Apr 27, 2017
Executives
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Analysts
José Abad - Goldman Sachs International Marta Sánchez Romero - Bank of America Merrill Lynch Sofie Peterzens - JPMorgan Securities Plc Alvaro Serrano - Morgan Stanley & Co. International Plc Stefan R.
Nedialkov - Citigroup Global Markets Ltd. Mario Ropero - Fidentiis Britta Schmidt - Autonomous Research LLP Andrea Filtri - Mediobanca SpA (United Kingdom) Ignacio Cerezo - UBS Ltd.
(Broker) Carlos Cobo Catena - Société Générale SA (Spain) Carlos Peixoto - Banco Português de Investimento SA Ignacio Ulargui - Deutsche Bank AG (Spain) Daragh Quinn - Keefe, Bruyette & Woods Carlos García González - Kepler Cheuvreux SA (Spain) Francisco Riquel - Alantra Equities Sociedad de Valores SA
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Good morning, everyone, and welcome to the First Quarter 2017 Results Presentation of BBVA. I'm Gloria Couceiro, Global Head of Investor Relations.
And here with me today is Carlos Torres, Chief Executive Officer of the group. This time, Jaime Sáenz de Tejada, Chief Financial Officer of the group, won't be able to join us as he had a minor accident, and we wish him a quick recovery so that he may be back as soon as possible.
As usual, Carlos will begin with the presentation of results, and we will move straight to the Q&A after that. Let me remind you that as it was the case in the last quarter results presentations, we will be conducting a live Q&A.
We would appreciate all the participants to try to make the calls from the landlines and avoid using the speaker phones so that we can hear you as better as possible. And, now, I'll hand over the call to Carlos.
Good morning, Carlos.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Good morning and thank you, Gloria. Good morning, everyone, and welcome to BBVA's first quarter 2017 results webcast.
Today, we are presenting excellent results in the quarter, as you have seen, with the highest net attributable profit over the last seven quarters, €1,199 million. And we're also presenting a very good evolution of our capital with our core equity Tier 1 fully loaded ratio of 11.01%, which is 11 basis points more than we had a quarter ago.
Even including the negative impact of 13 basis points on aggregate from the Garanti and the CNCB transactions that were booked in the quarter. So, that's 24 we add the increase plus those 13.
It's not depicted here, but our tangible book value per share is €5.88 at the end of the quarter. That is up by €0.15 versus last quarter and adding €0.13 of the dividend that we paid, it would be a €0.28 of additional tangible book value per share, which is almost a 5% increase in just one quarter.
In terms of the highlights, this good set of results is supported by good growth in core revenues. NII and fees growing in constant euros at 9.2% versus last year, the same quarter last year.
Secondly, by cost control efforts, which are bearing fruit, and as you know, it's one of the key strategic priorities, to improve our efficiency. Our operating jaws are widening.
Income grew at 15% year-on-year, 11.3% growth if we exclude the CNCB sale. And costs, on the other hand, grew by just 1.8% year-on-year.
I would also highlight the sound asset quality with maintaining good risk profile, cost of risk at a low of 0.9%. The strong capital and liquidity ratios, I already mentioned, the 11.01%.
That's because of our ability to generate recurring results and also the priority to allocate capital more efficiently. Also, market helped during the quarter with very positive evolution.
Let me remind you, leverage at BBVA is 6.6%. And in terms of liquidity, LCR, above 100% at a group level and in all banking subsidiaries.
And finally in the quarter, two relevant transactions. Additional 9.95% stake in Garanti was recorded, and we have actually booked €11 million of net attributable profit since March 1, which are included in the numbers.
And the impact of that acquisition was negative 17 basis points. And the other one is the CNCB disposal with €174 million of capital gains and a positive impact of 4 basis points on capital.
Looking at the entire P&L, the net profit of €1,199 million, that's up 69% using current euros, 79.2% in constant euros. I would note that the positive impact of CNCB sale that I just mentioned was offset by a relevant restructuring charge in the quarter.
We provisioned €177 million pre-tax this quarter. I'll explain a bit more later.
And what's quite apparent looking at this is the excellent trends in both revenues and costs resulting in a pre-provision profit above €3.2 billion, growing 24% in current euros and 31.5% in constant euros. Impairments were lower and income before tax above €2 billion growing at 54% or 67.6% in constant euros.
Reviewing in some detail, starting with revenues, we had a solid NII of €4.3 billion in the quarter. That's up 9.2% versus a year ago.
Net fees and commissions also are quite strong, 9.4% growth versus a year ago or 6.3% versus a quarter ago. Good performance in this line in all markets and I would say remarkable trend reversal in Spain with good quarterly growth here.
High net trading income with strong performance of our Corporate & Investment Banking unit including here some portfolio gains, but also very strong performance in Global Markets. And of course, we had the CNCB disposal that added €204 million before taxes in this line of net trading income.
The strength of the core revenues and the net trading income adds to a total gross income of – that significantly rose at 15% up to €6,383 million. Operating expenses evolved very well this quarter.
I'm very glad to see this. Our jaws widened with revenues growing, I already mentioned, 15%, 11.3% ex-CNCB, while cost grew 1.8%.
So, the jaws will continue to be positive, we believe, for the rest of the year although this large gap between the rate of growth of revenues and costs will be likely not as large going forward in the rest of the year. What's particularly good is that this good evolution has been in all areas.
They all show good cost trends with reduction particularly acute in the developed countries with a minus 4% in Spain or the minus 0.9% in the U.S. and they're growing at or below inflation levels in the emerging economies, as you can see.
The efficiency improved in the quarter by 3.2 percentage points to 49.1%. It would be 50.5% without the CNCB capital gains and that's clearly better than the average for our peers which is 68.2%.
I already mentioned efficiency's one of our priorities. All of our teams are focused on delivering here on efficiency, gaining efficiencies through processes, changes in processes, distribution model, et cetera, what the clients don't see, as I explained in some detail in past quarters and I think we're seeing the fruits of that now.
Moving on, as a result of revenue and cost evolution, operating income reached over €3.2 billion, 31.5% up versus a year ago. In all business areas, we see growth here, in Spain, 22.6%; U.S., almost 21%; Mexico, 17%; Turkey, almost 29%; and in South America, it's a bit low.
It's lower, 3.5%. Risk indicators also remained strong.
Loan loss provisions and impairments including real estate amounted to just over €1 billion. That's a drop of 6% versus the same quarter last year, which had some significant provisioning.
Cost of risk ticks up to 0.9%, but that's more to do with the low number we had a quarter ago. You will remember that we reallocated some provisions from the credit portfolio to the real estate assets.
So, if we look at the sum of those two, stays stable at 0.9% as you can see in the chart. NPLs decreased by €2.3 billion since a year ago and €2.3 billion, I mean, and €400 million in the quarter.
NPL ratio, slight improvement to 4.8% and coverage, stable at 71% so, overall, strong key indicators in terms of asset quality and the risk profile. Capital.
In terms of capital, we also have great news. As I said, adding those 11 bps to the core equity Tier 1 and reaching 11.01% after the negative 13 basis points on aggregate from CNCB and Garanti that I mentioned.
So that's very good evolution explained by, on one end, our ability to generate earnings, 30 basis points, negative 12 basis points because of the dividends, the 40% payout that would be. And then, also the other good element in the quarter was the positive evolution of the market that really had a positive impact on our mark-to-market.
We didn't have much movement on the FX and its impact on capital, but we did on our AFS equity portfolio, in particular our stake in Telefónica. So, now, we have again a capital which is aligned with our target as we've been doing for the last few quarters.
So, we are where we wanted to be. In terms of the phased-in ratio, 11.64% as of March, which is a drop of 54 basis points versus December, but that's explained by the phased-in calendar.
And the ratio, of course, is significantly above our requirement for 2017, which is 7.625%. Finally, let me remind you once more of the high quality of our capital.
We remain as the bank with the highest risk-weighted asset density, 54%, and the highest fully-loaded leverage ratio, 6.6%, of our European peer group. Moving on to the progress on our transformation, I'm also happy to see and to share with you that in addition to the excellent quarterly results, we have also significantly progressed and are delivering on our transformation to our customers.
As we like to say, we're working on one side above the glass; that is, the screen of the mobile phone or what the customer sees, the improved interaction with BBVA, the customer experience, the ability to sell digitally through that device and leveraging data to provide added value, advisory tools, advisory services. All of these are sources of revenue through increasing our number of customers and really having customers that are more engaged and more satisfied and leave more business with us.
We have also been working below the glass on what the customer doesn't see, but it's just as critical, reinventing our operations through automation, robotics, process improvement, our technology and platforms; leveraging new ways, new technologies; and by working in a different way, changing how we work, evolving towards an agile organization, really more being instead of functionally-oriented organization more of a project-based organization with shorter planning cycles and execution cycles with more strategic resource allocation. Looking at some of the metrics that measure our progress in transformation as we do every quarter.
Digital customers grew by, in this case, 20% versus a year ago to 19.3 million clients. That's a 39% penetration on our customer base.
And mobile customers, 41% growth to 13.5 million, 28% penetration. Digital sales are also increasing in all geographies.
We are continuously launching products and services digitally that drive this. In the quarter, 21% of our sales at the group level are digital, and the progress is remarkable in all countries really.
In Spain, 24%, we had 17% in 2016; Mexico 13.6% versus 11.9%; South America, 22.3% versus 15.4%; the U.S., 21.7% versus 19.4%; and Turkey, 30.1% versus 25.2%. So, we continue with that trend.
Also, as I have been doing over the last several quarters, I'd like to review some of the developments and solutions that we have taken to our clients this quarter. I think this is really showing – this is the best illustration of the power of the agile way of working, delivering things in the hands of the customers every three months.
So, some examples you can see in this page, I'll highlight some of them, starting by some better ways for our customers to engage with BBVA. For example, the – one good example is the Fast Track in Branches in Spain.
That's targeted to the remote customers, the one that are in the BBVA Contigo model. They have the ability to have that fast track attention.
Another good example down the page would be the Alo Garanti Free Speech, a natural language interface so you can talk to the app, or in terms of products and functionalities, things like the BBVA Cashup in Spain, which is a keyboard that pops up in any app that you're messaging with someone, and you can send money directly from that app using that special virtual keyboard from BBVA, or developments like the Signature Express product, which is a digital loan so we can really grow our consumer lending in the U.S. In Turkey, we have login, for example, via eye scanning.
So, that enables our customers to log in to the Garanti mobile app and GarantiOne easily and securely just – it recognizes the structure of their eyes. In Mexico, we have a great development, the Financial Health Check that it's a tool to enable our customers to really manage their personal finances in a better way.
And in South America, in all countries, we're also launching every three months new developments. In Argentina, for example, the One Click Credit Card is a digital end-to-end credit card or another good example in Colombia, Adelanto de Nómina functionality in the app that allows the customers to really do anything related to that product from the app with the best digital experience.
Okay. Moving on to the highlights in each one of the business areas.
I think we have strong performance throughout. Starting with Spain, net profit in Spain in the quarter, €375 million.
That's a significant growth of 54% versus a year ago and also, of course, versus the fourth quarter, which was very much impacted by the provisions in the floor clause provisions. We see declines in net interest income, 2.4% drop versus a year ago because of lower activity, but also we've been negatively impacted by the CIB business because of the lower contribution of Global Markets where we had high net trading income, and you really need to look at those two together in Global Markets.
Also, we had lower holdings in securities portfolios that also generated net trading income in the sale of those this quarter and prior quarters but really have reduced the size of those portfolios, and that had an impact on the NII. Fees are down 1.4% versus a year ago, but it's a significant improvement that I highlighted earlier versus the fourth quarter, as an increase in fees in Spain of 8.6% reversing a trend, supported in part by the good contribution of CIB and market-related fees.
We had, as I just said, high net trading income because of the other side of the coin of the lower NII in CIB mostly, Global Markets and the securities portfolios. Good cost control in Spain, 4% drop in expenses and 3.6% drop versus just last quarter.
Good trend levels in impairments, which are low. And then we have the restructuring charge included in provisions.
That's in Spain, €148 million of restructuring expenses in the quarter. These are restructuring expenses because of the cost-cutting efforts that we have either done this quarter, envisioned in the coming quarters.
This amount represents more than 50% of the total restructuring costs that we expect to register in 2017. Activity in Spain is trending down, a drop of 3.3% year-on-year, mainly driven by the deleveraging mortgages and the public sector because we have strong production, new volumes in the commercial portfolios although they still don't show up in the evolution of the stock.
Customer funds, good mix improves. Because of the growth in demand deposits, we also have good growth in mutual and pension funds.
As for spreads in Spain, slight increase in the quarter, 1 basis point with positive evolution as you can see in the cost of deposits down from 0.28% to 0.20%, in part explained by the change in mix, which is better as I said. And that more than offsets the reduction in yields in the loan portfolio to 2.03%, mostly driven by the Euribor repricing.
Efficiency in Spain is good, very good evolution. Cost, as I mentioned, down 4%.
That's in line with our guidance for the year of mid-single digits, and that has to do a lot with the CatalunyaCaixa integration and other restructuring efforts that we've shared with you. Efficiency is a good number.
It's down to 51%, improving almost 5 percentage points in the quarter. And, of course, this will continue to be a key driver of our P&L cost reduction in 2017.
Risks. In Spain, strong indicators, stable NPLs, coverage ratios as well at 5.8% and 53%, respectively, and the cost of risk in line with guidance, which was less than 40 basis points.
We are there at 0.4% in the quarter. Moving on to our non-core real estate business.
In that business, we have reduced the net exposure by 9%, which is €900 million in just this quarter, executing our strategy which is focused on accelerating sales, as I shared last time, being more proactive in reducing our exposure, leveraging also the better behavior of the market, the real estate market in Spain. So, aligned with this strategy, we have – in the quarter, we have closed three significant wholesale transactions, and we expect to close more in the coming quarters.
Net losses of €109 million versus €280 million in the fourth quarter. That was, as you'll recall, negatively impacted by the reallocation of provisions from the credit portfolio to the real asset portfolio.
In the U.S., our results have been great this quarter, net profit of €134 million. It was much higher than a year ago, which had those high provisions.
Strong recurring income in the quarter. NII 8.2% growth mainly due to better spreads.
Commissions also strong, 15.5%, another great number here with good support from Corporate & Investment Banking and excellent evolution of costs, which are down almost 1% versus a year ago of 2.6% versus the fourth quarter. And then, on the lower part, we have decreasing costs of impairments and other provisions, but of course, the first quarter included significant provisions last year.
Activity in the U.S. has been down as well with a decline in the loan portfolio of 4% year-on-year, concentrated mainly on our Corporate Business, also in mortgages which are down 4.4%.
In consumer, except for the indirect business, indirect auto business, which is down 20% because we want to decrease our exposure in that particular business as the way we have it now. But apart from that, consumer has had positive evolution, satisfactory with loans growing 8.6% year-on-year.
And in terms of the funding, we see a drop, which is in line with the evolution of loans, 3.4% down with improvement in the mix. Good evolution of spreads with consistently quarter-by-quarter, you can see how we're able to take advantage of the rising rates while keeping our deposit costs down.
In fact, they go down 2 basis points despite that growing interest rate environment. And the spreads up 20 basis points in the quarter and 34% versus a year ago because of the rising yields in loans.
Efficiency evolution is also good in the U.S. Expenses are down 0.9% versus a year ago and efficiency improving to 64.2%.
This is also in the U.S. a clear management priority.
We have room to improve the efficiency, not only because of cost reductions, but just leveraging the transformation and leveraging technology to just do things better. Also increasing our productivity, we have an opportunity to be more productive in generating higher revenues.
And that will have a great impact on cost to income as well. Risk indicators are in line with the expectations we have and what we shared with you.
We've improved our NPL by 17 basis points to 1.3%, driven by repayments and also by recoveries. And cost of risk is 49 basis points, in line with our guidance of around 50 basis points for the year.
Mexico. Mexico also very strong numbers.
Again, excellent results. €536 million net profit, up 19.2% versus a year ago, above our expectations.
The drivers here are the revenues growing at double digit, 12.3%. Costs under control, 4.2%, which are below inflation.
And as you can see, with the jaws are widening. And then the impairments, they are up 14%, but that's because the first quarter of last year was extraordinarily low in terms of provisioning.
In Mexico, the macro environment has improved. In fact, we have just raised – our Research Department has just raised the macro expectations from 1% to 1.6% for this year, and from 1.8% to 2% for next year.
And of course, we have also seen very significant recovery in the FX, around 15% recovery since mid-January, which was the low point. Activity has grown circa double digit, 9.8%, in line with our high-single-digit guidance for the year.
Customer funds up 6.8%, mainly demand deposits with good mix. Spreads are widening in Mexico both quarter-on-quarter, 37 bps, and year-on-year, 51 bps, because of the rising rates.
Efficiency, outstanding. Efficiency in Mexico, 33.6%.
Cost controls, I mentioned costs are growing 4.2%, below inflation which is 5.4%. Positive jaws, gaining efficiency despite already being best in class, as you can see, compared with competition.
As for risk indicators, NPL and coverage are stable at 2.3%; and coverage, 128%; and cost of risk, 3.3%. Our guidance for the year we repeat is 3.5% or around that.
Turkey, impressive. Complex environment, as we've seen and we know, but a very impressive first quarter.
Including the €11 million of the additional stake, net profit of €160 million, our part. And the net attributable profit for BBVA, that's up 46% almost and 31% almost versus the fourth quarter.
We have a very, very strong net interest income, 27% up versus a year ago both because of volumes and good price management. Fees and commissions, 14.6%.
Expenses growing but in line with inflation, 11.5%, so wide jaws and open jaws. And good evolution also very good news that we have the evolution of impairments in line with the evolution of our activity.
Activity which grew by 19.6% in part because of the FX, so taking that out, the impact of the depreciation, growth would have been more like 9%. We had strong growth in the lira lending supported by the Credit Guarantee Fund.
We also had a good evolution of the customer funds, 15.4%, and also good mix here. And the spreads, you can see very successful price management, I should say.
So, it's flattish in the quarter, but after rising year and despite the rate increases, we have been able to maintain the spreads. And you know that in Turkey, it's the only country where we have negative sensitivity but we have really defended the margin very well this quarter.
Key ratios, efficiency, good evolution of efficiency. Costs are up, 11.5%, but that's just about inflation.
And the jaws, as I mentioned, are open jaws with efficiency improving to 39.8% versus 40.8% we had a quarter ago. Risk indicators also show sound asset quality.
NPL improved to 2.6%, well, because we have some NPL sales but also good evolution of the net entries. Coverage improves to 128% and the cost of risk stands in this quarter at 0.9%, flat, might deteriorate going forward in line with the guidance that we gave of 1.1%.
Finally, in South America, South America, we have €185 million net profit in the quarter. That's a drop of 8.7% versus a year ago and a drop of 5.7% versus a quarter ago impacted by higher impairments, a big ticket in Colombia.
And also a year ago, we had a great first quarter in Argentina, which was hard to repeat. In fact, we have much lower contribution from Argentina this quarter versus a year ago.
We have good evolution of the core revenues with NII growing 8.3% and fees growing 20.5% and that's consistent across all countries, costs growing at 11% below inflation where if you're exposed to a very inflationary economies in Venezuela or in Argentina. And then we have high impairments due to the macro deterioration and the wholesale ticket in Colombia that I referred to.
Activity has slowed down. That's mainly explained by the slower macro environment.
That's very much the case in Peru and Colombia and Peru affected by El Niño costero and by the delay in both countries of infrastructure projects. So, lending growing at 6.1%.
Argentina here remains the most dynamic. The customer deposits growing at 12% with the mix slightly biased to lower cost deposits.
And spreads, we can see positive evolution in particular with increasing spreads in Colombia and in Chile as well. Efficiency trends up.
We have costs growing at 11%. Inflation is 13.3%.
And also if we exclude Argentina, we would see positive jaws. Risk indicators deteriorate driven by big ticket in Colombia and also the slower activity growth.
But we do maintain our guidance of cost of risk at around 140 basis points. So, the quarter was 1.5%.
As you can see, the NPLs went up to 3.3% versus 2.9% a quarter ago. And finally, in terms of the takeaways, I would say that we have really a strong start to the year with growth in core revenues, with cost control in all of the businesses, with low cost of risk, strong capital generation, also accelerated real estate divestitures, then progressing strongly in our transformation as we had last year as well.
And finally, we see going forward an improved macro outlook in general with some differences in Spain, healthy pace of growth. We have revised projections from our economists, which look more positive.
Also in the U.S., we are looking at solid growth and an environment of rising rates, which should be good for business. Mexico and Turkey, we have revised both those countries upwards very recently in terms of our macro forecasts.
And South America is the one region where we see slower growth relative to potential with some differences across countries, slower in Peru and Colombia for sure than originally expected. And now we're ready to take your questions.
So, Gloria, back to you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Carlos. We are now ready to move into the live Q&A session.
For the sake of time, I would like to ask all of you to limit yourself to two questions per caller, so that we can attend as many participants as possible. So, first question, please.
Operator
Thank you very much. Ladies and gentlemen, the Q&A session starts now.
The first question today comes from José Abad from Goldman Sachs. Please, sir, go ahead.
José Abad - Goldman Sachs International
Hello. Hello.
Good morning. Thank you for the presentation.
My first question is on Mexico. We've seen actually NPLs flat, cost of risk coming down.
So, two questions here on – one is on whether you could give us some color per loan segment and whether you see any problems in the consumer lending side and maybe in the credit cards as well? And with regard to loan growth, we've seen already year-on-year 10% flattish Q-on-Q.
Not sure whether this is a bit weaker than what you were expecting and that you – and will you plan actually to revise your guidance for the year? And the second question is regarding the cost of risk in Spain.
You've reported a cost of risk of around 40 bps. Some of your competitors are already reporting cost of risk well below this number.
So, the question is actually whether you expect, given the strength in the market cycle in Spain, this number to go below 40 bps, and if so, how low should we expect the cost of risk in BBVA Spain to get? Thank you very much.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Well, thank you. Thank you, José, for your questions.
Regarding Mexico, we absolutely maintain our guidance of high-single digit. We've seen good growth in the quarter.
It does seem less than that if you compare with December where there is only a 0.3% growth in total loans. But there are a few facts here that need to be taken into account to really understand that evolution, first of which is seasonality versus the fourth quarter, which is traditionally quite strong.
And then, we have 15% of our book around that. It's denominated in U.S.
dollars. So in this quarter, we had peso appreciation, which had an effect on the apparent growth of the total loan book.
If you exclude the FX impact, the loans would have grown by around 2% versus December, which is a strong number for the first quarter. So, guidance, again, high-single digit and we're happy to see that Mexico's evolving well.
No issues also on the consumer book that you were hinting maybe whether there were any problems there. We don't see that.
In fact, we had quite low cost of risk in the quarter in Mexico, and we still maintain our guidance of 3.5%, as I said in the call. Similarly for the Spanish cost of risk, we had a good quarter with just below 40 bps.
I think it was 38 bps. And we maintain that guidance of being below those 40 basis points.
Next question.
Operator
The next question comes from Marta Sánchez Romero from Bank of America Merrill Lynch. Please go ahead.
Marta Sánchez Romero - Bank of America Merrill Lynch
Thank you very much. My first question is on the Spanish ALCO portfolio.
You have reduced volumes. Are you expecting to rebuild that portfolio?
And if you could remind us the yield, average maturity and the underlying capital gains there? And the second question is on TLTRO.
Have you accrued the 40 basis points rebate in this quarter? Thank you very much.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
So, starting with the last one, and then I'll pass it on to Gloria for some details on the ALCO. TLTRO, we have booked partially the impact of a low rate, so 20 bps over the 40 bps, but we've done that for nine months.
So, we have booked €36 million in our Spanish business. Because of this in this quarter in this amount, it's going to be, we believe, if things go according to plan in terms of how the volumes grow, we should be booking a similar amount in the following quarters so about €36 million every quarter.
And, again, €36 million correspond to 20 bps for 9 months. So, we've caught up since we started.
I remind you we have nearly €24 billion that we took from the ECB, and so that's the TLTRO question. Regarding the ALCO, we did reduce our positions.
And again, this is a function of how we manage our structural risks. And this had an impact on the Spanish NII, no doubt, as other elements that we can discuss later.
But, Gloria, do you want to give some detail on them?
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Yeah. The ALCO portfolio, the euro balance sheet amounts as of March at €27.9 billion, which is a significant decrease versus March last year, minus 28%.
The duration of the ALCO portfolio is 3.6 years, and the yield is around 2.2%. So, thank you, Marta.
Next question, please.
Operator
The next question is from Sofie Peterzens from JPMorgan. Please go ahead.
Sofie Peterzens - JPMorgan Securities Plc
Yeah. Hi.
Here is Sofie Peterzens from JPMorgan. Could you just remind us of your rate sensitivity to 100 basis points increase in interest rates across your core regions?
And also, could you remind us of your hedging strategy across the different divisions and countries? Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Yeah. Sensitivity, we have high sensitivity in the euro area.
That's just above 9.4% positive sensitivity to 100 basis points rise, parallel movement in the interest rates. And that would be sort of the first 12-month impact.
It's also positive in most of our other markets, except for Turkey. So, it's U.S., 5.6%; Mexico, 1.8%; and South America, 2.4%; and in Turkey, it's negative 3.4%.
And the hedging policy, we've maintained the same policy, so we're hedging right now around 50% of our exposures at group level and around 60% for the emerging market currencies, mostly Mexico and Turkey, around those levels which will be the important ones. That's our hedging policy on the impact of FX movement in our P&L.
And then, we also have a quite high hedging of the FX impact on our capital ratio. We do have the natural coverage of the risk-weighted assets also being denominated in that currency.
And then, the excess exposure, we typically cover at a very high level. So right now, our sensitivity to a 10% depreciation, it's really quite low.
It's below 2 basis points in each one of the main currencies.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay. Thank you, Sofie.
Next question, please.
Operator
The next question is from Alvaro Serrano from Morgan Stanley. Please go ahead.
Alvaro Serrano - Morgan Stanley & Co. International Plc
Hi. Thank you for taking my questions.
The first question is on the clarification on the comments on NII in Spain and the TLTRO. Did you say €36 million, 3-6 million, was included in the Q1 number in Spain?
Because if I do exclude that, the underlying, it looks like it was down more than 7% quarter-on-quarter, which I understand the reasons you explained. It seems quite weak even so.
And could you – if my math is correct if I've understood correctly, can you give us an updated guidance for the full year because flat wouldn't be feasible, it looks like? That's the first question.
And the second on Mexico, just on costs, the developments of costs have been very, very good as you've highlighted. It's 4% costs growth in Mexico.
What we should be looking for for the full year? Can you give us a sense of, maybe this year in medium-term cost guidance for Mexico?
Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Thank you, Alvaro. Yeah.
On NII, the number is €36 million, 3-6 million euro, which was booked in the first quarter. The softer growth or actually decrease that you allude to, if you net that out, it's very much linked with our CIB business.
So there, we have two big effects. One, I mentioned in the call.
One is the Global Markets contribution, which was much lower this quarter than the fourth quarter, and that was compensated by a higher net trading income. And as I say in Global Markets, you should look at those two things together.
Also by lower holdings of securities. In the first quarter, we had the big reduction in our holdings.
And this, of course, depends on our strategy, how we play the movements in rates and credit spreads, but that part was not included in our guidance. So, going forward, we – because everything else was very much in line with what we expected so no surprises in the movements of our activity and spreads in Spain.
The guidance, I remind you all, that NII should remain flat in 2017 in our Spanish business, all taken. The trends, as I say, the underlying trends we've seen in the first quarter are consistent, we think, with that guidance, maybe with the exception of the CIB business that I just explained regarding the lower holdings of securities, and that was not in the guidance.
So, the flat guidance is challenging but we will have to see if the evolution of volumes and spreads in the coming quarters can compensate that negative effect. And on Mexico, we did have a good quarter in costs, and we expect costs to behave well.
I wouldn't extrapolate the quarter but for sure, we maintain that the costs will be growing below revenues in Mexico.
Alvaro Serrano - Morgan Stanley & Co. International Plc
Thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Alvaro. Next question, please.
Operator
The next question comes from Stefan Nedialkov from Citigroup. Please go ahead.
Stefan R. Nedialkov - Citigroup Global Markets Ltd.
Yeah. Hi, guys.
Good morning. Stefan from Citi.
I've got two questions as well. And sorry to be coming back to this Spanish NII topic.
But Carlos, from what I understood, you booked 20 basis points on €24 billion of TLTRO. So, that works out to around €12 million per quarter, not €36 million.
So, is the TLTRO contribution €12 million or €36 million in 1Q? And my second question is on the restructuring cost of €148 million in Spain.
How much of that has to do with CatalunyaCaixa? How much of that is digital transformation?
And what are the benefits of that €148 million in 2017 and beyond? Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Thank you. Thank you, Stefan.
Again, we have – since we had not recorded any benefit from TLTRO since we took it in June of last year for the third and fourth quarter of 2016, in 2017 in this first quarter, we're booking three quarters worth of 20 basis points. So, the €12 million you calculate, you multiply by 3, that's €36 million.
So, again, next quarter, we will be booking around €36 million again, if things go well – according to plan, I mean – and similarly in third and the fourth and those €36 million would correspond to the full amount of the TLTRO. And these are approximate numbers.
Regarding restructuring costs, we have – I mean this is very much linked with our efficiency efforts. And the guidance we gave that costs in Spain should be coming down around 5%, mid-single digits in the year.
And what we have done is really accelerate that to try to get the gains as soon as possible. And it has to do with the closures of branches that we have done already and the ones that we have announced, so about 250 branch closures; in total, 260.
That is coming quite at the beginning of the year. And, again, as I said, the restructuring charge of €148 million in Spain represents more than half of what we expect for the entire year.
And this will be likely front-loaded, so also we should have in the second quarter and that would be probably it for the year in terms of restructuring charges.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Stefan. Next question, please.
Operator
The next question is from Mario Ropero from Fidentiis. Please go ahead.
Mario Ropero - Fidentiis
Hello. Good morning.
A couple of questions. The first one is on lending spreads evolution.
Spain, it seems like still continue to come down. We have been reading a lot of comments that potentially they could recover.
So, if you could comment on that, please. And then, the second question is, if I got you right, I thought that you said at the beginning of the presentation that there were €174 million coming from CNCB, offset by €177 million of restructuring charges.
But then I heard about €148 million of charges in Spain so if you could tell us the remaining ones, please. Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Yeah. I didn't quite follow completely your first question, Mario.
I think you were asking about spreads in Spain. Is that right?
Mario Ropero - Fidentiis
Yeah, yeah. The question was that I noticed that, well, basically the credit yield in Spain was down more than the decline of Euribor rates.
So, I guess that lending spreads are still going down. So, I just wanted to see your thoughts on that and on the outlook in the near term.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Well, it's very much linked with the Euribor repricing, the continued repricing. That's what caused our lending rates on average to go down on performing loans from 2.1% to 2.03%.
So, the 7 bps have a lot to do with the Euribor repricing mostly, although there are some effects because there's less days in the first quarter. And the way this is calculated, that apparently has some impact on the ratio.
And then, as you can see, that was more than compensated by the positive evolution of the costs of our deposits in Spain because of the changing mix. And again, we expect the spread for the year to remain flat versus last year.
We will be compensating the declines in yields with reduction in the costs of deposits. And then regarding the €148 million, there is an additional restructuring charge beyond the Spanish business charges that has to do with cost reduction at the holding level.
So those are – yeah, go ahead, Gloria.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Yeah. Sorry, If I may.
The total amount, as you have mentioned, Mario, for the group pre-tax is €177 million. The main is booked in Spain, €148 million, and you have €8 million also in Eurasia.
And as Carlos was mentioning, €12 million in the holding. And then the rest are small amounts in South America.
Thank you, Mario. Next question, please.
Operator
The next question is from Britta Schmidt from Autonomous Research. Please go ahead.
Britta Schmidt - Autonomous Research LLP
Yeah. Hi there.
Good morning. I just want to come back to the Spanish net interest income.
The decline in the quarter was €37 million. And if we adjust that for the €36 million TLTRO, it would've been €73 million.
Can you give us a little bit more insight how much of that was down to CIB? How much of that was down to the ALCO portfolio move and how much of that was down to the general customer business in Spain?
And the second question I have is on the asset quality outlook in Turkey. Turkish provisioning looks relatively good versus the Garanti outlook.
And last quarter, I think you were a little bit more cautious on this. What sort of guidance can you give us for the full year for Garanti's provisioning?
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Okay. Since I've answered, I think, three times already on the NII, maybe I'll hand it over to Gloria.
Maybe she can do a better job.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
No. Just one comment.
If we exclude all the extraordinary things that happened in the CIB business, the NII in Spain could have been flat in the quarter versus the fourth quarter. Okay?
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Right. But that includes the TLTRO, which was included in our guidance of having a flat NII, so you shouldn't forget that also.
And then, regarding Turkey, we have cost of risk guidance of around 110 basis points. So, certainly, given the environment, there's the risk of additional deterioration beyond that.
But what we have seen is a strong start of the year with a V recovery in the economy, and we have revised our projections upwards because of that. And then, given the results of the referendum, we believe that it is quite likely that, as we were also sharing with many of you that after that, it is quite likely that the policies will be quite pro-growth, pro-reforming the economy to be more competitive and doing the right things for Turkish economy to grow.
And if that is the case, then that risk should not materialize. But right now, we don't change our outlook.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you. Britta.
Next question, please.
Operator
The next question comes from Andrea Filtri from Mediobanca. Please go ahead.
Andrea Filtri - Mediobanca SpA (United Kingdom)
Yes. What are you going to do with the capital you build about the 11% target in CET1?
And the second question, very quick, are you seeing the positive influx from Popular clients? Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Well, we don't comment on competitors, so I would skip that one. Regarding the build, this is a recurring question, and the answer is simple.
The 11% is really us sharing what our views are as to the proper capital level that we should have. So, we should not be looking at building capital beyond the 11%.
And so far, we haven't been building that beyond the 11%. You should not think immediately then that we're going to do things with our capital that are not maximizing money for shareholders.
We would absolutely look at giving it back. We are accumulating excess but right now, as I also shared in other quarters, there are uncertainties going forward in the medium term around regulation, Basel IV, IFRS 9, et cetera and we have to see how that plays out.
So, we believe we're in the right place. We don't want to have more capital than those levels represent in a meaningful way.
We do have volatility around that number so it's not like an exact math. We could have a bad quarter in markets, a bad quarter in FX and that could go down.
You've seen some of those events happen in quarters past. We also had some good quarters like this quarter was good in the markets, so we will have some volatility around the number, but that is included in the fact that 11% is the right number for us.
So, I wouldn't think much that we're going to be building beyond the 11% and we would be hovering around that number and then we will see how regulation impacts that and with all the phase-ins that come in, et cetera.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Andrea. Next question, please.
Operator
The next question comes from Ignacio Perez (sic) [Ignacio Cerezo] from UBS. Please go ahead.
Ignacio Cerezo - UBS Ltd. (Broker)
Yeah. Hi.
It's Ignacio Cerezo here from UBS. A couple of questions from me.
I'm going to have to come back actually to the TLTRO discussion in Spain, so apologies for that. But what is the rationale of using the 20 bps?
Obviously, I mean volumes actually have been probably below the threshold but should we expect like an increase in terms of the amount of basis points you book on this in the rest of the year? And the second question is if you can comment on any initial sort of signs of improvement in terms of asset quality or volume growth in Turkey related to the Credit Guarantee Fund?
Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Yeah. On TLTRO, that's a good question.
We have booked 20 basis points because that's sort of what we're trending right now. So, we're growing the perimeter and we're in line to growing that 2.5% that we need to grow to get the 40 bps benefit.
So, we record 20 bps because that's sort of where we are right now. It has the added benefit but that's a coincidence that then that would give us the €36 million, it will continue trending for the following quarters.
So, you shouldn't have much distortion quarter-on-quarter because of the number that we include. But then, that's not a given.
We need to see how the volumes evolve. And then, sorry, regarding Turkey, the Credit Guarantee Fund, in fact, has been a significant factor in supporting our growth in the commercial business, given that we are protected and we have risk-weighted assets relief from the guarantee that the state provides.
So, when you see the strong growths in the TL portfolio in Garanti, it has to do – not only because we also have good growth in consumer, but it has to do a lot with the commercial portfolio growing because of the Credit Guarantee Fund scheme.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Ignacio. Next question, please.
Operator
The next question is from Carlos Cobo from Société Générale. Please, sir, go ahead.
Carlos Cobo Catena - Société Générale SA (Spain)
Hi. Good morning.
Thank you for the presentation. A quick comment on IFRS 9, if I may.
Have you made any assessments already on the potential impact? And if you could please breaking it down between what do you expect in terms of the upfront impact, whether it's going to be phased out or not?
And secondly, do you think that under the IFRS 9 standards, there could be any pickup in the underlying cost of risk for any of the franchises resulting from having to provide for the performing loan book as well? Thank you.
Only one question.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Well, thank you. Well, it's quite uncertain still given the complexity of the modeling and the challenges around it.
So, we believe it's too early to really provide a reliable estimate. We do have our estimates but we wouldn't want to share them just yet about the expected impact.
So, we will probably have to wait until closer to the end of the year when we know really what the rules will be that apply and how the modeling actually exactly works given how big a change it represents in calculating our provisionings based on where we are in the cycle and how much the probability of defaults have deteriorated or not versus when we underwrote the loans, et cetera. Again, this has no impact really on the underlying business itself in the sense that it's just a different way of recording the losses, whether you bring forward the 12-month expected loss or you bring forward the lifetime loss of the loan in a particular point in time.
Certainly, it will have an impact in making our P&L more book volatile as we move through the cycle – in good times, very positive and in bad times, very negative. But over through the cycle, it shouldn't change anything.
Regarding the impact of that, we believe it will be manageable also because of the phase-in period that has been talked about in terms of the hit in capital. So, we still don't know the percentages, but what's been talked about, what we hear makes it extremely manageable.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Carlos. Next question, please.
Operator
The next question is from Carlos Peixoto from BPI. Please, sir, go ahead.
Carlos Peixoto - Banco Português de Investimento SA
Hi. Good morning.
My question would be on bail-in-able capital and basically what are your expected – what are your plans in terms of issuances of either AT1,Tier 2 or even bail-in-able senior bonds? How much do you plan to issue over coming years basically?
And what would be your expectations on the impact or the costs that these issues could have and its impacts for NII? Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Okay. Well, first of all, it remains unclear how much we need to issue of MREL because the requirement is not clear and also the timing to comply is not clear.
And we expect to have a more informative target on what MREL should be by year-end. But our needs in the different scenarios that we've run internally would be manageable and even lower most probably than the maturities that we would have on our wholesale funding in the coming years.
So, again, we're not a G-SIB, so our calendar is not as tight as for the other banks that need to comply with the TLAC. So, we're in a way less hurried to issue MREL-eligible instruments.
And then, being a Spanish bank, we would like to have more clarity on how the Spanish law allows for the issuance of the senior non-preferred. So, we're waiting also for an appropriate national legal framework, which hopefully we could have before the summer.
And I think there is some date set for June as a tentative date where that could be in place. If that were the case, we would be ready to tap the market in the second half of the year once the new law has passed.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Carlos. Next question, please.
Operator
The next question is from Ignacio Ulargui from Deutsche Bank. Please go ahead.
Ignacio Ulargui - Deutsche Bank AG (Spain)
Hi. Good morning.
I just have one question on the Turkish NII. After their performance in 1Q, what should we expect going forward in a year, especially in looking to margins, if you see any particular pressure in Turkish lira deposits?
Thanks.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Yeah. That's another good question because we've seen rising rates.
Even yesterday, there was another hike of 50 basis points. And this is the one place where we have negative sensitivity.
So far, we have seen very good management, as I was saying in the call as well, of spreads. So, together with the rising volumes, we have had flat spreads at high levels after the rise in spreads we had last year.
So, we will continue to, of course, pass on the high rates and try to control the cost of our funding, the cost of deposits. That would be the challenge.
So, overall, I wouldn't say there's any change from what we shared in past quarters regarding situation in Turkey. We are moving into that higher rate environment which we believe it's a good thing given how high inflation is and it was needed also to support the lira.
And now this movement yesterday is a more explicit movement towards higher rates. And given how strong our management team has performed in terms of managing that equation, we're confident that we can continue to have good spreads.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay. Thank you, Ignacio.
Next question, please.
Operator
The next question is from Sarah (sic) [Daragh] Quinn from KBW. Please go ahead.
Daragh Quinn - Keefe, Bruyette & Woods
Hello. Hi.
It's Daragh from KBW. A question on Spain and asset quality.
Just noting the NPL ratio stable this quarter, are we at the bottom of the improvement in NPLs or should we expect an improvement in subsequent quarters? And given the trends in the housing market pricing, when do you expect to be able to have zero losses on the runoff real estate business?
Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Okay. The NPLs, we believe they will continue to decrease in Spain, maybe at a lower pace than last year because we might have a lower level of recoveries.
We're expecting that, given the increase in time, for example, to consider that the mortgages have incurred. But overall, continuing the trend towards lower NPLs, maybe we could expect NPL sales.
That could reduce the balance further in the commercial portfolios. And then regarding real estate, as I shared in the call, we have a clear strategy of accelerating our divestments, the reduction of our exposures.
We have reduced very significantly in the quarter and hope to be doing more deals in coming quarters to continue that trend. It's hard to know when this will be over but we believe that over the next three years, it should be significantly down to a level that is really not material.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Daragh. Next question, please.
Operator
The next question is from Carlos García from Kepler Cheuvreux. Please, sir, go ahead.
Carlos García González - Kepler Cheuvreux SA (Spain)
Hi. Good morning.
I've got a couple of questions. One is on mortgage floors.
Can you update us if there's any claims of clients for floors below and before 2013, and whether we can extrapolate some of the lessons from that case to the mortgage setup costs case? How is that going on?
Secondly, in terms of capital and given the high contribution from the emerging markets in your portfolio of businesses, do you think you would need to move to above tier levels of Core Tier 1 to be on a more comfortable position? Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Okay. Thank you, Carlos.
So, the mortgage floors, there is really nothing different from what we expected. We provisioned €577 million at the end of last year in December to cover the contingencies that could arise from claims on the mortgage floor retroactivity.
And given how the claims have behaved to date, we have no reason to believe that we should change that number. On the mortgage costs, on the origination costs, it is quite clear that regulation determines that the stamp duty tax, which is really 80% of the total expenses incurred when a mortgage is originated, should be paid by the customer.
That's really in the stamp duty law, and we're seeing that the courts are ruling in that direction. So, beyond that, there are other claims waiting for final judgment in the Supreme Court.
So, some of the other open issues around this matter should be expected soon. And given how the claims have evolved, we don't believe there's a significant amount that we should be provisioning here, and we can manage without significant additional provisioning needs.
Regarding capital, we – again, we have this target of 11% and given the requirements we have versus others, I think that's also an indication of the type of bank we have, the type of business we have, and we are diversified which makes us very resilient also because of our model, the multiple point of entry model. So, diversified, resilient.
We have good coverage in provisioning. We have low – we have high risk-weighted asset density and good leverage levels.
So, no, the answer – my answer would be no. We would not need capital above our peers, actually quite the contrary, and I think our supervisors agree with that in that they're setting our requirements at lower levels.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Carlos. Next question, please.
Operator
The question is from Francisco Riquel from Alantra Equities. Please, sir, go ahead.
Francisco Riquel - Alantra Equities Sociedad de Valores SA
Yes. Hello.
Most of my questions have been answered. I just would need a clarification on the cost of risk in Turkey.
I see that you have booked 85 basis points in the quarter and guiding for 110 basis points in the year. When I look at Garanti numbers reported yesterday, I see that they have booked the so-called general provisions and the cost of risk I think is 110 bps already in the first quarter.
So, just wonder if there is a difference in the reporting of Garanti versus yours in the quarter. Just wanted this clarification.
Thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Yes.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Do you want to answer that, Gloria?
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Yes. There is a difference in the line where they register this provision.
So, that's the reason why they reported a lower cost of risk, 50-something basis points. And in our case, as you have mentioned, Paco, is 85 basis points in this quarter.
Thank you. Next question, please.
Operator
There are no further questions in today call. I give the floor back to you.
Thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay. So, thank you very much for participating in this call.
As you know, the entire IR team will remain available to answer any questions you may have. And thank you very much to everybody.
Have a nice day.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Thank you.