Unicaja Banco SA

MAD:UNI

Q3-2025 Earnings Call

[Jaime Hernandez Marcos, executive]

Good morning to everyone, and thank you very much for attending our 3 Quarter 2025 Results Presentation. This morning, before the market opened, we published this presentation, along with the rest of the usual financial information at the CNMV and on our corporate website.

For this presentation, we have today our Chief Financial Officer, Pablo Gonzalez. As usual, the presentation will last around 20 minutes, and it will be then followed by the regular Q&A.

So without further delay, I will give the floor to Pablo.

[Pablo Gonzalez Martin, executive]

Thank you very much, Jaime. I will start on Page 3, where we show the main highlights of the quarter. Starting with the commercial activity, I would like to highlight that business volumes continue to improve 2% year-on-year, supported by stable loans and deposits and a significant growth in off-balance sheet funds, mainly in mutual funds, where we are growing an impressive 24% year-on-year, making 9% of net inflows market share.

Total performing loans have stopped declining. And as you can see, they were stable in the year-on-year terms, supported by a 39% increase in new lending.

Regarding profitability, gross margin grew by 4%, while total provisions fell 19%, leading to a net profit of EUR 503 million in the first 9 months of the year. That is 11.5% above the first 9 months of 2024.

This is quite positive because I would like to remind you that a bit more than 1 year ago, when we presented our 2027 Strategic Plan, we explained you that the initial idea was to reach a net income above EUR 500 million in each of the 3 years of the plan, and we have already reached that target in the first 9 months of the first year. This improvement has also allowed us to reach a return on tangible equity adjusted by the excess of capital higher than 12%, while keeping the cost to income ratio at 45%.

Recent trends in credit quality have also remained positive. The net NPAs ratio is now below 1% with gross NPA ratio at 3.7%, which is 115 basis points below the one we had 1 year ago, explained by a significant decrease of 25% in the stock of these assets.

Total coverage continues to grow to 75.4%, well above the 70% that we had 1 year ago. The cost of risk also presented a positive trend, falling to 24 basis points in the quarter, which is below our initial guidance, and that is why we are now improving 2025 guidance.

Finally, the bank's solvency and liquidity have also been strengthened. CET1 improved by 27 basis points in the quarter to 16.1%. The tangible book value per share plus the dividends already paid in the last 12 months grew by 10% year-on-year. The loan-to-deposit ratio remained at 70% and the liquidity coverage ratio close to 300%. So all-in-all, as you can see, during the third quarter, the trends remained quite strong, confirming recent positive trends.

I will continue with the commercial activity on Page 5. As you can see, the total customer funds grew 2.9% year-on-year with the on-balance sheet funds stable and off-balance sheet funds growing 12.6%, supported by an impressive 24% growth in mutual funds. Bear in mind that mutual funds balances have gone above EUR 16 billion compared with less than EUR 13 billion 1 year ago.

On the following page, we show you the details of the assets under management and insurance. As I just mentioned in the previous slide, assets under management have grown 13% year-on-year. In the case of mutual funds, the growth has been 24%. The market share in net inflows remain at 9%. On the right, we show the revenues from these 2 business that have improved by 10% in the last year, representing now 18% of total revenues in the first 9 months of 2025.

Regarding loans during the quarter, total performing loans fell owing to second quarter seasonal advances. Excluding such effect, total performing loans fell 0.7% in the quarter. However, they were stable compared with the same month of last year.

By segments, private sector loans fell 0.8% year-on-year with corporate loans decreasing a bit more than 2% and stable loans to individuals. As you can see, total performing loans are more stable than a few quarters ago, owing the improvement on new loan production that we show on the next slide.

Private sector lending grew 39% year-on-year to EUR 7.1 billion, showing positive trends in all segments one more quarter. Business and self-employed segment is particularly noteworthy where formalizations in the first 9 months grew from EUR 3 billion to almost EUR 4.5 billion, representing a 47% increase. Mortgages, new lending grew 24%. And in consumer lending, we grew another 37%.

On Slide 9, we would like to briefly remind you that we continue to make progress in our commitment to sustainability as part of the Strategic Plan. In addition to advances in social and governance matters, here I want to focus on the commitments made regarding the climate transition, where I would like to highlight a couple of figures.

On one side, we have EUR 2.1 billion in green label bonds issued to date, which have allowed us to save 81,000 tonnes of CO2 in 2024 with ample collateral to continue issuing in the green format.

On the other hand, as you can see, decarbonization targets cover a significant part of the finance portfolio, where we are showing strong progress. This is supported by our sustainable business, which we continue to drive by assisting our clients in their decarbonization pathway and offering specific ESG products.

We now are continuing with the review of the P&L in the next section in Slide 11. Starting with quarterly trends. Net interest income was stable in the quarter, growing by a small 0.2% because lower cost of deposits and wholesale funding compensated the ongoing repricing of loans at lower rates. Total fees supported by non-banking fees were also stable despite the usual seasonality of the quarter.

Gross margin reached EUR 515 million which is 5% below the previous quarter, mainly due to lower dividend seasonality. that, as you all know, is relatively higher every second quarter.

Total costs grew 1% quarter-on-quarter, leaving pre-provision profit at EUR 276 million. Total provisions and other results were better than the previous quarter, among others, because we have a capital gain of around EUR 10 million from the disposal of a banking license this quarter. All these left pretax profit at EUR 232 million and net income at EUR 165 million, which is 5% above the third quarter of last year.

In the first 9 months of the year, the net interest income fell 3.5%. However, higher non-interest income, including a 2.8% increase in fees left gross margin at EUR 1.573 billion. Total cost continued to grow at mid-single digit, in line with our guidance, leaving pretax profit at EUR 862 million, 2% above the previous year. The lower provisions booked this year left pretax profit at EUR 708 million, which is 8% above last year and net income at EUR 503 million, 11.5% higher than the first 9 months of 2024.

As I said before, it is worth noting that when we presented our new business plan 9 months ago, we guided for a net income above EUR 500 million for the full year, something that we have already achieved this quarter.

As we usually do, we will now review the P&L in more detail. Starting with the net interest income, on the next page we have the customer spread evolution. As you can see, customer spread fell 8 basis points in the quarter, mainly owing to the ongoing repricing of floating loans that was only partially mitigated by lower cost of deposits. However, our net interest margin grew 3 basis points in the quarter.

As we have explained in the past, in our case, owing to our balance sheet structure with much more deposits than loans, customer spreads only shows one part of our business with clients because it is not considering the income that we do with the excess of retail funding that comes into the P&L through the structural debt portfolio. This is why for banks like Unicaja with a 70% loan-to-deposit ratio, it makes more sense to follow the net interest income margin trends and not only the customer spreads by itself.

On the following page, we show the details regarding the quarterly evolution of net interest income that grew a small 0.2% in the quarter. As you can see, the lower cost of liabilities, mainly of customer deposits, mitigated one more quarter, the negative impact from the repricing of the loans at lower rates. Two different effects of similar amounts that explain the net interest income remaining stable for another quarter.

If we move now on to fees, we can see how they were stable in the quarter and grew 2.8% year-on-year, a positive evolution explained by higher income from non-banking fees, mainly from mutual funds and insurance that are the 2 business where we are focusing our commercial efforts, compensating the lower banking fees that, as you know, are explained by the implementation of loyalty plans.

In Slide 15, we show the details of the rest of revenues, which also shows a positive evolution in the year on all the lines and mainly due to the new banking tax, which, as you know, is now included in the tax line of the P&L, while in 2024 it was booked in other operating charges.

Regarding total cost, personnel expenses continue to grow due to the salary improvements agreed with the unions and new hirings. Other administrative expenses also reflects some of the initiatives needed to implement our business plan, leaving total cost 5% above the previous year, in line with our mid-single digit growth guidance. In the right-hand side, you have our cost to income ratio that remained stable at 45%.

On the next page, we continue with the cost of risk and other provisions. As you can see on the left-hand side, the cost of risk in the third quarter of '25 was 24 basis points, which is below our initial guidance of 30 basis points, one more quarter. This is why we have decided to formally improve such guidance to below that level for the full year. Other provisions that mainly include legal provisions were lower this quarter, but in line with our current guidance.

Finally, other profit and losses included a positive one-off of around EUR 10 million in the quarter from the disposal of the BEF banking license. Overall, total provisions and other results improved from EUR 279 million 2 years ago to EUR 191 million in 2024 and EUR 155 million in the first 9 months of 2025, a very positive evolution that also has helped to further improve the profitability of the bank as we can see on the following slide.

The ROTE of the bank continues to improve, reaching 10% in September 2025 or 12% when we adjust the excess of capital. As we saw before, our net income has improved from EUR 285 million in the first 9 months of 2023 to EUR 451 million in 2024 and above EUR 500 million in 2025, a significant improvement that has increased our return on CET1 to 17%. As most of you know, we believe that in our case, the return on CET1 is a good reference that isolates the relative larger accounting equity that Unicaja needs to have to fully absorb its higher solvency deductions.

Finally, on the right-hand side, we have also included the tangible book value per share plus dividends that, as you can see, it has grown 10% during the last 12 months.

Let's move now to the credit quality section in Slide 20. As you see in the slide, positive trends remain in place. NPLs are down 20% year-on-year with the coverage growing to 74%. Overall, NPAs are also down 25% year-on-year with coverage also improving to 75%, a very positive trend that remains and leaves total net problematic exposure below 1%.

If we now move to solvency on Page 22, you have the quarterly bridge. Retained earnings represented 21 basis points after considering AT1 coupons and the accrual of a 60% dividend cash payout. The mark-to-market of our stake in EDP added another 9 basis points and the rest of the moving parts, mainly higher risk-weighted assets, explain a small negative of 3 basis points in the quarter. All in all, the CET1 fully loaded, reaching 16.1%.

On the next page, we show you our MREL position. As you can see, our MREL ratio stands at 29.6% in the quarter, maintaining an ample buffer against the main requirements that you have on the right-hand side. Among them, I will highlight the MDA buffer that has grown above 750 basis points.

Regarding liquidity, we continue to have a very strong position with a significant amount of liquid assets, a loan-to-deposit ratio of 70%, the NSFR at 159% and the LCR at 295%. All of them, as we used to say, are best-in-class in liquidity metrics.

Finally, here we show the regular fixed income portfolio details that, as you all know, is a structural portfolio funding with excess of retail deposits. The duration of the portfolio has decreased a little bit to 2.5 years, owing to interest rate risk management. However, the yield has remained stable during last quarters at 2.6% despite the lower rates.

To conclude, let me update you on our 2025 guidance in Slide 27. As you probably remember, in the second quarter, we increased our net interest income and fee guidance. This quarter, owing to the recent positive trends, we are improving a little bit further our net interest and cost of risk guidance.

On the net interest income, as you saw during the presentation, the trends continue to be slightly better than initially expected, among others, owing to the fast decrease in the cost of liabilities that has compensated the negative impact of lending repricing. And So we increased our guidance for the year from above EUR 1.450 billion to above EUR 1.470 billion.

On the other hand, as we have mentioned during the presentation, the cost of risk has been lower than initially expected, and we now believe it will be below 30 basis points for the full year. Because of these 2 upgrades, we now expect the adjusted return on tangible equity to be close to 12%, slightly better than the previous 11%.

Finally, let me finish by reiterating that the first 9 months of the year have been very positive. We have been improving structural profitability while further reducing the problematic exposure and generating additional capital. All these, together with positive commercial trends that we expect to continue to improve further in the coming quarters. As a consequence of all these, our shareholders' remuneration has also improved, and it will continue to improve as we have reflected in our Strategic Plan.

Thank you very much. I leave it here. And we can now move to the Q&A. Please, Jaime, whenever you want.

[Jaime Hernandez Marcos, executive]

Thank you, Pablo. We will start now with the Q&A. Please remember to ask only 2 questions each one. Also remember to mute your line after your questions. Operator, please open the line for the first question.

[Operator]

[Operator instructions]. And our first question comes from the line of Maksym Mishyn from JB Capital.

[Maksym Mishyn, analyst]

Two questions from me. The first one is on the outlook for the NII. Your updated guidance implies a decline in the fourth quarter. Could you please give a little bit more color on what kind of magnitude should we expect? And why should it decline anyway?

And the second question is on the excess capital. You keep on building it. When are we going to get an update on the potential deployment?

[Pablo Gonzalez Martin, executive]

Thank you, [ Maks ]. Let me get you through the outlook for NII. As you saw, we have updated our NII guidance for the year from above EUR 1.450 billion to EUR 1.470 billion. That's above that number. You have to think that we still have a couple more quarters of impact from the repricing of the floating rate loan book, mainly the mortgage book. because the reference has a lag of 12 to 14 months. So this will have an impact.

In terms of the offset that has allowed us to offset the impact of the repricing due to the Euribor referenced in these last quarters have been the lower cost of deposits and the lower wholesale funding.

Regarding the lower wholesale funding and deposits, the trend is going to be lower and won't be able to offset fully the impact from the repricing on loans. And the reasons, as you can imagine is both of them are referenced to short term, the 3 months and 6 months more than the 1-year Euribor. And so most of the deposits and the wholesale issuance has already been repriced last quarters. So taking all that into consideration, I think we have still a couple of quarters of slightly lower NII and then recovering from that.

Regarding the second question on the excess capital and the update, we will update on our strategy on the uses of the excess capital. But what I can confirm is what we said in our Strategic Plan presentation at the beginning of the year is that this year the payout is going to be 60%. And for the whole period of the Strategic Plan, the 3-year was going to be around 85%. And regarding the difference between the 2, it could have different forms as additional dividend, share buybacks or different options. And So it gives you with the 2 years 2026 and 2027 with a close to around 100% payout to our shareholders. And to give -- to be more specific, I think we will do it in the whole year presentation.

[Jaime Hernandez Marcos, executive]

Operator please, we can move to the following question.

[Operator]

Next question from Carlos Peixoto from CaixaBank BPI.

[Carlos Peixoto, analyst]

So if I may, a follow-up on capital. Just on the quarter itself there was a relative impact from RWAs and others of 3 basis points, given that RWAs were slightly up in the quarter. I was wondering if you could give us some breakdown between the effects that are included in there.

A question on the ALCO portfolio. You have a decline this quarter. I'm wondering whether there is a change in strategy? Was this a punctal effect of maturities? Just how should we think about this portfolio going forward?

And then if I may, just a third question on the loan book. You have -- there's a sharp decline in the SME book. I was wondering when could we start to see this trend reverting and also whether this drop is still driven by ICO loans maturing?

[Pablo Gonzalez Martin, executive]

Thank you, Carlos. I think you have 3 questions. I'll try to go through the 3 ones. Within the capital bridge, as you can see, we have -- the mainly driver is obviously the retained earnings and the valuation of our EDP position.

And in terms of the risk-weighted assets, why it goes up, if you consider that we have around EUR 100 million in EDP and also in market risk another EUR 100 million. So most of that increase is explained by that. The remaining is explained by the credit and mainly due to mix position.

And regarding the second question on our strategy for the ALCO portfolio, something has changed. The difference in terms of the impact on the average position of the portfolio is very stable. We already said we found some opportunities. But this year, we didn't have much maturities. For the remaining of the quarter, it's only slightly above EUR 200 million. And we have -- and we use some tactical positioning and fine-tuning with the position.

Next year, we have a much larger, above EUR 2 billion maturities on the portfolios. And this will help us also in the NII for next year. And you have to think it's around 80, 90 basis points on yield, the portfolio that mature next year. So we will take opportunity and reinvest most of the portfolio. Obviously, the size of the portfolio will depend on commercial dynamics and the banking books, how the loan book grows and the on-balance sheet deposits evolve in the year. But the most likely scenario is that it's going to be very similar to the level that we have around EUR 29 billion to EUR 30 billion more or less.

And the third question on SMEs. I think on SMEs, which is the segment that comes down more on a year-on-year basis, it comes down around 8%, 9% on a year-on-year. But I think what matters is the trend. If you look at the year-to-date, it only comes down to 3%. And on the quarter, it's only 0.6% in a seasonal low quarter because of the summer. So we are quite confident. We are turning the commercial strategy. We have developing -- we are developing and implementing some tools for our people, some solutions for our customer, so the value proposition for our customers, SMEs, but also midsized corporates is improving a lot. And we are building the value proposition and confident that the turning in the evolution of that loan portfolio is going to keep improving in the coming quarters.

[Jaime Hernandez Marcos, executive]

Please operator, let's move to the following question.

[Operator]

Next question from Ignacio Ulargui from BNP Paribas.

[Ignacio Ulargui, analyst]

I have 2 questions. One on cost growth. How should we think about cost growth going forward and the cost to income outlook for the next couple of years? Should we expect the cost to income to improve further? And on a 9-month basis, you see a small deterioration impacted by revenue. Should you expect a bit of a normalization on that cost growth?

And then a follow-up question on capital. Could you update us on what should we expect in terms of operational RWA inflation into the full year?

[Pablo Gonzalez Martin, executive]

Thank you, Ignacio. On cost growth, as we explained when we announced our Strategic Plan, we are in a process of improving and developing capabilities and talent in different segments that we are underrepresented in the market. And this implies and also the technologies that we are implementing and the AI and everything of all the new developments. This require hiring new people. We are hiring new people in areas where we don't have internal people, and this requires some investment in terms of cost. Also developing some platforms and implementing some platform and integrating with third-party platforms as well to develop the business.

So in terms of cost growth, I think the -- we haven't guided the market for next year, but I think we will keep investing in improving our value proposition for our customers and developing capabilities in different areas.

Regarding the cost to income, our guidance was below 50%, and we are below that figure and with some buffer because the revenues keep growing. So the [ jaws ] are still positive, and we will maintain this position down the line.

And regarding the impact of operational risk-weighted assets in the first quarter or at the end of the year, it will be around close to 10 basis points. So it's not significant, and we can absorb that with our internal capital generation.

[Jaime Hernandez Marcos, executive]

Please operator let's move to next question, please.

[Operator]

Next question from Sofie Peterzens from Goldman Sachs.

[Sofie Caroline Peterzens, analyst]

This is Sofie from Goldman Sachs. So one of your peers told us today that they have increased their rate sensitivity. Could you remind us what your rate sensitivity is and if you would consider increasing the rate sensitivity in your book?

And then the second question is around kind of inorganic growth opportunities. We saw a failed deal in Spain. Does this create any kind of opportunities for you to think more about kind of M&A? And if you could just remind us how you think about M&A opportunities?

[Pablo Gonzalez Martin, executive]

Thank you, Sofie. Let me go through the 2 questions. I think in terms of rate sensitivity, as we explained, we started to hedge our interest rate sensitivity at the end of 2023 when we got the conclusion that rates were coming down, so we positioned the bank. That has allowed us to have a much lower NII reduction this year than originally expected. And this strategy has performed very well, obviously, within the bands that we can have within the regulatory framework that we have on our balance sheet.

Regarding going forward, we are in a position more confident, and as we heard Lagarde yesterday, now it's more balanced. The ECB is in a good position. The interest rate, I think, is more stable and the optionality could be upside or downside depending on the economic evolution. Our base case is the economy performed well again in Europe, which is the same view that has the ECB, for instance. They consider and they mentioned the improvement considering the evolution of the economy in the major parts of Europe. So we still think we are very stable in terms of rates.

In terms of our positioning, what does it mean? We still this year within that strategy that I mentioned, we have for next year, very flat NII sensitivity, so it's almost close to 0. Very low, very single-digit -- low single-digit interest rate sensitivity for the next 12 months.

Going to the 12 to 24 months, still very low, but in the low to mid-single digit sensitivity. And then due to our -- we haven't renewed, but that's in the third year, obviously. And in the third year, due to our positioning because we have a lot of deposits that had a lot of duration due to their stickiness and the evolution throughout the years. So we, obviously, have more interest rate sensitivity, which we think at the moment is a good position. With a steeper curve and the evolution on rates that we think, we think we are well positioned for the coming years in interest rate positioning. Obviously, we will monitor that. We take decisions every month in the ALCO committee, and we keep trying to do our best to improve what is the original positioning of the bank and manage the interest rate sensitivity.

Regarding inorganic growth and M&A, I think regarding sector consolidation, I can confirm you that we have the confidence and the support of our major shareholders and M&A is not in our road map. Mergers are not easy. They divert the focus of the business. And now we have -- after many years on M&A process, we have sufficient scale and scope to focus on our own business and develop into the full potential of our capabilities. And we still are working on that and focus on that, and we have the full support of the Board and the shareholders.

And regarding other opportunities in M&A, what we are looking all the time it's something that we have to do is within our Strategic Plan, we explained that we want to grow in areas where we have less presence like private banking, like consumer lending. And in those areas, we are developing internal capabilities, looking at new platforms, new agreements and any other type of opportunities in the market. We look at everything if we can speed up that process.

But even if we don't do any bolt-on type of transaction, in this we are obviously looking at anything that has the potential to improve and accelerate our development of those capabilities. And in that sense, we will keep looking at opportunities, always thinking on the shareholder value creation, which is our major objective.

[Jaime Hernandez Marcos, executive]

Let's move, please, operator, to the following question.

[Operator]

Next question from Borja Ramirez from Citi.

[Borja Ramirez Segura, analyst]

I have 2. Firstly, on the NII trends, if I understood well, it may have been mentioned that NII may decline in coming quarters. I would like to confirm if this is correct or this is just the customer spread?

And then my second question would be with regards to the strategic targets for market share in various loan segments, I would like to ask if you could kindly update -- provide an update on your market share targets.

[Pablo Gonzalez Martin, executive]

Okay. Borja, let's revisit a little bit the NII, as it's quite key for profitability down the line. I think we had a view on NII coming down more significantly in the year than finally it has happened. We have changed our guidance twice and again this quarter. And I think it's mainly due to the steeper reduction in cost and the better performance of the hedging and the strategic interest rate positioning of the bank that we have done in the last few quarters.

Regarding the short term, the next quarter, obviously, even increasing our guidance for the year, we still think that we still have 2 -- at least 2 quarters of a significant impact on repricing in the mortgage -- floating mortgage book. And this will have been offset in the last few quarters by lower funding cost, either deposit cost or wholesale funding. And most of that impact is already behind us. If you look at the, as I said, the Euribor 3 months, in the second quarter was 2.10% in the third quarter, 2.01% and now it's 2.03%.

And if you look at the 12 months, it's going up from the second quarter again in the third quarter and for this quarter it's also going up. So we don't think we have a lot of repricing from the liability that has a shorter duration and still some reposition. Obviously, we maintain a very large position in floating rates, on hedges in the asset side, so that will offset a little bit. But obviously, depending on the evolution on deposits and volumes, we will see. But the most likely is that we have lower NII for the next 2 quarters. And from that onward, we're still working, and it will depend, and we will give you more clarity. But obviously, the most likely is that we have some improvement from that level.

And regarding the second question, it's -- if our strategic targets, I think in loans, we have a clear view that we have to improve. We have been improving in consumer for the whole year. And we, as I mentioned before, incorporates we changed the trend. I think it's important to give you some color.

In the performing loans, the market grew around 3% in year-to-date, and we are growing close to 2%. So we are getting close already in this year, and the trends are changing. Obviously, in mortgages, we still have some reduction in the book. And the problem, as you can imagine, is the fierce competition in pricing, and we want to maintain. Our main target is to improve profitability and not volumes. And so we will maintain the discipline that we hope that is coming to the market, but still challenging to maintain the book in mortgages.

Our target is to maintain and even improve the book. But obviously, this will depend on market conditions, not only on our commercial drive, because we have one of the best platform in mortgages. We are confident that our funnel is very streamlined and very well positioned to take the full benefit of the growth in the mortgage lending in Spain. But obviously, it will depend on market conditions. We hope that we'll get to more sense, but it depends, obviously, on how it evolves.

[Jaime Hernandez Marcos, executive]

Please, let's move to the following question.

[Operator]

Next question from Miruna Chirea from Jefferies.

[Miruna Chirea, analyst]

I just had one on fees actually. So if we are looking at year-to-date fees, you are growing very well in non-banking fees. However, the payments and account fees are still very much under pressure. I was just wondering if you could give us an indication of what you expect for next years to look like in terms of growth in fees. And also when should we expect this rebound in banking fees to happen?

And in the non-banking fees, is the level that you have now a sustainable level? Or should we think about a gradual deceleration there in coming years?

[Pablo Gonzalez Martin, executive]

Thank you, Miruna. Regarding fees, we updated last quarter our guidance because we are performing as you said, in non-banking fees, especially in mutual funds, but also in insurance. I think we in mutual funds growing at close to 10% market share and new inflows it's going to be tough, but we will try. And so our strategy in diversifying our income from different sources it's fully in line with this, and we are improving the value that we offer to our customers. So we think we can keep improving and growing the non-banking fees.

And regarding the banking fees, we still think it's going to be challenged for 2026 and then improving from that onwards. But obviously, we have to fine-tune. We have done a lot in terms of loyalty programs and developing and having new value for our customer to increase our -- on the point-of-sale devices. So we are growing significantly on that and the SME value proposition will allow us to increase the transactional fees in the future, but probably next year is going to be challenging again. And we are confident maybe in 2027 is when we will see the increase in banking fees. But for the short term, still challenging in the banking fees, but offset by the non-banking fees that will keep growing.

[Jaime Hernandez Marcos, executive]

Please operator, let's mover to the next question.

[Operator]

Next question from the line of Hugo Cruz from KBW.

[Hugo Moniz Marques Da Cruz, analyst]

I just wanted to ask you about the cost of risk. It keeps getting better. And I was just wondering if you could give us your latest view of your over the cycle level for cost of risk. So when could we start seeing? Would that be a higher level than what you have today? And when could we start seeing the pickup in the cost of risk?

[Pablo Gonzalez Martin, executive]

Thank you, Hugo. I think cost of risk has been another of the good news in the year. We were expecting to be around 30 basis points for the year, and we changed that to below 30 basis points, and obviously, being 24 basis points in this quarter. And the evolution on non-performing loans is quite positive as well, and we still have the view that we can maintain. We are quite confident with the credit quality of the portfolio. We already in the past did the full analysis of all the potential risk.

Obviously, there's still uncertainty in the market. The geopolitical uncertainties is something that we will revisit in the fourth quarter. But going forward, probably the most likely is that we will be slightly lower than even the guidance that we have given. We're confident that our book is very sound and the analysis that we have done. So the fourth quarter is still -- we will review our -- the geopoliticals and the economic uncertainties. But from the actual portfolio, unless we have some economic shock or some geopolitical impact on the portfolio, we're confident that we have a very strong portfolio and cost of risk should be slightly lower in the coming quarters.

[Jaime Hernandez Marcos, executive]

We have time for one more question, please, operator whenever you want.

[Operator]

Next question from the line of Cecilia Romero from Barclays.

[Cecilia Romero Reyes, analyst]

You were mentioning before that NII may fall in Q4 a little bit depending on loan and deposit volumes. Is there room in there to grow the ALCO to support the NII?

And then I wanted to ask on fees. Q4 last year saw a strong pickup on fees of around 4.7% growth. Could we see something similar in Q4 this year?

[Pablo Gonzalez Martin, executive]

Thank you, Cecilia. Regarding the NII, you got the major lines. I didn't mention the other lines on the wholesale funding and the ALCO and liquidity position, I think more or less they will offset. We still -- our view at the moment, obviously, it will depend on the opportunities in the ALCO portfolio. As you know, we are sometimes opportunistic and if we see good levels to get into the ALCO portfolio, some good bonds for the long run, we might do so.

But at the moment, with the numbers and the forecast that we have, it will have a slightly negative impact that will be offset by lower wholesale funding. So more or less, the remaining moving parts of the NII for the next quarter are quite flat. So it's mainly the impact of the repricing of the loans.

And regarding your second question, the fees, if it's going to be better in the fourth quarter, obviously, we always have some seasonality on fees. And we don't have the actual review, but it might be some seasonality as it usually happens. Maybe slightly lower. Last year was a significant one, but we don't know how it's going to be this year. But the most likely is to have some seasonality impact in the fourth quarter.

[Jaime Hernandez Marcos, executive]

Thank you very much, Pablo. Thank you all very much. We'll leave it there, and we are in touch. If you need further info, please do not hesitate to contact the IR team. Otherwise, we'll see you next quarter.

[Pablo Gonzalez Martin, executive]

Thank you.