Bankinter, S.A. (BKT) Earnings Call Transcript

Good morning, and welcome to Bankinter's third quarter earnings presentation. Our financial statements were posted with market authorities earlier this morning, and all materials can also be found on our corporate website. Please refer to the disclaimer of the presentation and note that this call is being recorded. We welcome today our Chief Executive Officer, Gloria Ortiz; and Chief Financial Officer, Jacobo Garcia.

Thank you, Laurie, and welcome to you all. We are reporting today's third quarter results show a first 9 months of 2026, which represents a return on tangible equity of 20.4%, a percentage point better than in the same period of 2025. The results are supported by the profitable growth of the business. We grew by 7% in customer volumes, which translates into 6% increase in revenues supported by net interest income, which is up 6% year-on-year. due to the volume growth accompanied by a disciplined management of customer margins that reached 2.7% in the quarter. We maintained rigorous cost management as reflected in the efficiency ratio that is now below 35%. We also maintained excellent asset quality with a nonperforming loan ratio of 1.84% and a solid solvency with a CET1 ratio at 13.2%, well above regulatory minimums. All this growth in volumes, discipline in margins, asset quality and operational efficiency allow us to generate value for shareholders in a sustained manner with shareholder value generation increasing by 15% over the last 12 months. Commercial activity this year has shown strength, total customer business volumes amount to EUR 250 billion, EUR 16 billion more than in the same period of 2025 with 6% growth in lending and 8% in customer funds, while maintaining a loan-to-deposit ratio at a comfortable figure of 98%. This provides us with ample flexibility to continue growing lending selectively and profitably without funding becoming a constraint. Customer volumes are highly diversified with the new geographies contributing 13% of the total book and Spain, the remaining 87%, where Spain presents a growth in volumes of 6%, Portugal of 13%; and finally, Ireland of 26% over the previous year. New geographies continue to increase their contribution to incremental volume growth where they represent already 25%. This is the type of growth we want, or geographically diversified and profitable. It strengthens the franchise supports recurring revenues and reduces our dependence on any single market or business line. Net interest income continues to evolve positively, reaching EUR 1.76 billion in the first 9 months, 6% more than in the same period last year. In quarterly terms, NII reached a new high of EUR 602 million, while customer margin remained resilient at 2.71%. This performance reflects healthy volume growth, together with disciplined and active management of customer margins and demonstrates the resilience of our revenues as the interest rate environment evolves. Discipline in the management of operational efficiency and asset quality drives capital generation in the quarter. CET1 closed the third quarter at 13.2%, 20 basis points higher than in the previous year and 46% over the close of 2025. Efficiency in the first 9 months of the year stood at 34.8%, 1.3 percentage points better than in 2025. Asset quality also remained excellent with NPL ratio improving by 10 basis points to 1.84% if compared to December 2025. And we also maintain a solid coverage ratio. This contribution of efficiency this combination of efficiency, asset quality and organic capital generation gives us the capacity to fund profitable growth while maintaining comfortable management buffers. For SAI is a business transformation program grounded in pragmatic use of technology focused on productivity, customer service and scalability. We consistently invest more than 10% of our gross revenues in technology. Over the last 6 years, this investment has allowed us to increase customer volumes by 5% and revenues by 87%, while employee numbers increased by only 9% and the number of branches remained stable. At the same time, costs only increased by 34%, less than half the rate of revenue growth. Among the investments in technology, I would like to highlight our AI First program. From a top-down perspective, this involves significant investments in technological infrastructure and data in the governance of AI deployment and incorporate strategic project programs in which we integrate AI in the bank's operational and commercial processes in a transparent way for employees and customers. Secondly, the bottom app perspective have a lot to do with cultural change and personal productivity and requires significant investment in training the workforce making tools available to employees and in the deployment of corporate systems that allow the creation of agents to be shared in agoburnd and controlled manner. The progress made in AI capabilities over the past 2 years has been considerable with more than 150 advanced AI models and 60 Gen AI systems in operation. The areas in which this deployment of capabilities is having the greatest impact our software development, automation of operational processes, commercial efficiency improvement of the user experience in digital assets and telephone banking as well as in the personal productivity of employees in their day-to-day work. Finally, to wrap up the first section of the presentation, you can see the impact of our strategy in the key value creation ratios. We report once again a high and sustainable value creation. ROTI reached 20.4%, Earnings per share increased by 11% and shareholder value generation increased by 15% over the last 12 months. Now on to you, Jacobo.

Thank you very much, Gloria. Good morning, everybody. Let me start with a brief overview of the results -- the first 9 months of the year demonstrate the continued strength of our franchise and business model with results supported by solid revenue growth, disciplined cost management and stable risk costs. Net profit reached EUR 901 million, up 11% year-on-year. I will now talk through the main drivers behind these results, starting with NII on the next page. . NII continues to evolve very favorably, reaching EUR 602 million in the third quarter, our sixth consecutive quarterly increase. NII increased by 6.3% year-on-year and by 2.1% quarter-on-quarter. During the quarter, asset yields increased by 7 basis points, while deposit costs increased by 6 basis points allowing us to maintain customer margin at 2.71% and Nemat's 75%. Overall, this continued to show the benefits of volume growth, together with disciplined pricing on both sides of the balance sheet. Moving now into fees. Fees continue to be an increasingly important contributor to revenue growth reinforcing the diversification of our business model and the growing contribution from the Wealth Management business. Net fees increased by 13% year-on-year to EUR 651 million. Even excluding the EUR 23 million performance fee recorded in the second quarter, underlying recurring fee grew at strong 9%. And Wealth management activity continues to perform very well with asset management and brokerage revenues increasing by 22%, insurance fees increased by 8% when included our JVs accounted for under the equity method. Overall, these results reflect deeper customer relationship and a growing contribution from recurring higher value-added products and services. This strong revenue performance also continues to translate into positive operating leverage, bringing me to the next slide. Revenue growth of 6.5% significantly exceeded expenses growth of 2.3%, maintaining positive jaws of more than 4 percentage points this year. As a result, our cost-to-income ratio improved further to 34.8%. And importantly, as Gloria already highlighted, this has been achieved while continuing to invest in technology and digital transformation across the group and future growth initiatives. For Bankinter, Cost discipline does not mean lower investment. It reflects a simpler organization, the tangible benefits of technology and an increasingly scalable operating model focused on long-term client relationships. Moving now to risk costs on Page 16. We continue to grow the balance sheet while maintaining a clear focus on quality. Customer lending grew by 6%, while cost of risk remained stable at 33 basis points and other provisions declined further to 8 basis points. This combination of loan growth and stable risk costs reflects our underwriting discipline and selective approach to growth. We remain focused on attractive risk-adjusted returns rather than pursuing volume at any price. Regarding net profit revenue growth, efficiency and risk discipline are clearly visible in earnings with profit before tax increasing by 11% to -- sorry, to $1.27 billion and net profit increasing by 11% to EUR 901 million, as I mentioned before. That same discipline is also reflected in the quality of our balance sheet that we'll see in that page. Asset quality remains one of the clearest differentiators of Bankinter franchise. The group NPL ratio improved by 21 basis points year-on-year to 1.84%. Across Spain, Portugal and Ireland, NPL ratio remained comfortably below sector average. Spain earns at 2.0 versus 2.5 per sector, Portugal at 1.4 versus 2.1 and Ireland at 0.3 versus 0.7 million. Moving into liquidity. We continue to maintain a strong and balanced liquidity position with a 98% loan-to-deposit ratio and an LCR of 168%. During the quarter, our liquidity gap remained stable at EUR 2.6 billion with significant excess liquidity in Spain. We also maintained substantial liquidity reserves, limited refinancial need and strong access to wholesale funding markets when needed. We, therefore, maintain a significant flexibility in how we fund the balance sheet. This supports future lending growth as well as the continued development of balance sheet products and customer solutions. Turning to capital. CET1 ratio closed the quarter at 13.18%, supported by 74 basis points of organic capital generation over the first 9 months, including 42 basis points in the third quarter. This strong generation allow us to absorb a 16 basis point impact from the top acquisition while increasing our CET1 ratio by 27 basis points from 12.9% in the second quarter. Looking ahead, we expect to close the premium and Access Capital Partners alternative investment transaction next quarter with a combined capital impact of approximately 25 basis points. We will also increase of around 40 basis points in our minimum capital requirement from the second phase of the Spanish countercyclical buffer that, by the way, we announced also this morning. Even after these items, we remain very comfortable with our capital position and our flexibility to support profitable growth, selective investment opportunity and attractive shareholder remuneration going forward. Moving now to a quick review of the performance of our businesses and geographies, starting with corporate and SME banking. Corporate lending increased by 7% compared with sector growth of 4% in Spain, with our international business growing strongly at 16%. We are reinforcing our competitive advantage through new servicing and corporate segmentation model increasing product penetration and innovation and growing more transactional businesses such as factoring and confirming. This will deepen customer relationships and act as a catalyst for growth with a greater contribution from capital-efficient revenues like this. In Retail Banking on Page -- on next page, we continue to prioritize profitable growth and disciplined capital allocation. directing growth towards the customer segment and geography where we see the most attractive risk-adjusted returns opportunities. So on the asset side, mortgage origination is recovering, up 8% compared with the same quarter last year with around half of the new production coming from Spain and the other half from Portugal and Iran. Our mortgage back book also grew by 5% to EUR 140 billion, including approximately $400 million of Dutch mortgages following the recent Top acquisition. We expect to start new origination under a Bankinter mortgage proposition in the Dutch market over the coming months. We also provide more details this quarter on our smaller consumer finance portfolio. Balances increased by 11% and excluding the upper market segment, which continues to decline as part of our strategy to reduce portfolio offering lower returns after losses and capital consumption. On the liability side, transactional balances also continue to grow with salary and digital account balances increasing 6% year-on-year. Moving now to Wealth Management and off-balance sheet products on Page 24 and where we continue to deliver very strong growth across both assets under management and assets under custody. AUM Increased by EUR 10 billion or 15% over the last 12 months, while assets under custody increased by EUR 12 billion or 14%. Together, both now exceed EUR 170 billion, around twice the size of our customer on balance sheet deposits reflecting the high quality of our customer base and our ability to deepen relationships through value-added investment products, advisory service and innovative portfolio of management solutions. Importantly, movements from deposits into investment products does not represent money living Bankinter but rather a transformation of customer savings within the franchise, deepening relationships increasing product penetration and supporting revenue diversification. Let me now review our progress from a geographical perspective. starting the overall picture. Our strong volume growth remains well diversified across the group, as I mentioned before, with Spain growing by 6%, Portugal by 13% and ran by 26%. And revenues also increased across all these geographies, with particularly strong double-digit revenue growth in Portugal and Ireland. So let's see briefly at each geography, starting with Spain. Spain continues to deliver strong and profitable growth with customer lending up 3% or around $2 billion year-on-year, broadly in line with the growth rate achieved in full year '25. NII increased by 4% and fees by 3% supporting gross operating income growth of 5%, with expense growth contained at just 1%, pre-provisioning profit grew by and profit before tax by 10%. This demonstrates the scalability of our core Spanish franchise, where technology and a simpler operating model allow us to grow the business while continuing to keep costs under control and deepen customer relationships as reflected in the customer funds growing 9% year-on-year. the 89% loan-to-deposit ratio is similar to the average of the Spanish industry. Moving into Portugal, where the franchise continues to scale strongly and profitably. Customer lending increased by 9% or $1 billion, while customer funds grew by 18% or EUR 3 billion, maintaining the strong growth rates achieved in '25. This translated into net interest income and fees, both increasing by 13% with profit before taxes reaching EUR 178 million, also up 13%. And -- with an excellent cost-to-income ratio of 32%, Portugal is a strong example of our ability to scale our proven business model and gain profitable market share. Going forward, our focus is to close the remaining small funding gap through continued growth in customer funds while further increasing customer penetration across segments and products. Finally, let's move to Ireland. Ireland continues to deliver strong growth as we progressively build out our universal banking proposition in the Irish market. Customer volumes increased by $1 billion or 26%, including the start of our deposit gathering activity this year, with balances growing supported by our recent marketing campaign with very positive results. At the same time, the business is delivering strong profitability. NII income increased by 21% supported by asset growth, while profit before taxes also grew by 21% and the cost-to-income ratio improved to 43 million. As we continue to broaden the franchise, our objective is to increasingly fund future lending growth with locally generated deposits, building a more balanced and self-funded business over time. Overall, Ireland continues to gain scale and broaden its customer proposition while maintaining strong profitability and asset quality. Let me move now finally to our outlook and growth priorities. Our underlying business trends continue to evolve positively in line with our expectations in a solid for longer trend, supported by robust current unexpected macro scenario, reinforcing our confidence going forward. We remain focused on the levers we can actively control which is disciplined execution of digital transformation programs, disciplined pricing on both sides of the balance sheet, customer margin management, cost control and of course, capital allocation. volumes, we continue to expect solid and diversified growth. Lending growth should remain around the current mid-single-digit levels. with Spain maintaining solid momentum and Portugal and airline continue to grow at faster rates. The positive growth this year should continue in line with current trends below single-digit growth. At the same time, the superior quality of our increasing client base in all our geographies will continue to support growth in customer funds and deepen customer relationships through asset under management and custody supporting both our funding position and recurring fee generation. Our NII, our guidance continues to carry a positive bias in the short and midterm. Volume growth, resilient customer margin and the current rate environment should continue to support positive NII development with continued quarter-on-quarter growth slightly above loan growth. We expect customer margin to remain around current levels with positive bias in coming quarters, supported by active pricing management on both assets and deposits. We also continue to maintain a balanced and prudent approach to interest rate sensitivity rather than seeking to maximize short-term returns from a particular rate scenario. Fees, the outlook also remains strong with guidance of low double digits supported by wealth management, higher customer activity and increasing contribution from recurring value-added products. On cost, we remain fully committed to delivering positive jaws. We will continue to invest in technology, people and future growth while maintaining cost discipline and improving the scalability of the business. We are on track to end this year with a cost-to-income ratio below 35%, with operating jaws in line with current levels of around full points. Asset quality should remain strong, and we expect cost of risk to remain around current levels with the guidance unchanged around 33 bps for the entire year. Finally, we expect to continue generating capital organically. Our priorities remain clear: first, support profitable organic growth. second, invest selectively in attractive strategic opportunity and finally, been open and flexible if necessary, to ensure attractive shareholder remuneration in the future. Bankinter has always delivered in the long term and through periods of uncertainty, a superior shareholder remuneration combined with a prudent risk approach. Taken together, these trends support our expectation or maintain a return on tangible equity above 20% for longer, while continuing to grow tangible value per share and dividends. Gloria, back to you, please.

Thank you, Jacobo. Well, before concluding the presentation, I would like to come back to our strategy, which is focused on creating sustainable value through the cycle. We continue -- we combine 3 sources of growth, continuing to defend our mature franchise scaling younger platforms that have already demonstrated their growth potential and building new earning engines that will support future growth and diversification. In Spain, our largest and most mature markets, we continue to increase the value of the franchise through selective customer growth the bar relationships, stronger value propositions and product innovation while technology and AI allow us to scale the business more efficiently. In Portugal, we continue to scale our proven franchise through disciplined market share gains, profitable customer growth and increasing sales funding. In Ireland, we are accelerating the transition from specialist lending business to a self-funded digital universal banking franchise. At the same time, we are investing selectively in future growth opportunities. Job has been part of the Bankinter group in ages and provide us with a capital efficient option for future growth through an established digital mortgage platform in the Netherlands. And through the 2 announced alternative investment transactions, we are building greater scale and capabilities in a differentiated investment management platform, increasing recurring revenues, operating leverage and earnings diversification. This approach is not new. It is consistent with the strategy Bankinter has followed for many years, and our track record demonstrates our ability to grow above the sector while creating attractive value for shareholders. So to conclude, we are once again delivering strong results based on recurring customer activity and consistent execution of our long-term strategy. We continue to grow with quality while improving efficiency, maintaining strong asset quality and increasing the diversification and scalability of the group. -- with high and sustainable returns and comfortable capital position, we remain well positioned to continue growing and compounding value for shareholders through the cycle. That concludes our presentation. Thank you, and back to you, Laurie.

Thank you. Thank you, Gloria. Thank you, Jacobo. We'll now be moving into the live Q&A section. Our first question comes from Maks Mishyn from JB Capital. Maks.

Two questions from me, please. The first 1 is on the NII, assuming that the interest rate curve stays where it is right now in the future, when do you expect the repricing of the loan book to end. And the second question is on the recent ruling by the new Court of Justice related to cyber fraud and its refunds to customers. I was wondering if you expect any impact on your other provision line from the rules?

Thank you, Maks. I will answer first the second one. So for the time being, we're not expecting any changes from that ruling or that decision from the tribunal -- and the first one, repricing, I mean, repricing of the asset side, it takes longer. As you know, it takes some time from 12 to 24 months to fully reprice our mortgage book or I would say, the floating rate mortgage book. So it's something that is going to take some time. So we're just starting to see that repricing and it should go over, over the next quarters. .

Well, I would just want to say something about the second question. So it is true that there has been a ruling in the European Court of Justice that will basically oblige to return immediately to a client funds that were a fraud, a payment was a fraud. Well, 1 thing is that, obviously, it is a superior court of justice but cases are seen 1 by 1 in -- well, in this case, in the Spanish court of Justice and case by case, all the items of the case are revalued. So it is not of immediate application. So that is why we don't think there will be any specific impact. And on the other hand, I want to just refresh a little bit the idea that we actually done in a secure manner every day and that we have very little problems or fraud involved it. We are investing heavily, and we continue to do so to even reduce further all these cases of fraud. But the other thing I want to say is that we also have to invest in making clients conscious of the risks they are taking and not to share their -- not to share their passwords and so on, you to minimize fraud.

Our next question comes from Marta Sanchez from JPMorgan. Martha.

My first question is on the customer spread. It was flat quarter-on-quarter at just 2.71%, and the lending side looks soft. What stands out is that the pressure on loan yields doesn't seem to come from chasing volume. Your Spanish loan growth was just 1.8% year-on-year. So can you explain what's driving the tighter lending spreads in Spain by mortgages and corporates. And you've mentioned there's upside to the customer spread. So can you provide color on the level? And where do you see lending and deposit margins kind of setting? And my second question is on capital. By math, you should finish the year well above 12.5% core equity Tier 1, even after absorbing a roughly 37 basis points from acquisitions and operational risk inflation. So would you top up the 50% ordinary payout with a special dividend possibly as soon as with full year results?

Mark, I will answer the second question. Yes, effectively, this year, we will finish the year around 13% after absorbing what you've mentioned, the 2 corporate transitions that we have announced and the operational risk consumption. But you have -- you also have to take into account that there will be also increases in the minimum regulatory ratio because there are several buffers that, for instance, in Spain, there are certain buffers that this year will come into force. I think we feel quite comfortable operating with a management buffer like the 1 we have or up to 500 basis points. If we go over 500 basis points, I think we will consider something to change something different to change our policy in terms of what we do with dividends and what the -- and retained profits. But this is something that won't happen by the end of the year.

I'm not sure if I got properly your question. I think it was regarding the lending growth and the customer spreads and what is the mix of this growth. So in Spain that we're growing around 2% the book. There is the year-on-year growth is focused on corporates. As you know, the new production of mortgage is a little bit lower than a year ago. And the overall mortgage book in Spain is some sort of stable. So that means that the repricing of this book is anyway is going to take some time. The floating rate mortgage book has barely started to reprice with the latest increases in the Euribor. So we should expect a positive increase in the lending yield over coming quarters. So I'm not sure if I am answering your question. If not, let me know.

Marta does this answer your question?

So I don't know if you can hear me. It's No, it's the customer spread, so 2.71%. That is disappointing, given what we've seen in the sector this quarter. You have mentioned that there is upside to that customer spread. Where do you see that setting? And how do you see the lending margin and the deposit margin within that to that customer spread?

Okay. Thank you, Marta. I understood. Now -- we will provide -- as you know, we will provide guidance in the first -- in the -- with the results at the end of the year. As I mentioned, we think there is a positive bias and rates are absolutely supporting the client margin over time. We also, as you can imagine, the timing of the movements of each part of the NII is different. So there might be probably some faster repricing in the deposit side versus much smaller repricing on the asset side. So in terms of quarter after quarter, there might be a little bit of volatility. But obviously, overall, a higher interest rate environment should be very supportive of customer spread in the future. .

Thank you. Our next question comes from Pablo de la Torre from RBC. Pablo, go ahead.

I had 2 questions. My first 1 was on your deposit trends. I see payroll and digital account balances were flat quarter-on-quarter, while time deposits picked up a little bit at the group level. So I wondered how much of the change in time deposits was driven by Ireland in the quarter? And more generally, where you see the mix between side and time deposits in the medium term under the current rate outlook? And then the second question was a short 1 on the ALCO I see, obviously, maturities are picking up over the next 2 years. And I wondered if you could just remind us where the yield of those maturities is compared to the $2.7 million for the entire book that you show on the slides.

Pablo. There is a slight increase in the proportion of time deposits. we haven't started definitely the gathering of term deposits in Ireland, although the volume is not yet relevant. But the reality is that there is a little bit more demand for term deposits since builds in Spain have increased, and there's a little bit more demand of this. of these products. But overall, the overall -- in relative terms, we do not expect any major change in the mix. So I think that today term deposits are around 15% of the overall in Spain is around that figure. So we might expect some small figure of points may be going up, but definitely, we're not expecting a change in the mix. As you have mentioned, we are currently launching campaigns also related to digital accounts, et cetera. So we do not expect a change in the mix. It might be a slight change, but not definitely something different. Regarding the ALCO portfolio?

Yes. Pablo asked us the repricing of the maturities. So the current repricing currently is around 2.7% the yield. -- and what the upside may be from the repricing of the maturities coming up in 2027 and '28?

Well, I'll answer that, Pablo. I think by the end of 2027, we can be in the 3% yield or a little bit higher.

Okay. Our next question comes from Miruna Chirea from Jefferies.

I just have 2 very quick questions. Firstly, could you please remind us of the structure of your balance sheet on the asset side. I think how much is floating versus fixed rate mortgages and in corporate and the average duration of the fixed rate loans in each of the 2 segments? And also, could you then give us an update of how the digital campaigns have progressed in Q3, please?

Regarding, I mean, we have around 50%, 55% of our mortgage book in floating rate mortgages. And I think that's the current mix. And even in our corporate book, we have, as you know, working capital facilities that even if they are fixed rate, they reprice in a maximum of 3 months, 90 days, so it is not floating, but it has quite faster repricing that may be other type of loans with the longer term.

Yes, from the half of the book that is fixed, there is a part, obviously, that is hedged. And therefore, floating. So it's around, what, EUR 8 million more or less.

Sorry, regarding the digital market campaign?

The digital market campaign is doing well. Actually, we are increasing. I mean, we are increasing client acquisition in September when we started when we start the campaign. And we are actually growing in balances. -- slightly but growing in balances. Actually, we are able to retain more than half the clients that we onboard. That's what we see from last campaigns. And we are also able to -- we are able to cross-sell to these clients, other investment products or even -- or saving products for around 30%, 40% of the cases.

Thank you. Our next question comes from Cecilia Romero from Barclays.