Caixabank SA

MAD:CABK

Q3-2025 Earnings Call

[Marta Noguer, executive]

Good morning, and welcome to CaixaBank results presentation for the third quarter and the first 9 months of 2025. We are joined today by our CEO, Gonzalo Gortazar; and our CFO, Javier Pano.

Just a brief reminder in terms of logistics, we will spend about 30 minutes with the presentation and about 45 minutes to 1 hour with the Q&A. The Q&A, as you know, is live, and you should have received by e-mail the instructions on how to participate. Let me end by saying that my team and I will be at your full disposal after the call.

And without further ado, Gonzalo, the floor is yours.

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Marta, and good morning, everybody, and welcome to this results presentation. It's a quarter that, I think, confirms the trends that we've been seeing for the last year and even further where volume growth sort of accelerates despite the seasonality.

Obviously, we need to understand that comment in the context of the weakness due to seasonal reasons in the third quarter, you see how basically, loans and customer funds are close to 7% up; premia for insurance business, 13% up; and remarkably growth in number of clients, almost 400,000 new clients in Spain on a net basis, which indicates, clearly, the group is in the right direction, growing client base for much more than population growth in Spain.

So very good dynamics for the business, for the organization. With respect to NII, as we predicted last quarter, finally, we've seen an inflection point with a pretty decent increase, 1.4% quarter-on-quarter. So Javier will elaborate on the Q&A. We'll have further details on trends. But certainly, it feels very good at this stage.

Revenue from services, up over 5%; asset quality, record lows. Cost of risk, in fact, we're improving guidance as Javier will sort of detail. Capital in the right direction. And obviously, this quarter, we, as per our policy, are announcing the interim dividend to be paid in November, which is the top of the range of 30% to 40% of first 6 year -- of the first 6 months results, sorry.

And announcing a further share buyback, the seventh I'm keeping core equity Tier 1 above our targets and with, again, strong trends, particularly given the deduction of the share buyback that is included in the figures. We're upgrading our return on tangible equity to circa 17%, which indicates again the good trend of the business, which we obviously expect to see for the foreseeable future.

The economy, the economy has again surprised on the upside. We have raised our estimates for Spain from 2.4% to 2.9% currently. A couple of days ago, we had the figures for the third quarter very much sustaining the projections that we've made for this year, this 2.9%. We expect some slowing down, but to a pretty decent level, just above 2% this year for Spain, similar level for Portugal.

By the way, Portugal published their GDP figures yesterday, also very strong. So a nice outperformance of the Iberian economies, expected to last. And certainly, we are a clear beneficiary there.

What's behind this? First of all, the labor growth. You can see over 0.5 million of new jobs created in the last 12 months. Disposable income and savings rates, both moving in the right direction. And obviously, that's a tailwind for our customer funds and for the economy.

Consumption figures that we saw a couple of days ago, private consumption up 3.3%. Investment part of the GDP, very strong growth, 7.6%, and very remarkable export of services, close to 10%, 9.5%, and of that, the tourism-related services is only 5.8%. So it gives you an indication of the recovery and the strength of the Spanish economy goes much further beyond pure tourism, which is very relevant because obviously, tourism is going to continue to contribute to the economy, but not to the same extent that it has had in the past and as the sector has recovered.

Continue to have a very low private sector leverage compared to the Eurozone, which is great news, both in terms of defensive scenario if there are issues. And certainly, glass half full opportunities for loan growth, which we see sustainable -- sorry, which we see sustained for the next year.

So in that context, obviously, volume growth, 6.8% up. Client acquisition, as I mentioned. On the right-hand side, you have a reminder, this is coming from FRS Inmark of our client penetration, we have 40.4% increased during this year, along with that increasing client base. It's very important to see here the group gaining the traditional commercial strength that it has always had, and the fact that the type of relationship that we have with our banks is much stronger than the other peers. As you can see, 72% of our clients use Caixa as their primary bank, which is well above all.

Market share gains, I'd say, across the board, but highlighting some of them. Payroll deposits, in particular, which is very relevant, certainly. On the lending side, consumer and business lending, in particular, not so much in mortgages, where we are stable, a slight -- a few basis points reduction in deposits and generally in life risk. But as you will see in protection, we also have pretty good trends.

imagin, as mentioned in the previous quarter, we're planning to give you a brief update on representation. Continuous nice growth and number of clients, market share, particularly in payroll business volume, half of our net new client acquisition comes through imagin -- sorry, half of our gross client acquisition comes through imagin.

And just to remind you, it's at this stage, a full-service bank with obviously stronger component of customer funds, but also many other products, including lending, which is not typically what you see in neobanks compared to imagin.

It's been a year where we've not only focused on growth. Remember our strategic plan, we talk about two pillars. It was growth and transformation. And here, you have a few initiatives. Obviously, the world continues to change very quickly. And we're planning on taking advantage of that.

We're not on the defensive. We have to defend our positions, but we think there are great opportunities in the current environment and launch of the portals and Facilitea Coches, which by the way, we won a gold award a couple of days ago in the Qorus Banking Innovation Global Award, which is very nice, and we won another three and bank in the world that has won more awards at these prestigious event.

Facilitea Casa growing nicely. We have, by today, already 1 million visits to our platform. So a successful example. Generacion + [indiscernible], which is at the beginning of a very significant project targeting sort of seniors. Tap To Pay, Apple Pay Later, VidaCare, all cases where we are actually leading the industry in Spain. Stablecoin consortium, another one, and the cash back program, which we have just launched is another example.

I just want to make sure you have the feeling that it's not just about the current quarter or the current year. We're spending money and planning to make sure that growth not only stays but accelerates in the future.

Loan book, 5% growth, and the stock of mortgages quite remarkable, 10% plus in consumer lending, business lending 4.5%. Obviously, very good trends.

I won't spend more time because I mentioned it before. Loan origination, new production, strongly as the market is in residential mortgages, consumer lending and new business lending. So pretty good trends and trends that we see for the time being certainly staying with us.

Customer funds, strong performance, 6.9% year-on-year, I think pretty balanced look at figures on deposits and wealth management. There is, again, in this case, a seasonality impact. That's what you see deposits coming down quarter-on-quarter. But certainly, when we look at details and the trends, they are much better than they were in the third quarter of last year.

So nothing to worry about those numbers. They are actually good numbers once you adjust them. And when you look at a comparison of how we're doing in terms of deposits, Spain obviously outpacing the Eurozone by an ample margin, but CaixaBank further gaining market share there is a great sign.

The off-balance sheet business, wealth management doing very nicely. And you can see that the -- our market share continues to be much bigger than even our two main peers combined, 29% versus 24%. You really almost need to add the third peer to get to our market share, which is obviously a reflection of the kind of franchise we have in wealth management, which has been actually doing very nicely this quarter and this year.

Protection insurance, as I mentioned, again, strong growth, 12.7% in total premium. And as you can see, both life-risk and non-life doing very well. I mentioned the life-risk market shares. You can see here a similar on some of the key non-life market shares, again, doing very nicely. So a key part of our business and one where we have, again, delivered a pretty good quarter.

Vis-a-vis our strategic plan, obviously, there's a big gap, all of it in our favor. Market is helping, there's no question. We actually at least have that ability to identify this trend and hence, focus on the growth opportunity that we had at hand. And we're doing much better. And as you heard before, also doing better than the market gaining market share.

All that gives us quite a lot of confidence. Obviously, capital distribution is a key part of what we do. Based on increase in earnings per share, we have, as I mentioned, set the interim dividend at the maximum of the range that we had announced in our dividend policy.

And got recent approval for another EUR 500 million share buyback. Well, we haven't yet finished the sixth share buyback. So we have share buybacks for some time now and a strong capital position give us confidence that we will continue in this direction. Javier?

[Javier Pano Riera, executive]

Okay. Thank you. Thank you very much, Gonzalo, and good morning, all of you. Well, from my side, as always, the details on the P&L and balance sheet. I have to say that all trends are in line with our expectations, if not better. So we are quite a bit.

Here, you have the consolidated income statement. Net income pro forma, the quarterly accrual of the 2024 banking tax, you may see EUR 1.445 billion. That is flattish year-on-year. If we move to the revenue front, well, as I mentioned, NII, we had already the trough in the second quarter. As you may see, up by 1.4% on a quarter-on-quarter basis.

Revenues from services despite being in the third quarter quite seasonal, we have had a really strong quarter also. You may see up by 6.2% year-on-year, flattish quarter-on-quarter, but that's remarkable, precisely due to that seasonality. The main driver being wealth management on the back of strong inflows, also markets doing well. You may see here year-on-year up by close to 12%, quarter-on-quarter also up.

Protection insurance on a growing trend, underpinned by commercial dynamism. And then finally, banking fees, flattish on a year-on-year basis, quarter-on-quarter, impacted by seasonality with strong CIB this year.

On other revenues, the most remarkable, I would say, is that in the third quarter, we have strong positive seasonality from SegurCaixaAdeslas, something that is very well known. Expenses, nothing to say, on track to meet our guidance for the year. And on cost of risk, you know that we have fine-tuned our guidance for the year to less than 25 basis points. So also on track to meet our improved guidance.

On the tax line on the P&L, you know that beyond the corporate tax, we have the banking tax and also, as in recent quarters, we have some DTA write-ups.

With that, an overview on Portugal. For the first 9 months of the year, EUR 351 million net income. Volumes are doing even better than in Spain. So as you may see, volume growth up by 8.5%. Relentless market share gains across the key businesses, I would say. Efficiency circa 40%. Profitability is just shy in terms of RoTE of 20%, NPL 1.5% and with nice coverage, 85%.

And -- well, a significant milestone because we had this quarter disposal of 14.7% of the stake in BFA, the Angolan stake. Well, this is equivalent to circa EUR 100 million. And as I say, a significant milestone, an IPO in Angola. So with that, our stake is now 33.4%, not major or not material impact on P&L or solvency from that disposal.

With that, let's move to the details. NII, as I was saying, here you clearly see the drop from the second quarter. And on the right-hand side, on that usual quarterly bridge, you may see that still, let's say, client yields having a negative impact as we still have a negative index resets on the floating rate loan book.

This is a trend that will still continue for a few quarters. But in any case, this is more than compensated by volumes. You may see business volumes and also the ALCO this quarter, we have increased the size of the fixed income portfolio by EUR 2.6 billion net because we had also some maturities. And also we have increased hedges by EUR 5 billion to EUR 58.5 billion outstanding.

Below, you have the customer spread, slightly over 300 basis points. The evolution of yields, the back book yield of the loan book, 355 basis points, down 20 basis points, but also the cost of client funds also down to 49 basis points, including -- excluding, in this case, hedges and foreign exchange. Well, in any case, we expect a clear acceleration of NII on the -- from the second half of next year.

A zoom on our deposit base, client deposit base. Here, you have the evolution of average quarterly balances. You may see steady growth, but the most remarkable is the mix precisely. That improvement in volumes of noninterest-bearing deposits, you may see, on average, the third quarter up by circa EUR 7 billion.

It's true that also we have some increase of interest-bearing balances. In this case, remember that is not only retail, it's also corporate SMEs because we do more business. So also, we have some increase on that. But in any case, the weight is very well contained, as you may see, a gradual reduction 26.8% weight of interest-bearing balances.

At the same time, we'll continue to reduce the cost of our interest-bearing deposits. Now standing at 1.66%, significant reduction in the quarter, as you may see, with a strong correlation with the evolution of the overnight rate as we have, as you know, circa 50% of those interest-bearing balances fully indexed and the major part precisely to the overnight rate.

Changing gear, we move to revenue from services, up by 5.7% year-on-year for the first 9 months. The main driver, as commented, wealth management, up by 13.4% for the first 9 months, also an accelerating trend on protection insurance, up by 4.2% when adjusted by a positive extraordinary on the last year and flattish fees, which is, I would say, quite remarkable.

And you may see on the chart on the right, precisely, that this year, we have had almost no negative impact from seasonality. So really strong trends on that front.

A few words on costs, up by 5.2% year-on-year, on track to meet our guidance. Remember, for costs up by circa 5%, cost-to-income below 40%, which is, by the way, well below the peer average. Asset quality and loan loss charges, asset quality really strong.

You may see here NPLs trending down this quarter by EUR 300 million. I would say almost everything is organic, that reduction with the NPL ratio also trending down 2.27%. And you may see across the different segments that there is a broad-based improvement, so not anything part of our loan book to worry about, honestly.

The coverage up by 3 percentage points in the year to 72% and we still keep our unassigned collective provisions unchanged for the year, EUR 341 million.

On the right-hand side, cost of risk, loan loss charges, 24 basis points on a 12-month trailing basis. So remember that we have fine-tuned and slightly improved our guidance for cost of risk to less than 25 basis points. So we are set to meet that guidance comfortably.

Liquidity, the same picture as every quarter, ample liquidity sources, EUR 229 billion and a liquidity coverage ratio at 200%, 199%. 148% for the net stable funding ratio. The loan to deposits is not moving at all. It's really stable, 86%, as we are growing on lending, but also we're growing on deposits almost at the same pace, so quite nice.

And you know that the liquidity ratios are well above our peer average basically due to a strong and stable deposit base composed mainly from stable retail deposits and wholesale operational deposits.

Capital, we are already deducting the seventh EUR 500 million share buyback, minus 21 basis points. From there, we have plus 67 basis points capital accretion that includes net income plus DTA consumption, then we have minus 8% from organic risk-weighted assets, that's basically lending. And from there, minus 38 basis points, dividend accrual at 60% plus AT1s and just minus 3 basis points from other impacts. That results into a CET1 ratio of 12.44% by the end of the quarter.

On the right hand side, additional details, you know that we are still executing the sixth share buyback. We are today announcing this interim dividend close to EUR 1.2 billion, which is EUR 0.1679 per share. And the seventh share buyback, EUR 500 million set to start at some point after we finish the sixth one.

Bottom right, well, you know that the stress test results was just released a few days after our second quarter results presentation. Here, you have the CET1 drawdown under the adverse scenario for the case of CaixaBank is minus 162 basis points. And you may see here that compares extremely well versus our comparables.

And finally, this upgrade on guidance, fine-tuning as there is only one quarter to end the year. So NII now expected to come down by circa 4%. And then we have cost of risk expected to be less than 25 basis points and return on tangible equity circa 17%.

So thank you very much and ready for questions.

[Marta Noguer, executive]

Yes. Operator, can you let in the first question, please?

[Operator]

The first question is from Maks Mishyn, JB Capital.

[Maksym Mishyn, analyst]

I have two questions from my side. The first one is on loan book growth. It keeps on accelerating nicely, and we seem to be gaining market share across the board and even in mortgages. Some banks indicate that the market environment is very competitive there. And can you please share your thoughts on why you think you need to grow there?

And the second one is on provisions. What was the reason for the quarter-on-quarter increase? Do you think that the 25 basis points that you expect for 2025 could also become the number for 2026? Or is there any reason it could increase?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Maks. On loan book growth, indeed, we're doing very nicely, I'd say, in terms of market share, we're gaining market share, as I mentioned, on the business front and consumer lending. In mortgages, we're not gaining market share. Actually, market share year-to-date has decreased by 10 basis points.

It doesn't mean that we're not doing a lot. That's why we have this strong increase in loan production. But we're doing a bit less than our fair share, I would say, given that it's only 10 basis points, in line with our fair share.

And yes, this is a very competitive business. When you look at the numbers that banks disclosed at the ACB, you actually see that the Spanish mortgages are the cheapest in Europe currently, in terms of new production, around 2.5%.

So it is indeed a business that only makes sense as long as, a, you have the ability to fund it from an ALCO point of view because now the market has moved mostly again to fixed rate mortgage. And there, you will see that different banks have different capacity to add long-term fixed rate mortgages.

Obviously, given that we have a disproportionate share of transactional deposits, and you can see that because of our payroll market share close to 36%, 37%. We're obviously very well positioned there. And in terms of having that in our book because it is a natural hedge and all the banks do not have the same sort of long-term duration of liabilities. So not to the same extent, I would say.

And second, most importantly, obviously, to get the numbers to an attractive return, you need to cross-sell other products. And that cross-selling is absolutely critical. If you look at our franchise and how we do our business and the market shares we have in insurance, in particular, but obviously, not just insurance, you are, I think, in agreement probably with us that we do cross-selling better than the average in the market so that we have a natural competitive advantage there.

We are only doing mortgages as long as they make sense. We don't have any particular sort of extra point to grow in mortgages. It's just doing the business when we think it is attractive. And in the case of mortgages, obviously, it needs to incorporate both things, the ability to fund long-term fixed rate and the willingness because it fits in your ALCO portfolio. And then secondly, that ability to make it profitable as sort of an overall relationship with the client.

But again, skipping away from mortgages. The key point is growth is actually in consumer lending and on the business front, particularly on the SME front, which are the two most attractive margin opportunities in the market. That's where we're growing market share. So we're extremely pleased with our loan growth is going absolutely in the right direction.

Second point was on provisions, and I'll let Javier comment on that. But I think generally, we're seeing no change in the very good trends we have in asset quality, what you've seen also in the sort of early doubtful loans, i.e., sort of less than 90 days, we continue to see very good trends. We haven't used, obviously, the overlays, as you said. We keep reducing the nonperforming loan numbers. So mathematically, you see these this kind of change.

I think going forward, this is a trend. If we manage to keep bringing down our NPLs, coverage will increase for the industry generally. You remember before the sort of great financial crisis in 2005, 2006, coverage ratios in the industry were above 100 because you had very -- and actually didn't make that much sense because most of the provisions or significant part of provisions were not covering actually nonperforming loans, but all the risks of exposures potentially becoming nonperforming loan. So we'll see.

But still, I think at this stage, it's very nice to see that we have a very low cost of risk, 20 basis points annualized in the quarter and still that is not affecting the quality of our coverage. It's quite the opposite, we are increasing that coverage.

Then quarter-by-quarter because this is lumpy sometimes. So there may be portfolio sales and write-offs and et cetera, you may have some volatility. But I think the trend is these levels are probably the ones that we will see for the next few quarters.

With that, I'm afraid I've gone into most of it, Javier. I'm sure you have things to add.

[Javier Pano Riera, executive]

No. On cost of risk, well, we are quite a bit on the evolution, and you just saw that we were upgrading our macro views in general. Well, the dynamics in the economy, both Portugal and Spain are so good. So we are working on our budget for next year as we speak, but I don't foresee major changes on the levels of loan loss charges for next year, honestly.

So obviously, unless there is an external shock, no, but let's assume that this is not the case, and the situation continues to do as well as is the case currently. I would say that you can count on no major changes. We'll fine tune obviously, when we will comment in January, but the assumption is that it's going to be in line.

[Marta Noguer, executive]

Thank you, Maks. Operator, next question, please.

[Operator]

The next question is from Ignacio Ulargui of BNP Paribas Exane.

[Ignacio Ulargui, analyst]

I just have 2 questions, if I may. One, looking to the other side of the balance sheet to the deposit growth. If I just look to Page 20, you are clearly exceeding the target of deposit growth that you were aiming in the plan. Just wanted to see how you think about deposit growth going forward in '26 and '27. The second question, I think that Javier, you touched a bit upon this on the call, but I wanted to look to the reinvestment of the ALCO. Some of your Southern European competitors are investing around 2.6% the bond maturities have a 1.6%, 1.5%. ALCO. How should we think about the phasing of that reimbursement in the NII over the coming 3 years?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Nacho. I'll maybe take the first question on deposits. There are 2 main factors. One is the trends in the market and then it's how do we do in terms of relative performance, market share. On both fronts, I feel very confident at this stage. So we're definitely going to be outperforming the expectations that we had in our strategic plan.

The market is still showing significant growth in disposable income. Our estimate for next year is again another 2% of gain in terms of real disposable income, so 2 percentage points above inflation. And the savings rate is sustained pretty high across -- actually across Europe, certainly also in Spain, where it used to be much lower.

I think there might be a slow sort of gradual decrease. But at this stage, it doesn't seem that the numbers are going to be very different. So as long as we are in a growing market, then it's up to us. And what we're seeing this year is, I mean, we have the machine and 100% of its functionality.

And actually, the quarter passes the further quarter, the more confident we become. This is a virtuous circle. It's a great organization we have. And undisputed leadership in Spain, over 50% larger than our competitors and now it seems that, that position is going to stay for the foreseeable future, very stable, that's a great advantage.

We have the team very focused, and we have been doing greatly this year, particularly in the non-remunerated part, which is obviously one that creates the highest value. I say the outlook is very positive for next year. And certainly, if the macro -- the macro numbers continue to be there, which is our expectation, not just for the next year but for the following months. So pretty good momentum and likely to be sustained.

[Javier Pano Riera, executive]

Okay. If I may, Ignacio. On the ALCO reinvestments, well, you know that in order to manage our NII sensitivity, we are basically using both swaps and bonds. This quarter, we have added to both on a net basis in the case of bonds because we had also some maturities.

You know that you have a slide on our presentation on the appendix with plenty of details on the yield of all maturities per year or even per quarter for hedges. So you can count on rolling over those fixed income maturities for sure.

So we need to do so in order to keep that sensitivity, let's say, contain it within our targets. And you are right, no? So the average yield is 1.5%. So any reinvestment basically from 4 to 7, 8 years is usually the maturities. We are investing in it's going to be accretive.

And more specifically, what is maturing until the end of this year is having a 0% yield. Next year, we are having close to 9 billion maturities at a yield of 0.4%. So you may see that this is clearly accretive. And this is part of the reason beyond commercial volumes where we are quite a bit on NII for '26 and '27 and beyond because this is an additional tailwind.

I mentioned NII sensitivity. I would like to take the opportunity to note that we have slightly changed our NII sensitivity target to 7.5% to a parallel shift of the yield curve. This is no changes in practical terms, but it's basically allowing for some additional hedging flexibility precisely to accommodate faster volume growth, generally speaking.

And keep in mind that we are disclosing sensitivity for the period 12 to 24 months. What we have benchmarked that we see that our peers are usually giving sensitivity for the first year, so 0 to 12 months. If you think about our sensitivity for those 0 to 12 months it's circa 4%. So pretty much in line with what everything is disclosing. It's a more asset view. The view that we are giving us you.

So basically, please note that. So we are going to be opportunistic here depending on basically the spread between swaps and the sovereigns. We are using to add to the portfolio. And depending on that, we are more keen to use swaps or fixed income. The shorter the maturities usually, we tend to use swaps because you capture a narrower margin. So it will have a wider margin at longer maturities.

[Operator]

The next question is from Francisco Riquel, Alantra.

[Francisco Riquel, analyst]

Yes. My first one is a follow-up on the first question from Ignacio. So I see demand deposits are growing 7% year-on-year, time deposits are flat. So can you comment on customer behavior in a lower interest rate environment. Your strategic plan was based on a stable deposit mix. And I wonder if you see upside here. And if you can also update on your guidance for deposit costs, both with and without hedges.

And my second question is customer spread. I see is proving resilient in Spain above 3%, but Portugal has fallen to below 2.9%. So you are growing faster in Portugal than Spain. So I wonder if you have noticed increased competition in this market or if it is related to different speed of balance sheet repricing, so you can give guidance for customer spread in both countries?

[Gonzalo Gortázar Rotaeche, executive]

I will just say an introductory word, I'll let Javier deal with it. But in terms of this mix between time deposits and demand deposits. Obviously, as interest rates have come downwards the pressure to move from side deposits to demand deposits is more or less disappeared.

We're also seeing to some extent, the balances invested outside like T bills and others, generally in the systems that are coming back to the balance sheet. But clearly, there is potential to do better there. This year is -- it has been the case. But anyhow, Javier knows this inside out.

[Javier Pano Riera, executive]

Well, on customer behavior, I think that basically, we are being successful on 3 fronts here. So first thing we are being able to pass on lower market rates to our -- to the cost of our interest-bearing deposits. You know that almost 50% of that is indexed, so it's pretty much automatic. So there's not much commercial effort on that front.

While we do that at the same time, we are growing nicely on noninterest bearing. And that growth on noninterest-bearing is not because is flows coming from interest-bearing so it's not like we are parking, let's say, whole money on noninterest-bearing that eventually will move from to another part of the balance sheet or even to outside the bank.

So it's not the case. So it's basically operational balances, more clients, well, close to 400,000. As you could see in a year, more clients or more payrolls, more everything. So at the end of the day, you have more operational balances at 0 cost. And while we do all that, at the same time, we are being able to grow on off-balance sheet solutions, on wealth management solutions being mutual funds or being savings insurance.

So the pace of inflows into those products is approaching EUR 1.5 billion per month, which is quite significant. While at the same time, we keep growing on noninterest-bearing and keeping our interest-bearing pretty much stable.

So I think that we have -- we are mastering honestly, this -- all that. We have the right incentives internally, obviously, client first and the right fund transfer pricing system and is working nicely, honestly.

And we think that this trend is going to continue. So we are quite a bit on this business. On the customer spread, yes, we are above 300 basis points. I think that eventually, we're going to be slightly below 300 in early part of '26.

That does not mean that we are going to have NII pressure because you know that there are other parts volumes plus ALCO that are more than compensating that. And you asked about differences with Portugal, it's a different dynamic because first, you have a larger percentage of interest-bearing balances on deposits. It's approaching, now its circa 45%.

It was 47%, now it's 45%. In the case of Spain, it's below 30%. Also there is a clear difference and as such, also considering that on the asset side, Portugal has a larger percentage of floating rate loans or mortgages, for example, in Portugal are fixed rate to maturity is not that commonly used as in Spain.

So you have, at the end of the day, a little bit more NII sensitivity in Portugal than in Spain. Hence, the impact on the customer spread are not exactly happening at the same time. But in any case, Portugal NII is set to stabilize and set to grow soon also.

Keep in mind also that in terms of our ALCO activity, although we have an ALCO in Portugal, we tend to manage our NII sensitivity more at group level. Hence, all strategies and ALCO hedging, et cetera, is more thinking about the broader view, not particularly in the case in Portugal. So thank you, Paco.

[Operator]

The next question is from Ignacio Cerezo of UBS..

[Ignacio Cerezo Olmos, analyst]

First one is on -- I mean, the indication Javier has been given around the NII in 2027 based on volume and yield curve developments, if you can do a mark-to-market or update us on that number?

And the second one is kind of a recurring question. Actually, we ask you every now and then. But is there any possibility of artificial intelligence investments kind of creating a bit of a cost angle emerging at some point in the next 2 to 3 years? Or you think the cost growth actually is going to remain around that mid-single-digit region for good?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Ignacio. I'll take on the second one, maybe and Javier can provide an answer for the first one. AI definitely. We have now increased our investment spend significantly in this plan that you're seeing with, as you say, mid-single digits growth this year and also a faster than sort of trend growth next year.

We start to see clear benefits from 2027 onwards. The main emphasis now for us is to make sure there is wide adoption of the technology, which at this stage, I would say, we're doing very well, every single area I wouldn't say every single employee, but almost.

But certainly, every single area has a number of projects, and some of them are finalized. So those are in design stage. Others are in work in progress. And we have a team centralized that sort of prioritizes make sure that we are sort of doing products that are compatible that I can't talk among themselves and benefiting, obviously, from the scale that we have and from working with certain providers like Salesforce or Gemini or CoPilot, Microsoft, et cetera.

So this is working at full speed. I have the sense that we're moving forward very well. We have a wide adoption in the organization. And we clearly have sort of use cases where the productivity impact is very obvious. Others are going to take some time.

Very often, what we will aim to is to be able to do things internally rather than outsource them. And hence, we will capture a very efficient cost saving in due course. But this is not going to happen. Certainly it's not happening this year, where we're having more spend and savings.

And I think you're not going to see that start until 2027 and then onwards. But generally, obviously, this is something that is very much debated everywhere, whether AI and the productivity gains from AI, who is going to appropriate them.

A lot of these opportunities are going to be appropriated by clients, is -- is the nature of sort of business loss that obviously, as we become more productive and more competitive, our competitors will, at the same time, clients will be more demanding in terms of what they can expect from banks and banks, the good banks will be offering it.

And hence, the appropriation of these sort of economies and productivity gains is going to be, to a large extent eventually running to clients, no. Like it has been in the past, if you think of mobile, et cetera. But we feel we are sort of at the vanguard. And hence, we will certainly be able to keep some of these gains and what is more important as long as we are a step or 2 ahead of others.

I think we're going to be giving a better customer experience, bringing innovation faster to the market. And hence, also gaining in terms of additional revenues, which is, to me, the name of the game long term, the market share and the number of clients that we keep and the ability for us to sell them the services we're selling now and others.

[Javier Pano Riera, executive]

Well, in terms of 2027 NII. Well, first '26 where we are now very clearly seeing that it's going to be above fiscal year '25. So this is our view currently on the back of what volumes. But I would say that it's important also to say listening yesterday to the ECB press conference. It looks also that ECB is more a bit in terms of downside risk from the macro point of view.

So I think that clearly the bottom and rates is also here to stay. And well, that makes us also more confident to give you guidance. We were mentioning that EUR 11.5 billion mark for NII for '27. We see really very clear upside to that currently.

So we are quite a bit for '27, honestly. Probably we'll have to wait until our resource presentation in January to be more specific on that, but our view is that we have very, very clear upside into that figure. All in all, substantial upside compared to our initial views on over the strategic plan view. Remember that we were envisaging EUR 11 billion NII in '27. And now we clearly see this figure coming much earlier than expected.

[Operator]

The next question is from Alvaro Serrano of Morgan Stanley.

[Alvaro de Tejada, analyst]

A couple of really follow-up questions. On mortgage pricing, everyone is complaining about the pricing, but it obviously remains very competitive. The question is more, have you seen any sort of changes in behavior lately, obviously, the merger is not happening anymore between BBVA and Sabadell. We have seen some sort of banks saying they're raising pricing but have you observed that in the last few weeks is one question.

And second, also a follow-up maybe for you, Javier. You -- I didn't fully follow the logic as to why you've increased the NII sensitivity now to 7.5%. Is it your -- do you think the next move in rates eventually will be up? Or are you just looking for a better moment to increase the hedging because you continue to create a lot of liquidity. So -- or maybe this is another reason that I missed?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Alvaro. On mortgage pricing and generally pricing in the market. With respect to the impact of the failed takeover. I think it's too early to say. I haven't seen any particular change from that point of view, but I wouldn't expect it necessarily. These things take time, even mortgages from sort of making an offer to actually getting the mortgage close. It's a long period, sometimes 2, 3 months.

So we will have to see generally when the market is so competitive and so intense in terms of price pressure, I think eventually it tends to -- even if it will stay very competitive, it usually tends to at some point, sort of lean towards a more sort of rational pricing, we'll see. I think, the impact of rates coming down and now the sort of the general core being steeper than it was 12 months ago.

And as all these things stabilized and credit growth continues to take place, and hence, there's impact on liquidity and particularly on capital as -- and I'm not talking only about mortgages, you may see that actually margins on the asset side get a bit more rational. But it's not easy to forecast. This is not anyone in control. This is a market, it's a very competitive one, we'll have to see.

[Javier Pano Riera, executive]

Well on NII sensitivity, we are allowing for some small additional hedging flexibility to accommodate a faster volume growth. So that's basically the message. Think about that. So this is a forward-looking measure.

So in order to estimate your sensitivity 1 year from now, you need to work with assumptions -- your best assumption on volumes going forward, which is going to be the composition of your balance sheet 1 year from now, okay?

What is happening is that we are outperforming those views constantly. So we are -- what we simply do is to get a little bit more latitude in order to have some more room to decide on our hedging as we are having this outperformance constantly.

So it's very simple. In practical terms, nothing is changing. Keep in mind that this is an asset view of NII sensitivity because it's the sensitivity 1 year from now. It's not usually what other peers are reporting that are reporting the sensitivity as from today for the next year. And if what I am providing today you is that the sensitivity is circa 4% as we speak. So pretty much in line with what everyone is disclosing.

[Operator]

The next question is from Britta Schmidt, Autonomous Research.

[Britta Schmidt, analyst]

Just coming back to the volumes. They are generally ahead of the plan also for wealth management and protection insurance. So do you have any view as to whether in principle that could be positive for the CAGR for revenue from services included in the plan.

My second question will be on operational risk. Is there anything that you would track for RWAs in Q4? And how you're thinking more broadly about the development of operational risk also in the P&L with regards to more digital risk and cybersecurity risks? And then the last question is on Portugal. What expectation do you have regarding tax rates in Portugal? And any view on the discussion around a potential sector contribution to the budget?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Britta. On the latter one on tax rate in Portugal, obviously, we'll have to see how things develop. And Obviously, it won't have a material impact on the group, given the relative weight of Portugal, but we'll have to see what is eventually done.

On volumes, obviously both, on balance sheet, off balance sheet protections everything in terms of volumes is running ahead of the strategic plan. I would be very inconsistent if I wouldn't say that should translate into better CAGR over the 3-year period. As long as we continue to sustain these levels, we should be doing better than the strategic plan on both fronts.

So how much better obviously is the question and -- there will be time to discuss certainly expectations for 2026 and then 2027. And at some point over the next few months, most of you will start looking into 2028, and we will discuss in 2028. And that I'm sure Javier can develop looks good as well, particularly on NII because we'll have a similar trends.

Operational risk, a general question is, is it going to be increasing? Obviously, I don't think so. But whether -- what's the impact on the fourth quarter, that's more rather than trend specific, which Javier will explain.

[Javier Pano Riera, executive]

Well, for operational risk, you know that we have this impact on risk-weighted assets for the fourth quarter. We think that it's going to be in line with last year. It's going to be less than 15 basis points in our view.

And I have to say also that as we are talking about the fourth quarter risk-weighted assets, we are have in the pipeline a few SRT transactions that will settle into this quarter.

So this is going to have a positive impact probably more or less offsetting that impact on risk-weighted assets from operational risk. To be -- yet to be confirmed as we are finishing those transactions, but broadly in line with the impact from operational risk.

[Operator]

The next question is from Borja Ramirez, Citi.

[Borja Ramirez Segura, analyst]

I have 2. Firstly, on corporate loan growth. If I understood well, you seem to be preparing your balance sheet for stronger loan growth. I would like to ask this is mainly related to higher corporate investment and opportunity for corporate loans. So that will be my first question.

And then my second question would be on NII, please. If I calculate the Q4 NII for this year, based on your guidance, it seems to be around EUR 2.7 billion. If I analyze that assume 4% balance sheet growth. For next year, I get to EUR 11.3 million of NII for 2026. This is above consensus, and this does not include the benefit from repricing of ALCO or deposit hedges.

I would like to ask if this calculation makes sense from a technical point of view. And also, if you could indicate what is the benefit in NII for next year from repricing ALCO or the deposit takers, please?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Borja. On loan growth, we have, obviously, the ability to grow our loan book because we were very liquid. You know that both from LCR, but particularly net stable funding ratio among the highest. Structurally, we're very liquid. And Spain generally is not very levered.

And when you've seen, for instance, the numbers for these third quarter GDP, the 2.8% growth behind those numbers. As I mentioned before, you have an investment component of GDP growing at 7.6% and year-on-year. And of this part equipment was up 11%. So now somehow we have this CapEx cycle going on. We've been talking about whether this would happen for many years.

And now it is happening. And hence, there is a very significant opportunity here. It is also an opportunity in consumer lending. I mentioned that SME and consumer lending are the 2 areas where we're gaining market share in a large -- or a relatively large amount case 30, 40 basis points, so there are 120 basis points in consumer lending.

And also precisely the more juicy parts, not necessarily the ones that require more funding in terms of size, but the ones that have the best returns. And on the corporate front, more sort of a larger enterprise and CIB business, the reality is that we're being very active.

This is a place where we have been and I don't think we've mentioned it today. But obviously, you know that our CIB fee business has been doing very well or Javier mentioned it indeed. And we see an opportunity there as well going forward.

So it's good across the board today and somehow previous days because of various comments here and there, the headlines are being taken by the mortgages and the pricing, the realities were we're growing most and certainly where the returns are more attractive is in these 2 parts of the business, consumer lending and SMEs, together with CIB. So that is something that we expect to see because once you unleash this CapEx cycle, this has some pretty good inertia.

[Javier Pano Riera, executive]

Hi Borja. Well, we are refraining today to give you a specific figure for 2026 NII guidance. What I said is that it's going to be clearly above '25. That's pretty clear. How much needs to be seen. So we are still working on our budget. We have to fine-tune a few things and we'll come up with more specific guidance in January.

As per your numbers, first thing, keep in mind that still the first half of the year we have some negative repricing on floating rate loans in general. This is going to be more than compensated by other parts of basically volumes and also ALCO, but keep in mind that this is why we say, okay, there is an acceleration from the second half because that repricing process will already be ended.

And consequently, we have a clear acceleration on NII. Keep in mind also that there is some seasonalities in first quarter last day. So I will not say that you can extrapolate exactly the same quarterly evolution for every quarter. So let's see, honestly, I think that there is not -- there are not many banks already giving guidance for 2026. In our case, we are giving already plenty. So let's reconvene on in January.

[Operator]

The next question is from Miruna Chirea, Jefferies.

[Miruna Chirea, analyst]

I had 2, please. The first one was on customer spreads, which you were guiding that you expect in the first half of 2026 to stabilize somewhere around -- somewhere below 200 basis points. Could you please discuss if you think that there is some scope for the spreads to expand into the end of the year as maybe you are growing high -- you are growing stronger in higher-margin corporate loans and consumer credit than in mortgages.

And then my second one, please, was on margin. Could you please give us a sense of what the returns are in the margin versus the traditional bank? So any sort of color that you could give us in terms of the difference in margins, the cost to serve clients and the cost of risk between margin and the traditional bank would be helpful.

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Miruna. You want to start with...

[Javier Pano Riera, executive]

Yes. Well, as I was saying to the previous question, we still face some negative index resets on floating rate loans on the first half of next year. So this is adding some pressure on customer spread. It's going to be slightly below 300 basis points but not much.

And yes, eventually, over time, this may recover. We have to see lending but also deposits to what extent also we can keep pushing down our average funding cost as we have not probably because we push down our interest-bearing yields, but probably because we have a larger wave of noninterest-bearing deposits.

And as a consequence, we can slightly bring down our average customer funds, funds costs. So we have to see, so, I would say, conceptually, you are right. So over time, we should marginally gain on the customer spread. But it's going to be in any case hovering around 300 basis points. So that would be my best guess.

The back of the envelope numbers are approximately 150 basis points coming from the loan book, EUR 150 million from deposits. So if you assume like 2% rates, market rates, so this is 350 yield on assets and, let's say, EUR 50 million on deposits. So this is back of the envelope, we can fine-tune that once we give you guidance for next year, but this is the broad message.

[Gonzalo Gortázar Rotaeche, executive]

Yes. And [indiscernible], I would highlight the following. Cost to serve is definitely much lower you would guess that I have to say it's different than other pure neo banks because we are increasingly putting together let's say, people and assigning relationship managers to the top of the pyramid because we have them and we have them to give service from our what we used to call in touch, the remote service, now we call it connector, to clients that are mostly digital of CaixaBank and we started about a year ago, something to offer a relationship manager to imagin clients, sort of experiencing how that would go, and we found that or inviting our emerging clients loved it.

So they would call and answer the call and when we would offer that we would assign a relationship manager they would love it. And then you have all these call me, call back, et cetera, follow up that we're doing also remotely to imagin clients. But all in all, it's very much more efficient cost to share on the bank.

But again, we're trying to make sure that the clients of imagin, if they want to they also have a physical remote always. And obviously, they can visit a branch if they want. That's by the finish in the case. And our branches obviously are very keen to bring imagin clients on board. So imagin benefits from the fact that we have a branch network, it works nicely.

So all in all, cost of service is lower and client and business acquisition is faster. And that's why we have a much more sort of well-balanced and grounded set of products and services and our balance sheet looks much more like a bank than rather just I'm selling a time deposit that's very high or some of the things, as you've seen in many of the new entrants in Spain and elsewhere.

So it's very different. The returns of the whole operation are attractive because the margins are not generally very much in line with the operation at CaixaBank. It's about a better sort of -- or a better -- it's a more specific sort of way of serving clients that is more appreciated by a certain part of the population. And that look and feel of being part of our community, which we are -- which we're doing.

But as a result of similar margins and a lower cost of share, obviously, the profitability is very attractive, and it has nothing to do with some of the neo banks that have been sort of losing money for a while. We obviously spend time -- spend money and time and effort in client acquisition with a very significant success, but we actually monetize that relationship very quickly.

So it's a very sustainable and growing business model and one that I think it's fairly attractive. Remember that we are not -- imagin, is not incorporated as a separate subsidiary, so we do not have proper sort of financial results in P&L.

What we have is internal management accounting, which we follow very closely. And to a large extent, also finally, it depends on what do you do with the excess funds because even if we have a significant part of our activity on the asset side, imagine it's still very -- sort of has a very large surplus of customer funds and rather than having an ALCO run at the margin level, which will make any sense.

Obviously, those funds are investors as part of the global ALCO group and how you do all these assignment of pricing and margins would enter the bottom line. So that's why we're not getting into that. But the qualitative is lower cost to sales, same margins, obviously very attractive business.

[Operator]

The next question is from Sofie Peterzens at Goldman Sachs.

[Sofie Caroline Peterzens, analyst]

This is Sofie from Goldman Sachs. So basically, a follow-up on the volumes. I mean the volume outlook is good, but are there any restrictions or a limitation for CaixaBank to do grow volumes and -- what I mean is, basically, are there any kind of funding restrictions, you have too much market share in some products that you can't grow any further?

Or if you have any capital constraints anything that we should be kind of mindful of around the volume growth and anything that could limit that? And then my second question would be around kind of the competition from fintech players we're seeing, press articles that some of the fintechs want to grow very significantly in Spain. I know you commented just on imagin, but how do you see competition from fintechs?

[Gonzalo Gortázar Rotaeche, executive]

Right. On volumes, I would say, no limitation. On second part, you mentioned about index plans or -- fintech, sorry. Sorry, the sound here is not to some reasons it wasn't great. Fintech, obviously, this is great to have them. They are obviously forcing traditional banks to rethink the way they do things, and it's for the benefit of the client. So as a society, I think we should be very happy. As a bank we love it in the sense that our business is much more interesting because we need to keep constantly reinvent and rethink what we offer to clients and the way we offer our products to clients.

So I'd say it's a welcome development. Obviously, it's welcome as long as you think you have the tools and the ability to compete and we certainly think we are. When you look at the penetration of neo banks, you'd see some of the statistics on particularly Revolut and Trade Republic growing strongly this year, it used to be in '26, now it's not growing, it will depend.

But the other one that is growing very nicely is imagin. We have 9% share of payrolls and imagin and when you look at the others, I'm not going to get into the detail because obviously, we don't like to mention names and figures of competitors but the others are -- none of them is any close to 1% on the latest figures of primary banking relationships.

So they will obviously try and gradually, and I'm sure, to some extent, they are already doing it, try and gain clients to become their primary bank rather than start with 1 or 2 or 3 products, and that's the name of the game.

And the name of the game for us is to make sure that we offer the same experience, the same kind of relationship, and there's no reason why we shouldn't be doing it. And I don't usually refer to awards. But again, at this Qorus Banking Innovation Awards globally, again, imagin won the gold, so the first position in customer experience accounting, for instance, which and the beating and this was a category for neo banks.

So we have -- obviously, we have things that others do better. We're not better in every single product services, et cetera, where we're not, we are very realistic. We follow the market. We try to obviously make the necessary adjustments to what we do to get there. And this is constant. We have a huge advantage.

When I was referring previously to imagin and the fact that we now have relationship managers that you can rely on. And you have real people you can talk to if you have a customer service complaint or problem, you can even walk into a branch.

If this works well, as long as you want to stay digital, 100% digital, you stay and you have a great digital experience. But if you need something else or somebody else do something else that works, sort of, in the right way. I think we have a huge advantage.

And imagin is -- but precisely now starting to position itself and say, it's a digital bank, but those people, there's heart behind us and you have a problem, you need to talk to someone or you would need to upscale on certain products, you don't understand and you don't want to talk just to the robot AI. We're going to have all of this.

It's not the word saying this is not important. This is critically important. We're going to have all of this. But we can have all of these and more. And hence, we think we're in the long run going to be winners, but it's a nice and intense sort of competitive battle which we're doing.

With imagin and obviously, when I talk to imagin, I talk about imagin, CaixaBank is doing the same things with a different, sort of look and feel, but the reality, is positioning is very strong and actually imagin has now the highest relevance in as a brand in Spain and, huge loyalty and hence, we have, I think, a pretty relevant competitive advantage now vis-a-vis other incumbent traditional banks, thanks to having the ability to play in 2 ways.

[Operator]

The next question is from Andrea Filtri, Mediobanca.

[Andrea Filtri, analyst]

Yesterday, the ECB de facto approved the launch of the digital euro. How do you envisage this new entrant to impact you? And how would you factor it in your next business plan? Do you think you can actually make money out of it as well? And could you also give us your reasons for not having pursued by Novo Banco? Finally, just a very quick follow-up. How long do you think you can maintain overlay provisions for?

[Gonzalo Gortázar Rotaeche, executive]

Okay. Well, let me start with digital euro. We've been following this closely as many of you know, we actually were the sole bank that cooperated with the ECB in the first sort of work around the prototype for the digital euro in a P2P solution, and we'll continue to have an open line because we have a conviction that this digital euro is very likely to go ahead.

And obviously, it has the potential to transform a number of areas. It has the potential, we don't have perfect visibility. We don't know exactly how much it will impact, if there is still some time, as you know, the plan is now for some time in 2029, probably the summer.

This has been delayed as we, I think, discussed our view was it will happen, but it will take place later. So that's why -- we didn't discuss that much in this business plan or 3-year plan that will finish in 2027. Obviously, in the next one, it will have some implications. What is eventually going to be the role of the digital euro, we'll see, obviously, the limits that finally deciding on it are important, are important because obviously, there will be more or less sort of liquidity moving on to the digital euro, depending on the limit.

How successful it is going to be, it depends to a large extent on the private sector as well. If the private sector develops real cross-border payment initiatives like Pan-European Bizum, where, obviously, now there's a lot of cooperation we are now in -- already with Italy and Portugal together and there's sort of discussions with Nordics and with Vero.

And I think we should have an equivalent sort of instant payment mechanism that works well across the union -- and this could -- and probably should leave together with, at the same time, digital euro public, which has other benefits. What would the role of the stable coins be by then, programmable money. I would guess that certainly, they would be using more business applications as the digital euro as of today is focused on the retail front.

And fortunately, because we've been speaking about the strong case uses for a wholesale digital currency, the Central Bank digital currency, the wholesale euro. Now we have the Pontes and Appia project, both mid and long term to develop those initiatives.

And again, we are actively cooperating with representatives of us in one of these initiatives. So overall, over this, how exactly it will play out. We'll have to see, Andrea, I think it has the potential to be very relevant. It may not be that much if the private sector has developed other alternatives. We cannot run the luxury of getting it wrong and thinking this is not going to be relevant and then finding it is.

So, it's so critical and core to our strategy that we will are going to be there. And there is certainly -- our hope is that we're going to be making money, obviously. There's no question we're going to be able to do things differently and obviously offer also a different client experience. There will be if, in the case of the digital euro, some costs associated to it. So be it.

I think at this stage, even if it's not final, it looks like we're moving in the right direction in terms of using the current infrastructures and positioning the digital euro as a payment initiative mostly, which is where I think it makes more sense.

But again, there are even broader and I think larger users in the wholesale side, those will be also a significant component. So we'll see. And obviously, for the next 3-year plan, certainly, we'll have further discussions about what's happening in the payment space and the digital euro. With respect to a question on acquisitions, we do not comment on acquisitions names.

We didn't do it. We're not going to do it past the situation. It is our duty to assess opportunities when they appear in our core markets. But we always say the bar is very high for us. We have a great business. We have a great business in Spain and in Portugal, and looking at our results this quarter is a good proof of that. So when we do any analysis the bar needs to be very high.

And obviously, that means what is the opportunity attractive. Does it have synergies, can we execute? And then what's the price where this is a real return because we have plenty of things to do in Spain and Portugal organically.

And obviously, any M&A is always a distraction. So you need to make sure that it's a very clear case for that to happen. If there's no very clear case, then obviously, you're not going to be seen as there.

[Javier Pano Riera, executive]

And then there was a final question on overlays. Well, eventually, it will be used. Honestly, we don't have an exact time line for that. But over time, that's the base case. But we don't have a specific calendar honestly.

[Operator]

The next question is from Pablo de la Torre Cuevas, RBC Capital Markets.

[Pablo de la Torre Cuevas, analyst]

The first one is a follow-up on loan growth in Spain. And I know it's a smaller portfolio for you, but public sector loans are growing above 14% year-on-year and one of your peers have actually recently noted how it expected growth in this segment to accelerate from here. So I was wondering if you could help us understand your expectations in this segment and how we should think about the loan growth there in the context of your Investor Day loan growth targets of around 4% as well.

The second one is on fees. And overall, the trends there seem pretty positive and in line or better with your targets, but it seems like growth in banking fees, specifically continues to lag other areas. So could you please just elaborate on when you expect the loan growth -- the fee growth there to converge towards your target growth rate? And what, in your view, needs to happen for you to achieve this?

[Gonzalo Gortázar Rotaeche, executive]

Thank you, Pablo, on maybe briefly, and Javier, you take it from there, but loan growth of the public sector, margins are very low, usually -- and this gets usually moved by fairly large transactions. Very often as a result of auctions and sort of public solicitation, et cetera. We do not think of us like coming a specific target there, we're going to be there if the numbers work out.

And there's very often the alternative of public debt, which is traded and hence, liquid and you obviously want a pickup for that lack of liquidity than usually maybe there's a difference in rating. And if you move to the sort of regions or to the local council. So I don't think it's going to make a lot of difference or numbers. And we're not going to be particularly pushing, but we're not going to be away from it either.

We need to take decisions on a more opportunistic basis for the large transactions. And for the more sort of relationship based, I think those are going to be more stable.

[Javier Pano Riera, executive]

Yes. Thank you, [indiscernible] just to add that on that front is to some extent, like an alternative to ALCO in some cases because it's public sector, so it's alternative to fixed income. And well, at least in our case, we have like a strong, let's say, common view with CIB that usually takes care of the new origination, also from the ALCO in order to assess whether it's a good opportunity and actually may go in the same direction as our ALCO decisions.

On fees, on banking fees, I think that we have been commenting already from -- for quite a long time that there is like an underlying pressure on that path. On recurring banking fees, basically, pressure on maintenance fees on current accounts, on debit cards, some areas, some areas in payments also to some extent, subject to some pressure. Now we have instant payments.

So the key here is to be able to more than compensate that with our usual strengths that you know very well, which is wealth management, protection insurance and well, and lately, I would say that we have been commenting that also this year with an increase, let's say, regularity of the CIB business.

So I think that's the key because at the end of the day, this is kind of underlying pressure on those, let's say, fees related to products with low added value. And our view is set to continue. Obviously, we try to defend ourselves as best as possible but I would not say that this is going to bring us a big turn around anytime soon.

But the key I insist is to be able to compensate -- more than compensate clearly because we are targeting -- this is why we put together all that, what we call revenues from services now that includes wealth, insurance plus, let's say, traditional banking fees because you need to get the broad picture of the 3 big buckets.

And you know that we are targeting mid-single-digit growth for the combined but probably the part that is going to be lagging is going to be recurring banking fees.

[Operator]

So the last question is from Cecilia Romero Reyes, Barclays.

[Cecilia Romero Reyes, analyst]

My one was on capital. At your Capital Markets Day, you mentioned that your CET1 target will increase to 12.5% from the current 12.25%. The difference between your target and your MDA level of SREP or SREP is above the European average. Could you consider maintaining the CET1 target at 12.25% next year, taking into account your current view on capital requirements, growth needs, et cetera?

[Gonzalo Gortázar Rotaeche, executive]

Thank you. Javier, do you want to take it?

[Javier Pano Riera, executive]

Well, the short answer is no. So we are moving our target to 12.5%. What is behind that is the is basically the countercyclical buffer that is kicking off next year in Spain, Portugal. So we had a clear view on that.

We want to be conservative on our capital targets. And in any case, we think it's quite a good buffer, as you mentioned, but comfortable one. So I think that also investors appreciate that. So no, there are no plans to keep that at 12.25%.

[Marta Noguer, executive]

Thank you, Cecilia, and thank you all for joining us. That's all we have time for today. Have a nice weekend and Happy Halloween.

[Gonzalo Gortázar Rotaeche, executive]

Thank you very much.

[Javier Pano Riera, executive]

Thank you.