital securities in the U. S. U. S. Since the beginning of the year, more than 3 billion euros have been transported to the company’s centre. So, gradually, we’ll show some sort of more transparent degrees of profitability in the U. S. That, as you know, our long-term goal is to keep the decline in equity at around 15%.
Our outlook for year 22 in declining revenues was impacted by rental flood prices and a higher-than-expected threat burden, well below normalized levels. strong upward trend in the MIN and a decrease in provisioning credits. Costs were affected by salary revisions in July. Payment performance.
For 2022, again, we expect double-digit growth in MNI and payment revenue, top-rate growth impacted by our investments in use, and evident inflation and risk rate of around 2 percent. Asset quality functionality in Mexico is excellent. In Brazil, we continue to increase our visitor volume base, clearly facing margin strain due to the price revision. As you know, we tightened our lending standards on the most threatening portfolios, namely unsecured individual loans last September, and they are still ongoing. We are developing in low-margin businesses, especially CIB and mortgages. And this changing combination significantly affects NII, but NII revalues assets. It begins to be expected that the replacement of liabilities will flatten ToT in the NII that is already practically flat in the 3rd quarter. And we would expect to see a very slow improvement until about the first part of the current quarter. And it starts to grow more after the third quarter of next year.
You know that interest rates have already peaked. We have a 12-month price review gap. We expect to see the NII gradually accumulate in the current part of next year. Costs have risen due to the automatic pass-through of inflation, two prices in the national wage agreement in September for 23 were 8% compared to 11% last year. So we have positive news for prices in 2023. La threat load around 4. 5% is completely in line with our forecasts. We expect them to remain more or less at those grades in the fourth quarter. higher still around 4. 5%, 4. 6% and gradually starting to fall next year.
While we turn to virtual banking for consumers here, business remains strong, despite continued market contraction, we are gaining market share, especially in used cars, we have had double-digit profit expansion supported through a very smart rental rates in charge of threat performance. A challenging environment for new cars, but we can continue to gain market share, and we deserve to be able to maintain a superior position in equity in the coming quarters.
In the global business, CIB recorded the most productive quarter in its history, gaining market share in all activities and products, we are expanding it in the United States and maintaining our leadership positions in Latin American countries. We are leaders in sustainability, number one in Latin America, Europe and the world in structured finance in the renewable energy sector. In terms of earnings, underlying earnings grew 36% year-over-year, with double-digit expansion across all major businesses. And net attributable source of revenue accounted for 27% of the group’s overall operating income source. In wealth control and insurance, the contribution of this unit to the base of the band is 17% in consistent perimeter, a very intelligent performance. Private Banking attracted new customers, up 6%. In addition, the new cash exceeds 10,000 million euros and profits increase by 30% year-on-year.
At Santander, asset control in the asset control business was affected by market volatility, but its contribution to group income increased to 8%. Finally, in insurance, we recorded a sustained expansion in gross written premiums and the overall contribution to earnings increased to 15%. . We expect double-digit expansion in this unit’s earnings contribution in the coming quarters. At Santander X, global revenues increased by 75% year-on-year in terms of prices in euros, almost one hundred percent in euros, driven through the 4 major activities, in specific investors and trains.
Therefore, we are exceeding our target of 50% profit for the year when business is doing really well here. And finally, on cards, I would like to emphasize that we like to highlight the efforts we are making with our credit card. business. Lately we manage almost 100 million euros of cards throughout the group. And thanks to active visitor management, nine-month profit increased by 25% year-on-year in terms of euro prices; 36% in euros with very positive functionality in credit and debit cards in all regions, specifically in South America.
Let me now return to José Antonio for his final comments. Thank you.
Jose Antonio Alvarez
Yes, a few words about perspectives. So I must say that we expect a significant expansion of earnings through trading titles that will remain healthy, especially in our global business with the ability to generate more net income. And while the additional expansion of the NII that benefits from activity and interest increases rates so positive at the federal level in our ability to continue to increase our earnings, see in the coming quarters. On the charges side, while we face inflationary pressures, you have noticed it through the P
In terms of credit quality, I recognise that the environment is very uncertain, however, when I look at the balance sheet and loan portfolio, I felt confident that we were fit and prepared to face a more challenging environment, namely the consensus that since the consensus is today for macro, this worries me about even more challenging scenarios where we are in a smart position to adjust to the very competitive supply. Herbaria of the portfolio. As for capital, why are we going to be above 12%. I feel like we control more than bid on the average percentage of the portfolio effect, the price of a portfolio that touched capital more or less like our competitors. And ours at the same time, we continue to be an exciting one in our capital allocation.
Therefore, in general, we are saving our profit expansion to offset fees, inflationary pressures and the possible accumulation or accumulation of fees and, through this, our profitability and shareholder price creation. That’s all from me. We remain at your disposal for any questions you may have. Thank you.
I forgot to mention that we have an Investor Day, the last page about the product, because I’m going to be there. So, on February 28 in London, we organized an Investor Day where we told them about the group. Perspectives
Let’s come to you, Begoña.
Begoña Morenes
Thank you. We can start with a response session, please.
Q&A session
Operator
Thank you. [Operator Instructions] We already have some questions in the queue. And the first is from Ignacio Ulargui of BNP Paribas, move on.
Ignacio Ulargui
Thank you so much. Thank you for taking my inquiry. José Antonio Álvarez, this will be the last call to know your results, so I wanted to wish you the best and thank you for the help during all these years. I have two doubts about the numbers. One is about the European lending eBook, because in the revaluation of the aspect of assets so far, I just sought to get an idea of where we are in terms of emerging NII that will take place in the coming quarters and also similar to the NII. I sought to perceive a little more what DMTL’s contribution was in the quarter. The timing of the consultation is necessarily similar to the cost-to-income ratio you have as a floor in your final comments that you will need to keep improving, the cost-income target is probably a little close by 2022. What can be done to continue improving the objectives, which I place very complicated in terms of growth, especially in Latin America?Thank you.
Jose Antonio Alvarez
Ok, in the first consultation I talked a bit about a European loan book, I said that the expansion of the NII is just beginning in Europe, specifically in the United States and I talked about that we have, as you know, the central banks. reacted, the reaction served as it was not the same everywhere. In this specific cycle, the Central Bank of Latin America reacted first. And we saw Brazil go from 2% to 14%, Chile go from 1% to more than 10%. Mexico reacts with the Fed but starts at higher levels. And the UK and the US came later from Central Europe, the ECB being the last. I leave out Poland, whose reaction was one of the first blows. So when you go to the other books I discussed the presentation that you see has an effect on higher rates for some time in Brazil and one specific case was negative and in Chile it’s more complex because it’s a tradeoff between inflation and rate nominal price point, which gets some reaction from the UK, US and Mexico, which are not only halfway, but more or less halfway. Poland is advanced. It’s like in Latin America, the spread expansion in Europe is a start in the loan book, especially in the loan book.
Remember, during the quarter, we have a different constitution than the new creation and some similar loans that mark the month. The loan everyone follows. We constituted in September, Guam, the e-book whose price revision in September was replaced by the Euro library in July, which was not so superior compared to the one we have now. I must say that the wonderful appreciation will continue for the next 12, thirteen months, yes, and it will be quite significant. So, as proof during the trimester, the number I have in my brain is $60 million or $69 million or something.
Jose Garcia Cantera
The first, yes, so the total is from € 216 to € 91. First from € 252 to € 70 on the quarter.
Jose Antonio Alvarez
Yes well. That’s the influence of DMTL. Why do profits continue to improve?Well, I said in my last comment that naturally the charge relative to earnings with the earnings expansion we expect and keeping the charge expansion low inflation. Naturally, this leads to an improvement in the charge in relation to income, I recognise that in order to reduce nominal prices as we do in Europe, although CIB is complicated in the existing inflationary environment, and it is probably impossible, we have to renew some agreements with the trade unions, and this will in fact put pressure on this charge in relation to profits, thanks to the staggered gains, but also don’t forget that in South America, at some point, the outlook we have for Brazil becomes more constructive about trends at some point. And in Chile, at some point, we’re going through To start recovering globally, I’m pretty sure that cargo gains deserve to be passed on, but it’s going on to have express main points about investor day in relation to that express goal for that.
Begoña Morenes
Thank you, Ignatius. Can we ask the following question, please?
Operator
Merci. La next comes from Francisco Riquel de Alantra. Please continue.
François Riquel
Thank you for answering my questions. I tried to ask about Brazil. In particular, first of all, about the NII. You argued in the previous presentation that there was a two-quarter delay between silica peak and confidence in NII. Now, I hear your comments that the NII in Brazil would not increase until the third quarter of the 23rd. You can then update the NII Dynamics in Brazil. And if you can also update your NII tips here. And secondly, in Brazil, it’s about asset quality. Can you comment on unsecured loans for individuals?Is this still the driving force behind MPLS this quarter?What if you simply updated the 4. 5% percent of the threat forecast for 22?How much difference then, what percentage have you noticed from standardization here and elsewhere?Very good, thank you.
Jose Antonio Alvarez
IT’S OKAY. Let me give you a review of Brazil and more particularly of the factor you raise. So we’ve been in a scenario where we’ve had margin compression because of two things, higher interest rates and the bottom line is that we’re heading to lower rates. And second, we replaced our underwriting criteria last year in September of last year, which resulted in a combined replacement with lower performance, supporting the mass market downturn. And that, naturally, has an effect on the transfer of our virtual alienation on the transfer of the portfolio. This is the effect on the NII. Where are we now? So we have now been more constructive for two quarters and have seen a threat load in line with our expectations. That means we’re in a position to start developing a little bit smaller as we secure that and start to offset prices that deserve to go from business expansion to NII expansion, but volumes still have to grow faster than in NII. for a moment. But it is this hole that will narrow over time as we appreciate assets in the book.
And maybe at some point if we had the confidence that the aggregate would be more normalized, compared to what we have today and the past. So that’s the NII wait. So, a little more constructive through a little more activity, more step to NII in summer. Asset quality also discussed 4. 6, 4. 5, 4. 6 as the other end of the year, we guide it did 4. 2, 4. 5. That is, increasing revenues in the non-individual sector a smaller expansion than expected has been limited in the corporate sector and in CIB and SMEs where quality is good, under the nominator pushes us a little higher our expectations about the quality of the assets but there is nothing that fundamentally we see wrong in the vintage, We looked at mass market generation in mass market shrinkage, where that’s where we got the problem.
So, in general, I feel that I am more constructive from there, I go to look for Brazil. So, little by little, we will show those trends, I hope and I will show them in the coming quarters.
Begoña Morenes
Thank you Francisco. Can we ask the following question, please?
Operator
Oui. La next comes from Alvaro Serrano of Morgan Stanley. Continue.
Alvaro Serrano
Hello. Some queries from me. I need to communicate about Brazil, because I think it’s been pretty clear. But a consultation on the UK and another on the US. U. S. In the UK, it is now more willing to report and has fairly competitive remuneration in deposit remuneration. When we think about the next few quarters and given what’s going down in the lending market, do you still have the ability to grow the NII?I’m just thinking about the overall ability to increase earnings in the region, given the NII’s prospective headwinds of loan revaluation. The minimum deposit is a kind of sensitivity to the minimum deposit and obviously the economic outlook is deteriorating, with some media an update on the UK outlook thinking more about the coming year.
And at the time of the consultation on the United States, I think he called Joseph, I think he called for slow normalization. Delinquency is working, we are returning to the point of normalization and it is just a matter of normalizing used prices. And in that normalization environment, there’s a provision rate of three hundred basis points for 2019 that you put in 2019, kind of a completely normalized provisioning rate or what it looks like that’s completely normalized for you. Thank you.
Jose Antonio Alvarez
It is ok. Thank you Álvaro for your inquiry. And in the UK, he discussed one, two, three, in general, in the UK, as you know, there is a fairly dynamic and competitive deposit market. So we have a big, long e-book, not just mortgages, but more commonly mortgages. And while we plan to keep retail investment in line with the long e-book we have, for the explanation of why we want to react, it’s your query that’s getting sidetracked. -competitive deposit market? I just think we can. Joseph talked about the beta version. So within that, we have an exceptional margin expansion that we want to respond to as we react in one, two, three. But given all that, I expect the NII to remain very constructive in the UK and expand. or in the UK over the next year.
The market is complex, you are necessarily remortgaging a third of the loan portfolio, in our case, about 60,000 million euros in the year. two and one part 3 to double as of today. And this accumulation will be more than enough to, with the business eBook reevaluating faster, it will be more than enough to compensate for the accumulation in presentations, because it is happening to take place and is taking placement. Well, though, I see margin expansion next year in the UK, overall.
In the United States. ? Well, it’s about our P
And on the other hand, because of the construction you mentioned, three hundred basic numbers probably wouldn’t be the same. Damn before, our book is more prepared than before. So, as I said, 80% of e-books in the United States are eco-friendly, only 20% are high-risk. And we don’t expect to unfortunately return to the titles we had in 2019. Our competition shows a recital in development for sure. I haven’t gone through the numbers and I don’t know if they replace the composition, or if they replace, but we don’t see that.
And on the basis of that, I feel comfortable. In fact, we are reallocating €500 million of the provisions we accumulated for COVID to the new macro scenario. Then, in this sense, standardization will occur. I don’t expect to go back to the 11th of 2019 just because of the overall combination. But in comparable terms, it makes sense that at some point we’d get there. In general, this is not because of the means, but it will. done little by little and takes longer than expected.
Begoña Morenes
Thank you Antonio and Alvaro. Can we ask the following question, please?
Operator
The next one comes from Sofie Peterzens of JPMorgan. Sofie, move on.
Sofie Petersens
Yes, hello. My first query would be whether you can simply repeat the history of TLDR benefits at NII. I didn’t hear that. But then, more broadly, consultations focus first on expanding charges in Europe, rather than having very high functionality prices in Europe. But what about wage agreements that stand out?Do we think about the expansion of cargo in Europe in the future?And so my question for now would be, when do you expect the threat charge for Centenario to be at its best?It looks like Brazil will be ready, a relatively high threat burden. , its threat threat increases the expansion of threats in the UK has an upward trend. So how is it worth thinking about charging threat fees for something there?And at what point could this intervene? Thank you.
Jose Antonio Alvarez
I’ll tell you, José García Cantera.
Jose Garcia Cantera
Let me give you the numbers. It has €88 billion in TLTROs, €60 billion in Spain, €20 billion in Santander Consumer Finance and €7 billion in Portugal. So you can do the calculations very easily. Thank you, Sofie.
Jose Antonio Alvarez
Because of the expansion in Europe, wage agreements, where are we in the other jurisdictions?I must say that in Poland and the UK we have up-to-date wages in line with inflation. So I deserve to say that BoU [ph] corporations are regularly in Spain and Portugal, where we had agreements for several years. In Spain, it is the largest for its duration until the end of 2023. And we are starting to negotiate a new agreement with the union by 2023. Well, before that, maybe some minor adjustments, but it will remind us and then, we hope that those joints will not be easy naturally. And we are suffering waiting for the final agreement. But attentive to what is falling in Spain, wages in 2022 rise to 2. 6%. We are partly increasing wages in the north to 1. 6%.
And, naturally, I expect wages in Spain to increase a little. We’ve noticed the government’s agreement with officials, plus or minus 9% for 3 years, it’s a — that identifies some kind of reference, because it’s not an agreement for another 3 million people or four million people. In this sense, I see a negotiation with the trade unions. So I hope it’s imaginable to keep prices low inflation, I think so. With such agreements, they will be under inflation and it will probably be imaginable to raise prices up to 3% before power gains are on the order of 3% or 4%.
In some countries, less CIB probably also, again, in part, we expand the business, we will probably get all the prices faster than that, probably, as I discussed in the presentation or the charge discussed in the CIB presentation as the main driving force. of positive cars in Europe, while sets, retail sets in Spain and Portugal have deep negative nominal growth. Therefore, I expect CIB to continue to grow faster than retail sets where processing happens to go wrong. I know everything has been in the 3%, 4% region for the next two years. Because of the variety of risks, it’s hard to say. The macro, probably globally during the year, either the macro is the same again or the situation we have is the same again.
We will raise 1,400 million euros this year, or in this case 1,400 million euros for this year, by recovery and below 1%. Does macro become worse extra, naturally? As it is the macroeconomic spectrum that the euro is furthest away, we would possibly have to raise the prices of next year’s race that will be decided according to the consensus it deserves to be next year. Yes. So naturally difficult to say. Yes. So, based on existing expectations, the end of 2023, 2024 will be the worst era with a significant economic downturn expected. That said, it is based on the script, yes, on the cusp. But either way, our expectation about car service is not to have anything like what we had in COVID. Yes, so very low. So it’s going up, but not that much. That is our expectation and with the existing bullish situation, of course, there are all the degrees that add why I said before the gains that the accumulation of profits will more than compensate for the possible accumulation of threatening prices and prices.
Begoña Morenes
Thank you Antonio. Et thank you Sofie. We can ask the following question, please?
Operator
The next one comes from Carlos Cobo Catena of Société Générale. Carlos, please move on.
Carlos Cobo Catena
Hello thanks. Thanks for the introduction. A quick inquiry about NII sensitivity, please. For Spain and Europe, he discussed updating the way it calculates sensitivities, but could you temporarily know why the combination of deposits between sites and time is involved?And what knowledge do you think is moderate to assume in term deposits in the future?The same for progressives, you have already asked, how do you expect your NII to evolve in the coming quarters?But how does that compare to the slide where it shows that the NII upside-down from the NII in Brazil is only one hundred million euros. If you can reconcile those two tips, they will be helpful. Thank you.
Jose Antonio Alvarez
Okay, and he said it Array well, currently, almost one hundred percent of deposits, our checking account is not one hundred percent, but it is rarely something like that, yes. So, gradually, it will move from existing accounts to passod, probably a mix of cash market funds, time deposits, some sort of legal life insurance products. The percentage that will go to time deposits, difficult to say at this stage. What they said, I can tell you, in the afterlife of a long time. Yes, then we had negative rates for so long that we probably almost overlooked it, we had a 30% to 40% rate of unpaid existing accounts, we had our 20% to 30%. What we call median reimbursement a type of decreasing sensitivity and some other 30% maximum sensitivity.
All in all, more you use this 25 for the entire deposit book. That’s what we use. And that’s embedded in what Joseph said about NII’s expansion. Naturally, you can say that there are new points here, which are difficult to measure. So, online presentations are something new, or this tension of potential online presentation players is there. Now that they are betting, they are the only ones offering the highest rates. I don’t know how important it will be whether rates stay in the 2% or 3% domain. More has an effect on what you have. You discussed — NII in Brazil, plus one hundred million; The more than one hundred million euros is a training like the attention of advanced types. Forward rates mean that for a year what we have provided to you is structured each quarter and each quarter that goes from volume expansion to NII is becoming higher. That’s what we tell you in a full year employing rates ahead and no volume expansion is over a hundred million.
Jose Garcia Cantera
It is ok. Basically, because interest rates prevent them from going up. So, obviously, because it has a delay of 12 months, as we said, we use the figures for the end of September. 12 months is the end of September next year. , you will have 3 months of complete revaluation of assets and liabilities. So when you look 12 months before, sensitivity is what I say. If you look beyond 12 months, noticeably the sensitivity is greater.
Begoña Morenes
It is ok. Thanks Cantera. Et thanks Carlos. We can ask the following question, please?
Operator
Yes, the next one comes from Marta Sanchez Romero of Citi. Marta, please come forward.
Marta Sanchez Romero
Hello, thank you very much for answering my questions. The first is a U. S. tracking. U. S. Just an explanation about the threat charge, because Antonio mentions that we need to move to 2019 points, which, if I’m not mistaken, is about 310 beeps. I think in the afterlife we have been guided through the cycle point of 250. Do we move somewhere in between next year?How do you see that? And also in the U. S. In the U. S. , could you elaborate on long-term expansion expectations, your appetite for threats, for the auto loan sector?
And at the moment check deposit considerations in Europe. You have a loan-deposit ratio higher than 200% in 115% virtual banking in the United Kingdom. It is true that you have excess deposits in the Spanish balance, but what are you going to?do strategically in terms of deposit. Therefore, it will look for deposits to balance the books of the virtual bank. So I’m going to set the value and potentially drive the higher values. I think it has already introduced a new platform in Germany for collecting deposits. So what do you think about the deposit charge, if you can give us a little more clarity about betas in other corporations for the next 12 to 18 months?And very quickly, if the ECB adjusts the terms of the PMPRO, will it pay for its entire TLTRO budget or will it maintain it?Thank you.
Jose Garcia Cantera
Granted, the last query is the simplest and based on the terms. So we’re ready, we plan, as you know, to pay the full amounts next year, if situations change and it no longer makes sense to keep those funds. We will pay off perhaps we pay off almost all the excess liquidity we have today, the money we will raise to pay off next year would allow us to pay almost all that, again, we must, as Antonio said, take a look at the situations.
Jose Antonio Alvarez
Well, Martha, move on to the questions. Construction prices in the United States in 2019. Our construction charge was almost 3%, i. e. €280 or something?Oui. La standardization, therefore, will be less than that. So in the backup mannequins, yes, the expansion, the expansion of the prime number and a prime number and the bluest stem say, yes, we saw the blue stem where the expansion load was just high. And we think it’s going to be below 2019 degrees for any of those reasons.
Yes, then you may like the long growth. Well, the long growth, that we have two resources of alienation, two main resources of alienation and others that are progressing, as you say, is the Atlantis that we are, I think, last month, our penetration last month, which means that September was our most productive month in penetration testing, which means that we continue with our intelligent pace. Naturally, they sell us cars, and that’s new car sales. Building a bit to motorcyclists, and those who still have the long way will largely count on the car market. We are looking to get on them and have agreements with all OEMs. We are already pointing the finger at Mitsubishi and we are racing with the Dealer Association to sign agreements with them to diversify our long term. We have an appetite for these types of loans at the right price. Naturally, there are some, as I mentioned, the market is quite competitive now.
And yet, we need to expand them whenever we can get the profitability we seek for this activity. You discussed the procedure in Europe and rightly said that our position for depositing is more than one hundred percent in the UK. Consumer creditoss in a significant decline in Spain and in Portugal, which we plan to do in customer loans and retail customer banking, we expect significant growth. Now the numbers are as follows: we have a loan portfolio of around €120 billion with a portfolio deposit of around €50 billion to €60 billion. Therefore, over the next few years, we plan to charge a few billion deposits, perhaps in the region, 20 to 30 billion euros is a harder figure to think of to close the hole, not so much, but it closes the gap between deposits, sorry, loans and deposits. We can do that.
As you know, this is a race for which we have more or less complex presentation platforms in several countries in Germany, the Netherlands, also in Belgium. And in the past, we were also active in the procedure in the Nordic countries, and we are reactivating them to increase the percentage of investment coming from deposits in this activity. We are well placed to do so. And we think we’re going to succeed in that in other markets. I already explained in the UK where we plan to continue to increase the assets and liabilities of the line and well, that’s why we think our beta is better in the UK than in Spain. Because this position is everything.
Begoña Morenes
Thank you, Garcia, Antonio. Et thank you Marta. Can we ask the following question, please?
Operator
Absolument. La next comes from Carlos Peixoto of CaixaBank. Carlos, please move on.
Carlos Peixoto
Hello smart tomorrow. Thank you for answering my questions. And congratulations is the word to Joseph for his last presentation; It’s been exciting all these years. So my query was about the NII in Spain. So you gave sensitivity to solid interest rate scenarios, but I was wondering if you could supplement that with sensitivity to additional increases, given that we expect to get some of those two increases this week, and maybe before the end of the year. And finally, at NII in Poland; I wondered what kind of evolution he expects in the future. And do you think there may be some margin compression due to higher presentation prices compared to politics?Political tension on this front appears to be rising. Thanks a lot. .
Jose Garcia Cantera
Carlos, as I said, this study that we show here is consistent with the previous one in which we showed that a sensitivity of one hundred issues of foundations in Spain to two hundred issues of foundations is 750 million euros. in relation to advance interest rates only in Spain, not in the euro area, which is notoriously higher.
Jose Antonio Alvarez
Well, NII in Poland, you have noticed a. I would say a very significant margin expansion due to the increasing rate that we are. we have benefited from the lowest financing prices in Poland. Of course, the expansion of the additional margin will probably be difficult, but I remain confident that we can maintain the NIM; The net interest margin, which is around the grades we have thanks to the revaluation of assets. While we recognize that liabilities are expensive, we pay more for deposits since our position is lower than the lowest investment prices in the market. So: though, probably running with speculation of needing to be there like that is a fair assumption for me.
Begoña Morenes
Merci. Et thanks Carlos. Can we ask for the following please?
Operator
Oui. La next comes from Pamela Zuluaga of Credit Suisse. Pamela, move on.
Pamela Zuluaga
Hello, hello. Thank you very much for answering my queries. The first considers the prospects for supply. It has now created an overlay of €1. 1 billion [ph]; However, he mentioned that he has not noticed a significant deterioration in the quality of credits in most of his footprints. He also noted that the consensus is that the threat charge will peak next year. But what do you think about when to use or release those provisions?Do you plan to provide some of those provisions to maintain secure stability of the threat charge in 2023?Then a query about your capital option; has controlled capital accumulation above its target now at 12. 10% CET-1 [ph]. Would you be willing to increase your current payment to 40%?Or is there a specific headwind that anticipates and therefore you need to be more cautious?
Can you enlighten us about – in particular the A-B negotiations with the trade unions to deal with the loss of purchasing power in Spain?I perceive that the last assembly on Friday, have we heard about the proposals of the unions and what would it be?What does it mean specifically for charge inflation in Spain?Thank you.
Jose Antonio Alvarez
Thank you, Pamela. Let me also. . . Well, when we supply based on expected losses, and they ask me about the use of those overlaps. Naturally, we offer an initiative. This initiative we are proposing sees a mild recession in some countries in 2023, more towards the end of 2023. So, if that materializes and our models are correct, in theory we will use this prohibition; Not bad. If we get it wrong, somehow, we may be in a scenario where the scenario deteriorates extra until 2024. The scenario is worse than we expected, we keep building, the opposite liberates; So it’s all based on. . . if our scenario is good, our scenario is not far from the IMF, just to perceive each other. . . yes, not far from the IMF. The IMF, which says the 2023 part of the moment will see a recession. In this case, we will use this: the additional 1100 million euros [ph] that we have already built and the additional three hundred million euros [ph] that we plan to build thanks to our postponement of the year. But still, again, it’s based on whether the story materializes or not, whether the story goes all the way to 2024.
Optional capital; well, we made it transparent that the board — when the board approved 40%, that is, the AVL going to 50% at one point; So, it’s a resolution that the board is going to. . . It belongs to the board, and it is not a resolution made. Having said that, I said in the presentation that within that. . . 12% is a suitable point for us, and we continue to build capital. Negotiations A-B; Yes, there have been negotiations on some kind of one-size-fits-all price reduction for workers or some workers this year, apart from union price cuts in the future. Therefore, the big cut price that is the one it deals with in terms of cost will not será. no updated. This is more about compensation, but small, and it’s not a full agreement negotiation with the unions that will come, as I said before, in early 2023 — mid-2023.
Begoña Morenes
Merci. Et thanks, Pamela. Can we have the question, please?
Operator
Oui. La last one comes from [indistinguishable]. Fernando, please move on.
unidentified analyst
Thank you for answering my questions. A few questions, please. The first on Spain. What is your opinion on the potential effect it could have?Yes. . . Is there an update on the Smart Practices [PH] map about those families of vulnerabilities that could be deployed?It’s one. Secondly, on Poland and the provision on paid leave that it has adopted; Do you anticipate or see more in the next quarter?And finally, if you can comment a little bit on the ALCO strategy and the combined you have in the Spanish portfolio, that would be great. Thanks a lot.
Jose Antonio Alvarez
IT’S OKAY. In Spain, well, I say those deals, the way we adjust vulnerable clients who have loans with us is… I say business as usual. Do you agree with the government who are the means to adjust this? So, and the way I say we’re talking is, as usual, unnatural. The additional provisions, if any, are built into our macro situation, naturally, the macro situation with respect to loans looks at how our loan is performing and the ability of consumers to repay, ability to pay, loan-to-value and all that. . If they get worse due to higher inflation, decrease the available source of income, which is already included. So I don’t want to replace anything because we replace that, because it’s meant to be included in our reputable script. Naturally, if the wait is worse, the most delicate factor here is unemployment. Unemployment is therefore the key because when I look at the real estate market in Spain, it is not overvalued in any way. So it’s not the case that we had 14 or 15 years ago, it’s more of a query for affordable skills ratios for low-end low-income or middle-income or low-income consumers with affordable skills ratios superiors the suffering in the available source of income is more than that. But it is included as I said in our macro situation.
Poland; Pay vacation [Ph], we want to see what happens. So we think we have done – I don’t know, all or at least the maximum of the benefit. In any case, well, if we want to evaluate the number of customers who come in to claim paid holidays, and we adapt accordingly, it’s not – I hope it’s not significant, but maybe [indistinguishable] – we have to go higher, let’s say quarter to quarter, if you want to go up more. That said, the bank’s cash in generation and the operating profit the bank generates; and as I said earlier in response to a query from one of your colleagues, I’m very constructive about the fact that we’re going to have a very high NII that allows us to deal with potentially higher demands for paid vacation.
ALCO strategy; I don’t know if it happened. Well, we’re starting to build our portfolio bit by bit; Then more remains to be done. Joseph, need you say more?
Jose Garcia Cantera
As we discussed in the presentation of the effects of the first part of the year, we did not have an ALCO portfolio at that time in euros, which is notoriously a smart resolution that charges us net interest source of income compared to our competitors. . But it obviously puts us in a much better position in terms of balance sheet price and the opportunity to rebuild the ALCO portfolio in the future. We already have 6. 5 billion euros today. In the euro area, we build the portfolio through diversified holding [ph], in diversified countries; not just Spain, we have France, we have Italy, and we will probably continue to gradually build the portfolio over the next two years. We still don’t have a number in our brains clearly, we have the opportunity to rebuild the portfolio through getting more than 3% return, which we have so far at €6. 5 billion. We will return to making purchases based on the opportunities we see. years.
Begoña Morenes
Thank you Jose and Jose Antonio. Il no questions asked.
Jose Antonio Alvarez
It is ok. Thanks guys. Thank you for all those years. After this presentation of the results, I tried to count the number of times I have faced them; And I’ve had a number of 72 times in the last 19 years. Yes, good luck, guys. Stay glued to Santander. As always, an attractive equity story, and with improved profitability in the future. Thank you. This is my last message to you. Good luck. Good bye.