Oct 30, 2015
Executives
Maria Luisa Gómez Bravo - Head Investor Relations & Shareholders Carlos Torres Vila - President, Chief Operating Officer & Director Jaime Saenz de Tejada Pulido - Chief Financial Officer
Operator
Maria Luisa Gómez Bravo
Good morning, everyone, and welcome to the Third Quarter Result Presentation of BBVA. I am Luisa Gómez Bravo, Head of Investor Relations.
And joining me today are: Carlos Torres, President and COO of the group; and Jaime Saenz de Tejada, our CFO. As in the past, Carlos will begin with the presentation of results, and we will be moving straight on to the Q&A after that.
As you know, we will try to answer as many questions as possible during this presentation, and the IR team will remain available throughout the day to answer any pending questions. So over to you, Carlos.
Carlos Torres Vila
Thank you, Luisa. Hello, everyone.
Thank you for joining us this morning. Before reviewing our quarterly results, I'd like to give some macro context for our footprint.
Given the volatility that we have seen over the past few months especially in the emerging markets. The markets - the global financial markets have been quite affected by a combination of factors and concerns around China and its slower growth.
The lower commodity prices associated with that, including oil and the continuing uncertainty surrounding the Feds' rate hikes extent and schedule of that, and problems of more of a local nature in some relevant emerging countries such as Brazil. And all of that has had undoubtedly an effect on sentiment regarding the emerging markets.
And it will have an effect on growth going forward and inflation as well, on a global level and also in our footprint. Now, even in this slower scenario, slower growth, we still expect growth levels of 2% to 3% for both 2015 and 2016 next year, in the majority of the countries where we operate, assuming on a base case scenario of a gradual slowdown in China.
And our developed economies, the U.S. and Spain, will continue to grow well.
In the U.S., we continue to see solid domestic demand, healthy indicators such as employment and disposable income favored by the lower oil price. In Spain, the macro fundamentals are strong.
GDP growth, this year will be above 3% and next year above 2.5%. And we are seeing eurozone peripheral risks reduced.
And as you have seen, the ECB has reinforced its commitment to additional support as required to support growth. In the emerging market footprint, growth will slow down.
But I would like to distinguish three different areas. In Turkey, we expect growth rates at around 3% for this year and next.
Fundamentals of the economy in Turkey are good. We have high geopolitical risks right now as well as the uncertainty, domestic uncertainty on the political front and also around the economic policies and how to tackle the inflation pressure.
Mexican economy will also continue growing at a slower clip of 2% to 2.5% on the back of the U.S. growth and recovery.
And then longer term, we expect a positive impact in Mexico of the reform agenda that supports GDP growth. And in South America, we have had quite negative effects and headwinds, specific shocks of various natures in various countries and all of that has affected trade and inflation but nevertheless these economies are all in general much better prepared than they have ever been.
And even with the slower China scenario, we see growth clearly above 2%, definitely in the Pacific Alliance economies both in 2015 and 2016. So, all in, despite the turmoil and a, no doubt, slower 2016 than we envisioned a few months ago in our emerging markets footprint, we continue to see overall growth at levels similar to this year.
And now let's move on to the third quarter's highlights. Undoubtedly, one of the strongest points I'd like to make is - of the quarter is the good performance of our recurring net income, both because of good activity growth, as well as how we have been able to manage the spreads.
So recurring revenue maintains a clear upward trend. On the other hand, we have been affected by market volatility this quarter, it has had a negative impact as it has had in the broader sector, but in our case, affecting primarily the trading income and capital as well.
Very good news around loan loss and real estate asset provisions that continue to trend down, mainly in Spain, and that has had a significant bottom-line effect. And finally, this quarter, we have the extraordinary effect that we announced already in July of €1.8 billion negative impact on the attributable profit, non-cash effect due to the change in accounting method in Garanti associated with the increase in the stake to - the additional purchase of 14.89% that we already mentioned in July.
We have also included the sale of CIFH, but that has had no material impact in the P&L of the quarter. And overall, despite the difficult conditions in the market, our quality results excluding the corporate operations that I just mentioned increased by 38.2% versus last year, and that indicates, I think, strong underlying performance.
Now, in this number I just mentioned and all that follow, we're not including Venezuela as we have done in previous quarters but we're also excluding for comparison purposes, the impact of that increasing stake in Garanti, that 14.89% additional stake. We are not including it for comparison purposes.
By the way, the full consolidation of Garanti has started July 1, so it's the entire quarter that we are accounting for Garanti full consolidation. And the quarter at a glance, I was saying the items in the P&L are quite similar in terms of evolution as in prior quarters.
Strong activity growth in all geographies that lead to double-digit recurring revenue growth of around 11% and total net profit, attributable profit without those corporate operations of €784 million in the quarter. Risk indicators continue to improve.
The group's P&L had 5.9%, coverage ratio is 71%, and without Catalunya Caixa both the NPL ratio dropped 100 basis points to 5.3%. In terms of capital, we ended the quarter with a ratio of 11.7% phased-in and 9.8% on a fully loaded basis, leverage ratio of 5.7%.
The capital ratios include the impact - closing impact of both Garanti and CIFH, which combined were a negative 44 basis points as we had anticipated in July. And the ratios have been negatively affected in the quarter, impacted by market volatility both in the equity and the FX markets.
But as markets have recovered now in October, this negative impact has reversed very significantly. A couple of words on the transformation - the journey that we are embarked on.
We continue to secure our road map as planned, which is, in essence, that we want to be a better bank for our customers by developing and providing better solutions to our customers' problems, and leveraging data and leveraging technology in order to achieve that goal. And in that journey, we are continuing to grow in a significant way our digital active customers and our mobile active customers, growing at high rates, as you can see and meeting our goals for the end of the year already or almost, in both penetration and total customer numbers.
In contrast, we also continue to see the activity at branches, at traditional channels continues to decrease. And alternative channels are gaining relevance.
And then on digital sales, we continue to grow very fast. For example, as you can see, consumer loans in Spain through digital reached almost 24% in September, continuing the trend in prior quarters.
And we see similar trends in other products and in other countries as well. And what's important is that we're seeing that digital customers are more engaged.
They're more profitable than non-digital, and they interact more often, which leads to opportunity to sell more product and to provide better service, leading also to improving NPS scores. We're particularly excited about the success of our remote managers service that we've talked about before - the BBVA Contigo.
In Spain, that's achieving very high NPS scores as compared to the rest of the channels and the rest of the portfolios. So, lots of things going on, lots of ongoing projects and very promising results in the transformation journey.
Moving on to the numbers and running through the P&L. Our net interest income, again, this quarter is strong, it continues to grow at double-digit rates on the back of robust activity, especially in emerging markets and the U.S.
So, growth of 12.5% in current terms and 14% excluding the FX in constant terms. And this is something I particularly value, this excellent underlying performance in a low interest rate environment that we have seen.
Revenue growth. Gross income was up, nearly 10% in constant euros.
Excellent performance of net interest income and fees growing 2.5% versus last quarter and 12% in constant euros again versus a year ago. On the other hand though, the volatility in the markets in the quarter has had a significant impact on the net trading income, which has decreased by €350 million versus the prior quarter in constant euros.
Part of this is because in the second quarter, we did include the dividend payment from Telefónica. But all in, total gross income amounted to €5.5 billion in the quarter, growing at 9.6%.
Purchase costs, that grew at 8%, affected by the integration of Catalunya Caixa and also the increasing costs in some emerging markets, mainly Mexico and Turkey. So, we still have positive jaws even with these effects and pre-provision profit, as a result, grew at 7.5% versus last year, reaching €2.5 billion in the quarter, excluding the FX in that growth rate that I just mentioned.
Very good trend as well in the accumulated year-on-year trends, growing 12% in constant euros versus the nine months - first nine months of 2014. In terms of cost of risk, impairment losses have fallen mainly in Spain, and that consolidates the trend that we were seeing and the change in mix that we have already mentioned in prior quarters, of less impairment in Spain versus the rest of the countries.
As a result, the premium continues to go down to 1.1%, evidence of the good risk quality dynamics in all of our franchises. So, good news in this front.
And in summary, for the quarter comparing versus last year, the main trend is the upward evolution of recurring revenue, despite the seasonality that typically we have in many of the countries in the third quarter. Negative impact of market volatility and net trading income; the costs affected by Catalunya Caixa and emerging market expansion and investment plans, significant decline in loan loss provisions, particularly in Spain; and the extraordinary negative impact of the closing of the Garanti and the change in accounting method.
Overall, the net attributable profit without corporate operations was a total of €763 million growing at 38% in current terms versus the third quarter of 2014. In a cumulative basis, the first nine months, the profit of the group reached €2.8 billion, excluding again the corporate operations in Venezuela, and the increased stake in Garanti.
That's up 54% at current euros, so very strong growth. The main drivers, sorry, in year-on-year terms, excellent performance of the income lines, primarily the recurring revenues, positive jaws, so that leads to strong pre-provision profit performance.
That's up 12%. Loan loss and real estate asset provisions fall significantly, which gives good support to earnings growth.
Negative impact of 1.1 of the corporate operations, mainly explained by the sale of CNCB and the impact of the Garanti acquisition. And again, in some strong set of results and excellent performance with high recurrence and positive prospects for the year.
In terms of asset quality, the positive trends that we have been observing in prior quarters persist, risk indicators maintain an excellent trend, NPL is down €3.1 billion over the last 12 months. We don't consider Catalunya Caixa and that's - as I already mentioned because of the decrease in Spain mainly.
NPL ratio is down 41 basis points to 5.9% versus the third quarter of last year and the coverage ratio stays relatively stable at 71%. With respect to capital, in fully loaded terms, the group ended the quarter with a common equity Tier 1 ratio, as I already mentioned at the beginning, of 9.8% on a fully-loaded basis.
I already mentioned, also, the 44 basis points associated with CIFH and Garanti transactions as that was expected. Organic growth in similar numbers to prior quarters, 18 basis points, earnings ex dividends minus 7 basis points of growth of risk weighted assets.
And then we have other impacts, primarily market-related impacts including those associated with FX and equity stakes that amounted to 29 basis points. Now the truth is that the quarter closing date coincided with the bottom of the downturn, pretty much to the day in the markets.
If we take account of the recovery of October and we incorporate that in the numbers, the fully-loaded ratio would be around 20 bps higher. I'd also like to remind you that as we reflect here in the chart, we do not include in our core capital ratios the unrealized gains on the AFS portfolio and sovereign portfolio, estimated in 40 bps.
Also, we continue to expect the recovery of the regulatory equivalence in Turkey, in Colombia and in Peru, which will add 11 basis points. We also had good news in the quarter of guaranteed DTAs treatment that has been cleared by the European authorities, as you have seen.
And overall, we have generated 34 basis points organically year-to-date. We maintain our year-end expectation of a 10% fully loaded ratio.
And we believe the quality of our capital ratios is very strong, showed the highest risk-weighted-asset density and strong leverage ratios, the highest of our European peer group, at 53% density and 5.7% leverage ratio. Moving to some of the details, main points on the business areas.
The overall picture, you can see that we have good performance in all of the businesses, remarkable bottom-line growth in the first three quarters of the year across the board, particularly in Spain, with a 32% growth of the banking activity net profit. Also, the U.S., 12% or 36% in current terms, but strong throughout.
By the way the numbers on the rest of Eurasia are affected by the sale of our stake in CNCB, that's why it's a negative number in terms of the evolution. Starting with Spain, the recovery of the market continues in Spain with similar growth prospects, positive growth prospects supported by demand, strong domestic demand and the dynamism in exports, also helped by the depreciation of the euro.
Lending volumes, we had increased lending volumes. Well, you can see here 11.5%, that's including Catalunya Caixa, that had an impact on that.
But it's a slight decrease of 2.3% without Catalunya Caixa, that's mainly due to the drop in the public sector portfolio following the government decree that was providing financing to some of the government authorities and communities. But we see strong growth in new credit in Spain.
The growth of new operations is maintained, new mortgage loan production for example, growing at 57% in the third quarter of 2015 versus the second quarter of 2015. Consumer lending growing by 48% or SME loans by 31%.
On the customer funds side, we have growth, but also impacted by Catalunya Caixa. Without that, we have a slight decrease impacted by the lower cost of deposits and the impact that has had on volumes.
Quarter revenues, so net interest income and fees are up by 8.2% versus third quarter last year, down 1.1% without Catalunya Caixa as expected given the spread pressure and despite quite robust growth in fees, pension and mutual funds. Gross income growth came in at 12.1% including Catalunya and 3% without it, impacted by the decline in trading income in the quarter.
Costs were negatively affected by the Catalunya Caixa integration and some reallocation of expenses from the corporate center. And the resulting operating income was thus up by 3% below the 12% income growth.
I am fully committed to continuing the costs reduction in Spain. Risk indicators continue to show positive trends also in Spain.
NPL ratio evolving well, closed the quarter at 6.7% due to the drop in non-performing volumes. And the cost of risk falling to 0.6% in the third quarter, and we expect that trend - improvement trend to continue throughout the year on the back of the good evolution of asset quality.
And overall, for the nine months year-to-date, attributable profit grew at 32% that I already mentioned. Gross income growth, supported by positive trending fees, trading income and other income.
Cost reduction, I already mentioned that we maintain our focus on that, although we were impacted by Catalunya Caixa integration. We had improvement in asset quality and declines in loan loss provisions.
That was a good driver of earning growth in the quarter. And then a comment on the distribution model transformation in Spain.
We're moving forward to better serve our customers, as I was saying earlier, through the channel of their choice. I already mentioned our excitement around the remote model.
We're also improving branch and workforce productivity along the way, as the focus continues to shift to value-added services versus the operating tasks. And we're also leveraging more efficient processes and achieving significant cost reductions.
In real estate in Spain, we continue to see improved outlook in the market. Demand is increasing basically in all regions, and inventories are coming down about 20% since a couple of years ago.
The housing trend prices have turned positive. Mortgage loan originations are strong, as I already said.
Sales, we still focus on value. In fact, that has been what we have been doing in the last few months, kept on selling at prices above net book value.
And that generated capital gains in the year up to €73 million in the nine months, the first nine months. Net exposure to real estate assets continues to go down.
Excluding Catalunya Caixa, net exposure came down by 11% versus a year-ago. And the combination of lower loss provisions followed impairments and higher capital gains on the sales has led to less losses than last year, €407 million, which is 36% less loss than a year ago.
In total, in Spain, the aggregate P&L shows positive evolution of both the banking and real estate businesses. In every line of the P&L, in total, it's €694 million profit, which is up almost €500 million from a year ago.
And now, moving on to the U.S. I already mentioned the macro environment in the U.S., quite supportive of growth in that environment.
The U.S. franchise continues to have good growth in volumes, 13% in lending, 8% in customer funds.
New loan production is growing strongly driven by retail as well as commercial. In terms of results, net interest income keeps improving despite the low interest rate environment and the spread pressure that goes with it.
Gross income grew at 3.3% compared to third quarter of last year. And the cost control efforts have enabled us to achieve double-digit growth rates in operating income, 12% in the quarter.
Asset quality and risk management indicators, the best among - the best in the group. In the third quarter and beyond, 0.9%, in line with the previous quarters and cost of risk at very, very low numbers.
Year-on-year, P&L dynamics similarly strong, and strong bottom line growth. So the growth in activities reflected in the net interest income performance.
We, as you know, also have the positive sensitivity to the hikes that might come, as the Fed shifts to rising rates. Costs continue to be under control in the U.S.
flat trend, and that leads to operating performance that grows nearly 13% in the year. Loan loss provisions are, as I said already, quite low, and the net attributable profit, €410 million, up 12% in constant levels, in constant euros.
In Turkey, as I already mentioned, all the figures that we show here are shown excluding the increase in the stake for comparison purposes. So year-on-year, the activity has grown at a fast pace, 22% in lending, 30% in customer funds.
Core revenues growing at 21% driven by net interest income with good growth because of the activity and also because of the good spread management. Gross income was down however by 1.7% quarter-on-quarter versus a year ago, sorry.
And that decline is due to the trading income performance. Trading income fell during the quarter mainly due to market volatility effects and the inflation-linked bonds.
And that negative impact of the CPI linkers will be offset partially in coming months following the trend in inflation that we have seen already in Turkey. The revenue trend and the increasing costs, due to nonrecurring items and the negative impact of the depreciation of the lira that has had an impact in costs as well in the IT costs, has led to an operating income that declines by 21.5% versus the third quarter of last year.
In terms of risk, risk management in Garanti shows good metrics, positive P&L, and coverage ratios, and stable trends that confirmed the quality of the assets of Garanti Bank. Coverage ratio at 119, NPL 2.6 in line with the prior quarter and also low cost of risk.
And for the nine months, slight decrease in the bottom line affected by the negative trading income performance that I mentioned, but good business trends in particularly partially offset by the FX performance. I would highlight the excellent - net interest income thanks to active spread management, negative trading income because of the downturn in markets and the inflation-linked bonds.
The increasing costs, very significant but impacted by nonrecurring items. And if we were to include the additional stake, the additional 14.89%, the attributable profit would be 200 - or is €249 million in the first nine months.
Going forward, we're still optimistic and satisfied with the investment in Garanti. We see that Turkey continues to show strong robust activity levels and high business activity growth rates.
Good asset quality and good risk management performance indicators, so that reflect healthy underlying asset quality. And of course it's a leading bank, a leading franchise in the Turkish market, the most advanced banking technology in Turkey.
Moving on to Mexico. Once again, Bancomer has had good performance despite the less favorable macro.
Activity grew at double-digit rate during the first nine months both in lending and in customer funds. Lending, mainly driven by wholesale portfolios, growing above 20% while the retail book is growing at 7%.
So, we have consolidating this change in mix that we've been seeing in prior quarters. Core revenue is growing at 9% as compared to the third quarter of 2014, driven by improvements in net interest income with strong growth of 11%.
And this top line growth has translated into the P&L operating income of €1.1 billion in the third quarter growing above 8% as compared to the third quarter of last year. In terms of asset quality and risk management, indicators continue also with positive trend.
And this reflects the healthy underlying asset quality deal of our Mexico business, very favorable comparison with peers and this is really a result of the strategy that we follow and our anticipation and early exit from the riskier segments. Coverage ratio is stable at 121%, NPL coming down to 2.6% in line - a little bit down from prior quarter, and also lower cost of risk, 3.3%.
For the nine months, net interest income showed also good growth of 10%. On the net interest income line, gross income growing at 7.3% impacted by slightly lower trading income and lower dividends.
Operating income performing in line at 7.2%. And in aggregate, for the nine months, Bancomer generated €1.5 billion, a little bit more than that, up 10% from last year.
Clearly, Bancomer is the clear market leader in the Mexican system with sound management, improving risk indicators, gaining market share in lending, and stable in funding, a leader in efficiency, profitability, capital adequacy, a very strong bank. And moving on finally to South America.
We talk about South America all this ex-Venezuela. In the annex, you can see the details of the Venezuela P&L.
But the region continues to be a relevant contributor to the results of the group. Business activity is strong, dynamic growth rates and that's reflected in revenue in the P&L.
Net interest income growing 12%. In the quarter, commissions, also with good performance, growing at 11%.
We also have high growth rates in costs explained both by the investments and the expansion plans in the region and the high inflations in some of the countries like Argentina. And overall, we have attained €611 million which is almost 7% growth.
Risk, very strong, very good indicators; coverage ratio, 123%, similar to last quarter. NPL, stable as well.
Cost of risk, 1.2%, coming down. So, we see a region that continues to show dynamic activity rates, but strong metrics in credit quality.
And now, as I've said earlier, despite the negative impact by the external headwinds and some specific shocks in some of the countries, we see a positive growth on an accumulated basis as well, especially in the Pacific Alliance economies. In the nine months, we have net interest income growing almost 12% as compared to last year.
Gross income, above 11%, and the growth in costs, as I mentioned, can be explained by the investment plan in the region. And on the net attributable profit line, €689 million contribution growing up by 7% versus 2014.
And overall, summing up, as you have seen throughout my slightly long presentation - sorry for that - the third quarter results have been affected by the market volatility and the noncash item related to the change in accounting method of the Garanti Bank. But we see operating trends in all of the businesses that are very positive.
And that's why we can say that we are on track to meet our capital guidance and our P&L guidance and looking at the future and the future trends, thanks to our diversified portfolio. We will be able to maintain our recurrence and our delivery in earnings.
We're optimistic regarding our footprint. Developed countries are recovering their macro and that will support our results.
And in emerging markets, results and asset quality trends remain solid despite lower macro expectations. Now, I'll give the floor back to Luisa so we can begin the Q&A.
Luisa?
A - Maria Luisa Gómez Bravo
Thank you, Carlos. We will go off straight away to the Q&A because we have plenty of questions today.
Starting off with Capital. Francisco Riquel from Nmas1, Stefan Nedialkov with Citi, Robert Noble from RBC, Alfredo Alonso from Kepler and again Francisco Riquel from Nmas1.
Could you give some detail on the CET 1 changes in the quarter. I'll just read all the questions together so that we can answer in a more efficient way.
Could you give some detail on the CET 1 changes in the quarter? Can you elaborate on the 29 basis points market related impact in capital?
Why is this so negative? Can you detail what is the available for sale exposure which is impacting your capital ratio?
What is the FX impact on capital ratios? What has been the cost of hedging?
Please break down the quarter-on-quarter increase in RWAs by organic growth ex foreign exchange, Turkey ex foreign exchange, foreign exchange and others. So, Carlos?
Carlos Torres Vila
Yes. Thank you.
Thank you for the questions. So, on capital, I think it's important to give a bit of color to better understand what has happened in the quarter and what we can expect going forward as well.
I would start by repeating what I said just now in the review of the presentation that we have had quite an exceptional of quarter in terms of the market evolution. It's really an exceptional downturn that we have not seen such a movement on a quarterly basis over the last seven years, actually since the Lehman Brothers event, in many of the markets, and that has affected our footprint, in particular, quite sharply.
Currencies within our footprint were really down in a sharp way quarter-on-quarter. Depreciations, for example, of 8% on the Mexican peso or 17% on the Colombian or 13% on the Turkish lira, et cetera.
So, that's quite worse than even the second quarter of 2013 when tapering started. The same applies to the evolution of our main equity stakes which have had in the quarter very sharp corrections.
Telefónica was down 15% and the remaining stake that we have in Citic went down 18%. So, it's this market volatility that has impacted our core capital in an extraordinary way, in a very significant way as well, and as I was saying, the combined effect of the market movements and others was 29 basis points.
And to the questions on the specifics, I'll give the highlight and then IR can probably give more detail if needed to those of you who have more questions. But I would say that this is distributed, more or less, on an evenly way between the various effects of the mark-to-market on the non-sovereign available for sale portfolio, which is mainly the two stakes I just mentioned, Telefónica and Citic.
Again, I remind you as I just said that we do not incorporate the gains on the sovereign portfolio, the available for sale sovereign portfolio. But we do apply the sovereign filter, and those represent 40 basis points as of September.
The second element of impact has to do with the treasury stock position. And the third of the impact has to do with the impact on capital of the depreciation of the currencies even after the FX hedging strategy and the natural hedge that that ratio has.
But again, it's really a very unusual quarter as of today. The market has recovered about two-thirds of the movement, so there'll be about 20 basis points that we would add if we did a pro forma.
And also this was the quarter on a year-to-date basis, and thanks, to a large part, to our successful hedging strategy, the FX impact year-to-date is almost negligible. It's positive actually, 2 basis points.
Similarly, with the treasury stock, it's also positive. And the stakes in Telefónica and Citic are slightly only impacting the ratio.
Now, going forward, I would highlight our ability to generate capital organically. We have shown over the last few quarters, including this third quarter, that we're generating 11 basis points per quarter.
So that means that, going forward, our capital ratio, as I just said, we'll be finishing the year at or above 10%, and then that ratio should be increasing over the year 2016 on a fully loaded basis. That is what I just mentioned.
And then again, the comments I made during the presentation around the fact that given our business model, we are very comfortable with our capital ratios. We have high quality capital.
We have high density of risk-weighted assets, the highest, actually, leverage ratio also of the peer group. And the other comments I just made on the sovereign filter.
We have seen during the quarter that DTA issue that some of you might have had, all the uncertainty has been cleared by the commission. And then, we also expect to recover the regulatory equivalence in several countries, adding up to another 11 basis points.
So, in sum, it was a very tough quarter, very unusual quarter in the series, in the historical series, but we are comfortable where we are, where we will end up at the year and how it will evolve next year.
Maria Luisa Gómez Bravo
Okay. Thank you.
A few more questions actually on capital. Stefan Nedialkov from Citi and Raoul Leonard from Deutsche Bank are asking what drove the €3 billion decline in equity, and specifically also, tangible book value per share including valuation adjustments.
So, quarter-on-quarter, how much of this we'll recover? If you add back in the two quarters split dividend, and October's market-related impact, the 20 basis points fully loaded that we referred to on slide 14.
Can you give us the sensitivity of euro versus Mexican peso currency movements to your tangible net asset value and core capital fully-loaded ratios, so we can forecast this going forward, Jaime?
Jaime Saenz de Tejada Pulido
Yes. Good morning to all.
Okay. Regarding the evolution of total equity, total equity went up by €2.6 billion in the quarter but it's true that shareholder funds were down by minus 2.3%.
The main explanation, as you can imagine, is a minus €1.1 billion loss that we had in the quarter and then the two dividends that we had to recognize also took out an additional billion. The valuation adjustments are down by €650 million, and in the three, it's roughly all the available wholesale portfolios in here.
There is no filter. We're talking minus €500 million.
And then the FX movements add an additional €250 million. In this quarter, as we have the full consolidation of Garanti, our minority interest increased by €5.6 billion which adds to that €2.6 billion in total equity that we have.
Regarding sensitivities and how much we will recover, as I just said, we had a very good performance in the scrip dividend, that was closed a week ago, 89.7% of our shareholders wanted to receive shares. So we will recover around €500 million in the fourth quarter.
And as Carlos has already mentioned, market volatility has allowed us to recover already 20 basis points. So I would say that a significant piece of what we've lost in the third quarter has already been recovered.
In the case of sensitivity to the Mexican peso, I think we've shared in the past these numbers. For every 10% devaluation of the peso, we lose 7 basis points in core.
So, we closed the quarter at around MXN 19 against the euro. We're now at around MXN 18.3, so, a portion of the recovery has been - has had to do with Mexico already.
Maria Luisa Gómez Bravo
Thank you. More questions on capital.
Stefan Nedialkov from Citi asks have you received your stress requirement? And are you comfortable with it?
Carlos?
Carlos Torres Vila
Oh, well, as you know, this is a dialogue between the supervisor and the banks on a bilateral basis. And we have had meetings as part of that dialogue.
We have also received a draft of the letter but have not received the final one. And we are very comfortable with what the letter says and the requirements associated with it.
Maria Luisa Gómez Bravo
And going on, Daragh Quinn from KBW, Stefan Nedialkov with Citi, Alexander Patelski from Kames Capital and Carlo Digrandi from HSBC asks where do you see your core Tier 1 ratio at the end of this year? What is your objective for capital in 2016?
And do you think this is the lower limit? Did you reiterate your dividend policy for 2015?
And what do you expect to pay in dividends in 2016?
Carlos Torres Vila
I think we already touched upon some of those. So, end of the year we'll be at or above the 10% that we envisioned for 2016.
We see that ratio going up given the capital generation that we're having and the other effects that I mentioned. Dividend policy, there's no change neither now nor for the future, so that we remain with the policy of gradually transitioning to a cash dividend with a payout ratio of 35% to 40% over the next couple of years.
Maria Luisa Gómez Bravo
On DTAs, Andrea Filtri from Mediobanca, Raoul Leonard with Deutsche Bank asks if we can indicate how the DTA-DTC levy will impact our P&L. Will you be able to net off historical taxes paid by Unnim and Catalunya Bank in your calculation of your net DTC position?
Carlos Torres Vila
Yes, we will. And in terms of the impact, we don't have a final number, but the estimate we have.
It's around €70 million after tax for 2016. And then that will be coming down as we, of course, pay taxes.
And the asset - the deferred tax asset base goes down.
Maria Luisa Gómez Bravo
And Samir Desai from Morgan Stanley asks, following the consolidation of Garanti, do you have any near-term plans to issue a Tier 1 and/or Tier 2?
Carlos Torres Vila
We do not have any near-term plan to do an issuance in Garanti. Of course, we're monitoring the evolution of the core Tier 1 ratio and the total capital ratio, which has been affected by not only the FX volatility, but also by the market volatility in Turkey.
But we feel that we have sufficient levers at our disposal in the next few quarters to increase significantly these numbers and we don't expect anything in the short-term locally. At group level, we haven't done any Tier 2 transactions this year.
As you know, the bucket is at - the 2% bucket is at 2.8%, so it's filled already at 2.8%, so we are very strong there. So, no short-term needs.
And in the case of the Tier 1 bucket, at the 1.5%, we are already at 1.1%. You know that we've done transactions not only at the beginning of each year.
We will see what is the situation in the market. But yes, I think we still have one more transaction to go to fill completely the Tier 1 bucket.
Eventually we will do it.
Maria Luisa Gómez Bravo
Moving on to FX to forex, Stefan Nedialkov from Citi and Britta Schmidt from Autonomous asked how much was the P&L FX hedging benefit or loss in the third quarter? How much FX hedging benefit goes away in 2016 versus 2015 and what are your hedging plans for 2016?
Jaime Saenz de Tejada Pulido
Okay. Let's start from the last questions.
Our hedging policy has not changed regarding earnings. We will try to hedge between 30% and 50% of earnings on a 12-month view.
The 2015 fourth quarter P&L is hedged at around 50%. And 2016 hedging is still in the low range of the numbers that I've shared with you because we do believe that the lira and the Mexican peso should not behave as bad as they've had in the last few months.
Regarding impact in the quarter on the hedging policy, FX has been negative. FX impact in the quarter has been negative.
On the year, without Venezuela, we've been able to have a positive impact of €131 million and €24 million of those comes from actual hedging. Okay.
So, that's I think the answer to the first question.
Maria Luisa Gómez Bravo
Britta Schmidt from Autonomous also asks if the trading loss in the corporate center is largely FX-related.
Jaime Saenz de Tejada Pulido
No. We have a positive on the corporate center because of FX movement, as you can imagine, in this quarter.
The loss in the corporate center has mainly to do with the equity portfolio that we have accounted there.
Maria Luisa Gómez Bravo
Alexander Patelski from Kames Capital and Tomas Nicolau from MainFirst asks if core capital hedging policy across geographies especially in Turkey, do you hedge Bancomer's equity from FX volatility, I think...
Jaime Saenz de Tejada Pulido
Yes. I think I've already answered that.
We are thinking about increasing our hedging percentage as I've just said, until we are around 50% in terms of core. All the excess in core that is not naturally hedged by the ratio is what we hedged.
We hedge at 50% and we are thinking about increasing that to probably 70% and this is something that we will do in the course of the following quarters.
Maria Luisa Gómez Bravo
And Daragh Quinn from KBW asks how big a depreciation do you think there could be in Argentina and what is the sensitivity of capital to any depreciation there?
Jaime Saenz de Tejada Pulido
In our case, well the book value of Argentina is roughly €900 million. In countries in Latin America, we operate with a huge asset density.
So, as you've been able to experience when we did a very significant adjustment in the first quarter in Venezuela, that did not lead to any impact whatsoever in our core capital ratio. So, that would be what we would expect if anything happens in Venezuela regarding the currency.
The peso is now at 10.9 roughly. Our research department believes that it could go to maybe 14 during the course of 2016.
But that probably very much depends on who eventually wins the presidential election. So, I would say that we still have a sufficient, unknown facts to have a certain answer there.
Maria Luisa Gómez Bravo
Okay. We're moving now to questions on business areas.
Let's start with Spain, the banking business. And we'll start with spreads.
Let's start with lending spreads. Johan De Mulder from Bernstein, Mario Ropero from Fidentiis, Daragh Quinn from KBW asks if you can give more detail on front and back book lending spreads.
What is the average duration of your back book? What is your opinion on asset spreads going forward?
Is competition over? And then on the deposit cost, Mario Ropero from Fidentiis asks if we can talk a little bit also about the front and back book levels of time deposits in Spain.
Jaime Saenz de Tejada Pulido
Okay. I think on this front, I'm going to talk ex Catalunya Caixa.
And then, I'll give the numbers for Catalunya Caixa because they complicate the comparison. I think we had a very good quarter.
I don't think that competition is going to go away. But from what we've seen in this third quarter, I think it seems like we are acting much more rationally in Spain.
And I say this because the front book in mortgages is flat in the quarter. We just lost 1 basis point there, from 190 basis points to 189 basis points, that's the spread.
In the commercial portfolio, we increased the spread - in the consumer loan portfolio, sorry, we increased the spread from 679 basis points to 683 basis points. The spread going down in the public sector portfolio, 13 basis points to 87 basis points.
We saw an increase in the midsize segment, in the midsize company segment from 202 basis points to 215 basis points, and we also saw an increase in the corporate segment from the very low second quarter that there were some one-off transactions from 138 basis points to 172 basis points in the segment, so very positive news I think on the loan side. The trends on the funding side remained pretty much the same in the third quarter.
Time deposit cost went down by 4 basis points over the second quarter from 30 basis points to 26 basis points which allowed the total stock of time deposit to go down by 19 basis points from 93 basis points to 74 basis points. This has allowed BBVA ex Catalunya Caixa to increase the customer spread by 2 basis points in the quarter to 198 basis points from 196 basis points in the second quarter which was also an increase from the first quarter that was 193 basis points.
Now, it's important to realize that the minus 9 basis points that we've had in the loan deal side, again, this quarter, 70% of it is due to the lower Euribor rates that we are still experiencing, and only 3 basis points is due to actual competition. The overall deposit cost went down to 11 basis points, went up - yes, went down, sorry, 11 basis points from 56 basis points to 44 basis points, so minus 9 basis points plus 11 basis points leads to plus 2 basis points, and I think very positive news in this third quarter.
Maria Luisa Gómez Bravo
And on public sector loans, Raoul Leonard from Deutsche Bank asks about our public sector lending portfolio strategy. Can you give us color on the size and can you give us some color also on the yield of this portfolio in the third quarter?
And what impact that the government ruling have on reducing this? And will you substitute this income through government sovereign bonds?
Jaime Saenz de Tejada Pulido
Okay. I think in the question of spreads, we already talked about it.
The thing that I didn't tell you, Raoul, is that the total spread of the book is currently at 191 basis points, okay? That was the only bit of info that I didn't give you.
Okay. Regarding this portfolio, which we're talking roughly €24.3 billion.
This is a very significant news this quarter. It went down by 6.3% quarter-on-quarter.
I think it's remained surprisingly stable during the first six months of the year. But all along the year, we've been sharing with the market that the impact of the Royal Decree that was issued at the end of last year will eventually have an impact.
And that we will probably concentrate it in the second half of the year. So that is what has actually happened.
And more should go down in the fourth quarter of the year. On the sovereign bond side, nothing is changing.
Our sovereign - our ALCO portfolio remains exactly the same. That's roughly €37 billion, and our overall public sector exposure remains exactly the same at around €33 billion.
So, the numbers are completely stable.
Maria Luisa Gómez Bravo
Thank you. Moving on to some questions on NII, although I think we've answered a few of these perhaps but Daragh Quinn from KBW, Stefan Nedialkov from Citi, Britta Schmidt from Autonomous, Raoul Leonard from Deutsche Bank, Andrea Filtri from Mediobanca, Arturo de Frias from Santander, Francisco Riquel from Nmas1 asks, first of all, the customer spread declined 5 basis points in Spain quarter-on-quarter to 1.83%.
What is the outlook in coming quarters? And do you see any lessening of assets spread competition and increase in the profit costs?
Do you still expect low-single digit growth in loans and NII in 2015 in Spain? And what is the outlook for NII, NIM, and loan growth in Spain for 2016?
Jaime Saenz de Tejada Pulido
Okay. The way I answered the question before was without Catalunya Caixa, and that's the way we explained it.
They're plus two in the quarter. With Catalunya Caixa it's minus five, and that's because Catalunya Caixa's customer spread went down by 33 basis points in the quarter from 119 basis points to 86 basis points because of the removal of the floors, okay, which was something that we knew it was - we were going to do and it was taken into account when we bought the franchise.
Regarding volume growth, I think that if we take out what is happening in the public sector portfolio that I just talked about, I think that the dynamics in the retail side remain pretty much the same. The consumer loan book is growing.
The mortgage portfolio is - will end up the year around minus 2% as we were expecting, so no major news there. We've seen a decrease in the commercial portfolio this quarter.
This has been the first time that this has happened in the last four quarters. We've been growing roughly at about €1 billion per quarter since the third quarter of last year and this has changed a little bit of the trend although we believe it is for different one offs, so we're pretty sure that that trend will change, so that we will be able to be flat year-on-year in terms of volume ex the public sector portfolio.
That, with the good behavior of customer spreads that we are having ex Catalunya Caixa, allow us to be confident that we'll be flat to a slightly positive in NII in 2015. And as you all know, we don't get give guidance for 2016.
Maria Luisa Gómez Bravo
Let's move to costs Alfredo Alonso from Kepler, Francisco Riquel from Nmas1, Stefan Nedialkov from Citi, Britta Schmidt from Autonomous, Daragh Quinn from KBW, and Mario Ropero from Fidentiis asked the following questions on costs. What part of the increase of expenses in Spain is due to the non-recurrent items?
Which ones have been registered in the quarter and how much could be expected in next quarters? Please, could you quantify the allocation of costs from the corporate centers to Spain?
What drove costs in Spain so high, the cessation? Outlook for fourth quarter in 2016?
Can you explain the jump in costs in Spain during the third quarter and what is the cost base expected post Caixa Catalunya synergies in 2016 and 2017.
Carlos Torres Vila
Okay. Let me take that one Jaime.
On costs, the - first of all, the increase that you have seen in Spain has nothing to do with the digitization, so that is very clear. In fact, we will be expecting that digitization will be driving efficiencies as I mentioned during the presentation as well.
We are already seeing increases in productivity that are quite impressive in some of the products. We were only showing illustratively, for example, the consumer loans, but within that for example, I recall about a year ago, I was presenting in a conference to some of you in London and was giving some statistics on how, for example, the financing of credit card transactions through the mobile phone was exploding and growing exponentially, doubling the total amount of loans that the bank with financing including all channels, in just a few months.
Well, that trend has continued and if we were doing before that functionality was available on the phone, we were doing around 7,000 to 8,000 loans of that type per month, we had already doubled that by October last year to around 15,000. Well that number now is around 30,000 per month.
So it has quadrupled the total amount and the exponential trend continues. And that is happening in product after product with some variations, of course, on the rates of growth but it's happening throughout.
So, digitization will have a positive impact not a negative impact on our numbers and that includes costs. So, what has driven costs is really the, of course, the integration of Catalunya Caixa that this quarter is contributing three months fully in the quarter and was only two months in the second quarter, and, of course, it was not there last year.
And then the allocation of expenses that we have referred to from the corporate center to Spain which is just a reallocation, it's not a cost increase. The reallocation, it's almost finished but there might be some fine tuning in the fourth quarter around some cost categories that we're still to reallocate.
And apart from those two things, the underlying trends excluding them remain in line with the expectations to meet the decrease year-on-year by the end of this year that we mentioned of around 3%. This is clearly an area of focus as we strive to improve efficiency, which, as you know, is one of the six priorities that I shared last quarter.
So, we expect to meet that guidance.
Maria Luisa Gómez Bravo
Okay. Just a follow-up question on NII and to clarify.
Alvaro Serrano from Morgan Stanley asks if the flat positive NII in Spain guidance that we gave, does it include Caixa Catalunya or is it excluding Caixa Catalunya? Alvaro, the guidance that we gave is excluding Caixa Catalunya.
And the last question on Spain, regarding the ALCO portfolio. Stefan Nedialkov from Citi and Robert Noble from RBC is asking about the amount of yield and the duration of the book in Spain.
Carlos Torres Vila
The numbers are pretty much the same as they were last quarter. The total ALCO portfolio is €36.6 billion versus €36.7 billion, duration is 3.4 years versus 3.5 years, and yield is around 2.75% something like that, okay.
And those are numbers excluding Caixa, okay.
Maria Luisa Gómez Bravo
Okay. And one question on asset quality, Andrea Filtri from Mediobanca asks if we can guide on loan loss provisions in Spain in 2016.
Jaime Saenz de Tejada Pulido
What we've said for loan loss provision in 2016 is that it should be between 60 basis points and 65 basis points cost of risk, the good behavior that we're seeing in Spain, I think, gives us a lot of confidence that we should achieve then.
Maria Luisa Gómez Bravo
Okay. And Carlos Peixoto from BPI asks regarding mortgage floors.
Do you believe that any retroactive impacts could be in force for BBVA if the European court rules that floors declared null have full retroactive impact? What would be the impact of full retroactions?
Carlos Torres Vila
Yeah. There has been some news this week on this and maybe too much.
As you know, we had a Supreme Court sentence that caused us to stop applying the floors to all of our clients starting in May 13. And this is a final decision by the Supreme Court of Spain, and we believe that, as the commission believes as well, that the matter, as it regards, BBVA has been judged, and it's final.
So, we don't expect any impact coming from that in our particular case.
Maria Luisa Gómez Bravo
Okay. Let's move on to Mexico, and I'm going to have to speed up a little bit here so that we can go through all the questions that remain.
And I'm a little bit conscious about time. Mexico.
Alfredo Alonso from Kepler, Stefan Nedialkov from Citi asks what are the reasons for pressure on NIMs to Mexico and what the outlook for 2016 is? Regarding competition in loans, Stefan Nedialkov from Citi asks if we are seeing increased competition in lending.
And regarding NII, I have three questions as well. Arturo de Frias from Santander, Raoul Leonard from Deutsche Bank asks regarding NII or NIMs fell 28 basis points quarter-on-quarter to 5.7%.
What is the outlook for margins going forward? What is the outlook for NII in terms of volume growth versus NIMs.
Which loan segment are you focusing on? And if we could update our guidance and expectations regarding loan growth and NIMs in Mexico in 2015 and 2016?
And finally, on NII as well, if we can explain the P&L sensitivity to the Fed's interest rate hikes.
Jaime Saenz de Tejada Pulido
Okay. I'll try to go fast and try to answer everything.
This quarter, we've seen a very significant growth in loan volumes. So, yes, we might have competition.
But quarter-on-quarter growth has been 5.1%, when year-on-year is 15.2%. So, Bancomer's franchise is growing very strongly.
This is allowing us to increase our market share overall. This has been the case year-on-year, once again.
This growth is being driven by the commercial portfolio which enjoys lower spreads than the credit card portfolio that we continue to experience in the financial side, lower increases. And that's what is leading to a smaller customer spread which is down slightly to 10.6% in the third quarter of this year from 10.9% in the second quarter of 2015.
This explains that this 15% year-on-year growth in volumes, because they are true for loans and customer deposit, has only translated in a 12% growth in NII ex-global markets, because, as you know, especially at the beginning of the year, the global markets area did not perform well. So, even with the country growing at roughly 2%, the behavior that Bancomer is having is very strong.
And this is having very positive consequences in the cost of risk side which is clearly below the expected guidance of 350. Our sensitivity in Mexico to interest rate increases is a little bit below 2% for every 100-basis-point increase in the curve.
And we do expect the central bank to follow whatever the Fed does.
Maria Luisa Gómez Bravo
Okay. Moving on to costs in Mexico, Stefan Nedialkov from Citi, Britta Schmidt from Autonomous and Francisco Riquel from Nmas1 asks if you can explain the jump in costs in Mexico and when shall we expect positive jaws if any?
Jaime Saenz de Tejada Pulido
I think the main reason for the deterioration in Mexico, which is the main reason also in Latin America, is the FX impact. We have contracts denominated in U.S.
dollars and a very significant depreciation in the quarter is affecting the cost side. And then things that we knew that were going to happen like the double cost that we're experiencing this year because of the two buildings that we are currently operating.
The best that I think we can achieve this year is for flat jaws. I don't think that we are going to be able to generate positive jaws this year.
Maria Luisa Gómez Bravo
Okay. And another question as well is do you stick to this 10% profit growth target in local currency for 2015?
Jaime Saenz de Tejada Pulido
Completely. And I think the quarter has shown that Bancomer is getting closer to that number.
We've been improving the top line quarter-on-quarter every single quarter during 2015 as we were expecting, and the same is true for the bottom line. We are at 9.6% and sufficiently close to the 10%.
And there's always a seasonality and the fourth quarter tends to be very strong in Mexico.
Maria Luisa Gómez Bravo
And in asset quality, Francisco Riquel from Nmas1 asks if we can comment on the outlook for the asset quality and cost of risk in the coming quarters in Mexico.
Jaime Saenz de Tejada Pulido
I think I've already mentioned that. I mean, NPLs have fallen by 21 basis points in the last three months, cost of risk is below our initial guidance.
I think trends remain very positive. The cost of risk in the quarter you've been able to see it in the presentation of Carlos, 3.3%, I think also helped by the change in mix.
Clearly, the dynamics are very positive there.
Maria Luisa Gómez Bravo
Okay. We move to South America, Mario Ropero from Fidentiis asks when can we expect a relaxation in the level of growth of costs?
Jaime Saenz de Tejada Pulido
I think I've already answered. I think partially it's due to the depreciation of the local currencies.
Many service agreements that we have in the region are denominated in dollars. And I think that's the most important reason.
Apart from that, expansionary plans that we had in some countries until last year. So, that's the only reason.
Maria Luisa Gómez Bravo
Okay. And on asset quality, Robert Noble from RBC and Francisco Riquel from Nmas1 asks if we can comment on the outlook for asset quality and cost of risk in the coming quarters.
And Latin American cost of risk is surprisingly good compared to previous guidance of increasing into year-end. Should we expect this to continue?
Is there any impact from lower commodity prices and provisioning yet?
Jaime Saenz de Tejada Pulido
Yes. Cost of risk is good overall.
It's better than expected in the U.S. It's better than expected in Mexico.
It's better than expected in [indiscernible], so around what was expected in Spain, lower in Turkey and that's also the case in Latin America. We were expecting between 15 basis points and 20 basis points deterioration year-on-year ex-Venezuela and only 10 basis points have been reflected in the P&L in year-on-year - sorry, year-to-date and so the quarter has shown an improve of 5 basis points and dynamics are very good.
We haven't seen so far any deterioration in pretty much any country and except probably Peru. Peru and slightly Colombia are the only countries where we're seeing slight deterioration in the cost of risk.
Maria Luisa Gómez Bravo
Okay. We're moving to Turkey now.
Britta Schmidt from Autonomous asked, Garanti's results have disappointed. What is your expectation for future performance?
How happy are you with the return on investment and would you support the potential Garanti investment in Finansbank?
Jaime Saenz de Tejada Pulido
Okay. I can answer on the P&L part but not on the second part that Carlos will answer.
Are we disappointed? I think the underlying trends as was clearly shown in the results presentation two days ago have been very solid.
This quarter impact have been affected by the very low recognition of income coming from the CPI linkers and partially also by the mark-to-market of certain portfolios due to the FX movements. NII line remains very strong.
It is true that we had those capital gains impact and cost of risk. And the cost base has also shown a significant increase partially due to the FX impact plus a series of one-offs, fines, et cetera, that I think you're very aware of.
And cost of risks are behaving very well. So, the underlying trends, I think in Turkey has not changed.
And even in this very volatile market conditions, Garanti is demonstrating that it's very good at managing volatile situations, managing prices very well. And I think that should remain true in the future.
Carlos Torres Vila
On the M&A question, I think as we always do we don't comment on specific deals. But I think already Jaime mentioned our position in Turkey and how happy we are with our ownership of Garanti.
It's the leading bank. If there are consolidation opportunities, they will surely look at them.
And if they make sense, we would support. But I would not like to comment on any specifics.
Maria Luisa Gómez Bravo
Okay. Arturo de Frías from Santander asks if on an ongoing basis, revenues increased 5% and costs more than doubled.
Can you explain the performance? Arturo, I think Jaime just answered that.
Johan De Mulder from Bernstein asks if we can give guidance in Turkish credit costs and NPL formation? And is there stress being witnessed on FX-denominated loans, 40% of total, given that lira is trading at record low levels versus the dollar?
Jaime Saenz de Tejada Pulido
The dollar portfolio is only going down, so that's I think a very positive news. We're gaining market shares significantly in lira loans but that's not the case in dollar loans.
We're down by 96 basis points only in the quarter. And that I think is a reflection of the conservative approach that I think we generally have in all our subsidiaries.
And I think that's clearly reflected in NPL ratio that has gone down in this situation by 7 basis points quarter-on-quarter to 2.6% in Garanti. Recoveries have improved very significantly and has led to a cost of risk of 103 basis points, which it is an increase but only of 3 basis points versus the second quarter of this year and definitely much lower than what we had the third quarter of 2014, which was 110 basis points.
We stressed the portfolio every single month and for FX movement in Turkey, and no significant deterioration has been seen as of yet.
Maria Luisa Gómez Bravo
Thank you. Moving on to the U.S., Stefan Nedialkov from Citi asks about the outlook for loan growth, NIM, cost of risk, and cost growth in 2016, and also Stefan asks about an update on digitization initiatives at Compass.
Carlos Torres Vila
Let me start with that one. Like in the other countries, we are moving ahead with many initiatives in Compass regarding digitization.
Some of them are of a global nature. In fact, we are driving a single development agenda to ensure that the solutions, the good solutions that we develop for our customers are deployed in all of our geographies as fast as possible and that we avoid multiple fragmented efforts in the various places.
And Compass is part of that. It's both contributing as well as benefiting from the global developments.
I would highlight the few products that have been launched with the digital first and mobile first mentality including the NBA Amex Card. And we're just starting the season now and we have good hopes of that being a success, that product.
Or the ClearSpend product that was launched a couple of months ago with - or even less, I think, just a few weeks ago with impressive pickup in customers on a weekly basis. Our mobile app was redesigned and the new deployment has won the award for the best mobile banking app.
We have many - we have inaugurated a development center in Birmingham where we have a Scrum team working in all of these developments not only for the front-end but also in streamlining the processes at Compass. I would finally highlight the open platform project which has lots of potential to add additional business.
It's really about connecting our new state-of-the-art banking platform that we invested heavily in the past. And then it's really a competitive advantage to really provide services to third parties leveraging that platform.
We have connected, as you know, probably from press releases. We have connected with Dwolla and are now in the process of connecting with Simple bank, and that will be the start of that open platform strategy.
Jaime Saenz de Tejada Pulido
And regarding 2016 guidance, as you know, we don't give any, but 2015 numbers are moving as expected. Good, strong loan growth around 13%.
Customer deposit, around 10%. Spread is stable.
Only 1 basis-point in customer spread, down versus last quarter. We're down to 310 basis points, robust numbers.
Nothing in cost of risk, as I mentioned, lower than what we were expecting for the year. We're still at around 20 basis points, 23 basis points for the year.
So, I think very good numbers coming from the space.
Maria Luisa Gómez Bravo
Okay. We're going to finish because we just have practically five minutes to go on strategy.
Raoul Leonard from Deutsche Bank asks if we - or says that we have been very busy on structural changes, Garanti, Catalunya Bank, sale of stakes in China. Are you now largely finished or should we expect further changes?
Carlos Torres Vila
Okay. I would make two comments.
One is that capital allocation and the return on net capital is a core part of our strategy, not just for M&A but even for all decisions that go from day to day, origination to longer term planning, capital planning, growth planning. That's, again, the same as efficiency.
It's one of the priorities to ensure that we maximize return on capital taking into account also the new regulatory requirements. So, that has a bearing also on the configuration of our portfolio.
But beyond commenting on M&A, which we, of course, don't do, we are continuously reviewing that portfolio and considering opportunities to strengthen the positioning in the markets where we see high potential and also exiting those that don't or moving capital away from business segments that generate less to those that do generate the return that we require. I think we have a clear strategy that you know in terms of what fits and what doesn't fit.
And of course, this focus on value creation for our shareholders. Now, having said all of that, what we're focused on is really to be a better bank for our customers, as I said, leveraging technology, leveraging data to do that in the markets where we operate, and generating organic growth in the markets where we operate in the most attractive segments.
Maria Luisa Gómez Bravo
A few questions on consolidation in Spain from Johan De Mulder from Bernstein and Andrea Filtri from Mediobanca asks if we can please elaborate on our M&A strategy in Spain, and specifically, if we are planning any further acquisitions in Spain, bank acquisition rumors, so on.
Carlos Torres Vila
Yeah. They are the same.
In Spain, we have grown significantly through acquisitions, taking advantage of the crisis and the concentration that the industry has gone through. So, thanks to the Catalunya Caixa NIM deals, we now have a market share of around 15%.
And we're focusing now on gaining share organically. Of course, if there are opportunities, we will look at them, but we have an organic growth strategy.
Maria Luisa Gómez Bravo
Also, in Spain, Daragh Quinn from KBW asks if given the growth in digital, could you close 25% of the branches in Spain?
Carlos Torres Vila
I think longer term, we will see a significant reconfiguration of the channels through which the customers relate to the bank. As you can see, the transactions in branch continue to go down as mobile customers continue to grow exponentially.
That trend will surely continue because our customers are demanding that, our - the customers that relate to the bank through digital channels interact more often and they are more happy with the bank. They love us.
They are really promoters in a big way. And that will continue also as we continue to deploy lots of maybe small things that together, they add up to really a revolution.
And we have many things already in the hands of our customers that simplify their lives, really take away the need for them to come to the branch for low value added activity, servicing activities, operating tasks that are really best done by the customer in their free time or when it's more convenient for them. And that will definitely, longer term, have an impact.
But I think here, we cannot put really the cart before the horse. We have the branches also to drive sales, and that's a very relevant factor in today's business model.
So it will be a gradual approach as we shift interaction both on the sale side as well as on the servicing side, to channels that the customers demand. It will have that consequence that you're referring to in the longer term.
Maria Luisa Gómez Bravo
Okay. Thank you.
Robert Thomas from T. Rowe Price asks given the negative impact this quarter from equity stakes, what is the rationale for continuing to hold these stakes?
Jaime Saenz de Tejada Pulido
Well, as you know, we have two main equity stakes, Telefónica and CNCB, as Carlos has said at the beginning of the call. In the case CNCB, we've been slowly but surely disinvesting.
We used to have 15%, and now, we're down to 3.26% at the end of this quarter. And it has been a very profitable investment.
In Telefónica, we owned a little over 5% of the company. And it's true that with some volatility quarter-on-quarter, the reality is that this is a very efficient stake in terms of both capital consumption and fiscal and financial costs especially during these days.
And I think we - it adds value to our shareholders and also to the shareholders of Telefónica. But we must also take note that it's been available for sale.
So, eventually, this stake could potentially be sold out.
Maria Luisa Gómez Bravo
And the last question, as we're running out of time, is on Turkey. [indiscernible] asks if we are planning to increase our shareholding percentage in Garanti the other Turkish markets?
Carlos Torres Vila
No, we're not. But I think we are happy with the stake that we have in Garanti Bank of 39.9% and the control we have of the bank through the board and all the plans that we're putting in place to work together in really capturing synergies and leveraging things in which we believe is adding value to Garanti and vice versa.
But there is no plan at all to do what you say.
Maria Luisa Gómez Bravo
Okay. Thank you very much, Carlos.
Thank you very much, Jaime. And thanks to you all for attending the call.
As of right know, the investor relations team remains available throughout the day for - or to answer any remaining questions that you all may have. Thank you very much.