Jul 28, 2017
Executives
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Analysts
Jose Abad - Goldman Sachs International Francisco Riquel - Alantra Equities Sociedad de Valores SA Sofie Peterzens - JPMorgan Securities Plc Alvaro Serrano - Morgan Stanley & Co. International Plc Carlos Peixoto - CaixaBank SA Ignacio Ulargui - Deutsche Bank AG (Spain) Marta Sanchez Romero - Bank of America Merrill Lynch Adrian Cighi - RBC Europe Ltd.
Carlos Cobo Catena - Société Générale SA (Spain) Britta Schmidt - Autonomous Research LLP Benjie Creelan-Sandford - Jefferies International Ltd. Mario Ropero - Fidentiis
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Good afternoon, everyone, and welcome to the Second 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; and Jaime Sáenz de Tejada, BBVA Group CFO. We're trying to publish the information at the CNMV, but there are some technical difficulties probably because today is a busy day of communications, okay, but we are going to start with the call.
As usual, Carlos will begin with the presentation of group's results, and then Jaime will review the business areas. We will move straight to the live Q&A session after that.
As always, we would appreciate all the participants to try to make the calls from the landlines and avoid using the speakerphones, so that we can hear you as better as possible. And in this occasion and in order to be on time for the press conference, we need to finish this audio webcast no later than 7:15.
And now I'll hand over the call to Carlos.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Thank you, Gloria, and good afternoon or evening to all of you, and welcome to our BBVA second quarter 2017 audio webcast. The second quarter has been another strong quarter.
We continue with the good start of the year that we had in the first one. We had a net attributable profit of €1.1 billion, with very high quality of the results, with low NTIs and no significant extraordinary gains.
Our capital remains strong with the fully loaded core equity Tier 1 ratio of 11.1%. The highlights of the quarter, we had strong core revenue growth, NII and fees growing in constant euros at 9.3% versus the same quarter of last year.
Cost control, the efforts really are resulting in positive operating jaws with the cost growing in constant euros at 2.2% year-to-date. Efficiency continues to be a key strategic priority.
We maintain stable risk profile, cost of risk at 0.94%, strong capital generation with the fully loaded ratio of 11.1%, as I just said, generating 9 basis points, which offset the negative market-related impacts, thanks to our ability to generate recurring results and our efforts to allocate capital more efficiently, which is also a key strategic priority. We are progressing very well on our transformation.
We continue to deliver products to our customers, putting functionality in their hands. Every quarter, we are growing our digital sales, our mobile customers with exponential trends here.
And the digital sales stand already at 22% of the total units sold year-to-date. We had the great news that our mobile banking app in Spain was named number one in the world by Forrester Research.
And finally, as highlights, we create value for the shareholder. Our tangible book value per share is up €0.09 year-to-date.
And if we add the €0.21 of the dividends that we have paid this year would be at €0.30 of additional tangible book value per share, which would be almost a 4% growth in the first six months. I should point out that the tangible book value did come down slightly in the quarter because of very significant FX movements, in particular the U.S.
dollar depreciated quite significantly versus the euro, and this affects the net book value of our Compass holding. The quarterly net profit of €1,107 million, it's a drop of 1.4% versus last year at current euros, 1% growth in constant euros.
The drop, as you can see, is in net trading income, which in the second quarter, I remind you, included the VISA sale of €225 million last year. And this quarter, we also had lower net trading income due to lower ALCO sales.
Other income was also lower this quarter because last year, we had the dividends from CNCB which, of course, we sold, we don't have this year, and the Telefónica dividend last year was also significantly higher than this year. But on all other dimensions, it is a strong set of numbers with NII growing 10%, fees almost 7%, costs less than 3%, and impairments are down almost 5%.
Similarly, in the six months, we have had great results with a net attributable profit of €2,306 million, which is a growth of almost 26% versus last year and 31% in constant euros. Excellent trends also in core revenue growth, both NII and fees, with cost evolution contained and with lower impairments, with costs growing 2.2% and lower impairments.
The net interest income continues to grow at double digits, reaching €4.5 billion in the second quarter. It's up 3.3% versus the first one.
Net fees and commissions grow at almost 7%, 6.7% in the quarter versus last year with good trends in all the markets. Net trading income, as I said, was low with low ALCO sales and the lower global markets contribution than in prior quarters, where you can see we had many extraordinary contributions in the prior quarters.
And the total revenues grow only 1.3% year-on-year because of this lower NTI and the lower dividends, and they come down in the quarter because this quarter also includes the single resolution fund contribution of €100 million. The core revenues, as mentioned, are strong, both in the quarter and in the half.
The operating expenses maintained a good trend of the first quarter. They're growing 2.2% in the first half versus the first half of 2016.
That's well below the growth rate of revenues of 7.8% or 7.2% of growth rate of revenues excluding NTI. Efficiency thereby improves in the year by 2.5 full percentage points to 49.6%, and it's clearly below the average of our peers.
Looking at this by country on the right of the page, Spain has reduced costs by almost 5%, 4.8%. The U.S.
has contained growth at 1.4%. And the rates of growth of costs in the other countries in the emerging markets are in line or below inflation.
Again, efficiency continues to be a key strategic priority for us for the entire group and for all of the areas. Operating income reached €3.1 billion in the quarter.
That's flat versus a year ago for the reasons that I already mentioned, but it's up a remarkable 13.9% in the first half. And we have high growth rates in all markets, except in Spain, where the VISA contribution was very significant last year.
I would highlight the particularly good growth rates in the U.S., almost 20%, as well as in Turkey, where the VISA contribution was also quite significant in the second quarter of last year. Regarding risk indicators, again, very good.
Loan loss provisions and impairments were €1 billion, decreasing almost 10% versus 2016. The cost of risk remains low, flat below – clearly below 100 basis points and this is a result of our excellent risk profile.
We had a reduction in nonperforming loans by €800 million in the quarter, and they're down €2.4 billion since 12 months ago, a reduction which is mainly in Spain and in the Non-Core Real Estate business. And the ratio, the NPL ratio 4.8%, and coverage 71%, flat versus the first quarter, so overall solid asset quality.
Moving on to capital, the fully loaded core equity Tier 1 ratio stands at 11.1%, in line with our target. 9 basis points increase in the quarter, and this is explained by our ability to generate earnings recurring results.
Net earnings, in fact, contributed 28 basis points, then we detracted the 11 basis points for the accrual of our dividend. And also by our focus on profitable growth.
The evolution here of the ratio is even more remarkable if we take into account that the ratio includes the negative impact of approximately 10 basis points coming from the Telefónica mark-to-market. The share of Telefónica has dropped by about 14% in the quarter, and this has only been partially offset by the positives coming from mark-to-market of the fixed income portfolios.
This quarter, the FX movements have not had a significant impact on the ratio. In fact, it has been slightly positive.
And again, I would remind you of the high quality of our capital. We remain as the bank with the highest risk-weighted asset density and the best fully loaded leverage ratio of our European peer group, and thus, we are well-prepared to face future requirements.
In the quarter, we also issued €500 million of AT1s with a 5.875% coupon, which is the lowest achieved today by a Spanish issuer. Now, in addition to the good results, we have also progressed well in our delivering on our transformation strategy around our six strategic priorities.
We had very good news a couple of weeks ago, and it was announced that BBVA ranks number one as the best mobile banking app in the world according to Forrester Research. We're very proud of the team, a quite tremendous achievement.
And now beyond that, we continue to provide improved solutions to our customers in the various countries every quarter. Some examples this quarter you have in the page, I would highlight four of them.
Plan EstarSeguros in Spain, that's a new value proposition which allows our customers to build their insurance plan with us by grouping the payment of their insurance products in a single monthly bill with discounts that are based on the number of products with the bank. Another example is BBVA Plan – Financial Goals in Mexico, a savings app that lets our user – our customers really achieve specific short-term goals through innovative and automatic saving rules.
Open Market for Digital Loans in – Digital Loans for the Open Market in the U.S. is another example.
This is our Signature Express product in the U.S. market.
Now we've taken it digital for the open market, so it's an instant, fully digital, end-to-end loan which was already available for customers and now it's available as well for non-customers. And the final example is the MIA, the Mobile Interactive Assistant in Turkey, a bot that performs banking transactions through a hands-free voice experience, really a world-leading functionality, quite sophisticated understanding capability that can do almost 200 different functions.
We continue to grow our digital customer base 22% versus a year ago, almost 20 million clients. Mobile customers growing 42%, almost 15 million clients.
We achieved significant milestones. We've reached the tipping point.
So, more than 50% of our customers in Chile and in Venezuela are digital customers. Also in Turkey, but in Turkey even better than that, 50% of the customers are also active in mobile.
Digital sales continue to increase in all geographies to very significant levels, as we make more of our products available for DIY experience. At the group level, 22% of all units sold in the first half were sold digitally.
And the number is similarly relevant in all markets, as you can see here in the chart, and is growing fast in all of them. Some impressive facts that illustrate really the exponential growth that we mentioned.
For example, in June, we had a record month in units sold digitally, almost 1 million. In Spain, for example, in the first half of the year, we sold digitally in just six months as many units as we had sold in the entire 2016.
So, I now turn it over to Jaime, who is going to give you the overview of the business areas. Jaime?
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Thank you, Carlos, and good afternoon, everyone. Let me start with Spain.
BBVA Research has, once again, revised upwards its growth estimates for the country. Spain will now grow at 3.3% in 2017, thanks to positive employment data, more investment in equipment, and higher exports.
Net attributable profits are growing by over 8% year-on-year despite lower NTIs after recording in the second quarter 2016, €138 million from the sale of VISA. The main drivers behind this growth rates are continuous reduction in operating expenses and significantly lower loan loss provisions.
Regarding core revenues, NII evolution in the half, as we mentioned in previous quarters, has been negatively impacted by the lower contribution from the CIB business, mainly in the Global Markets area and from additional sales in the quarter in their securities portfolio. Excluding CIB, NII in Spain remains flat in the half, in line with our expectations.
On the other hand, net fees and commissions continue to recover, growing by 4.8% versus Q1. If we include the insurance company results, this growth rate would have been even higher.
Loans are growing slightly in the quarter, 0.7%, thanks to consumer and SME loans that more than offset the decrease in mortgages that continued into the second quarter, although at a lower pace than before. Year-to-date, loans are almost flat in Spain.
We continue to improve our funding mix with DDAs growing over 25% year-on-year. And we had another very good quarter in mutual funds growing at 15.6% year-on-year.
Customer spreads remain flat. The negative Euribor re-pricing has been offset by reduction in the cost of deposits.
NIMs are up in Spain by 2 basis points versus Q1. Our balance sheet is well-positioned to benefit from future rate increases.
NII in the next 12 months will go up by around 15% in case of a parallel increase of 100 basis points in the curve. Costs are down by almost 5%, as a result of the CatalunyaCaixa integration and ongoing efficiency measures.
This number is consistent with our 2017 guidance of mid-single-digit reductions. Asset quality indicators continue to improve.
NPLs are down by 8% year-on-year, thanks to good levels of recoveries. The NPL ratio decreases one more quarter, this time by 9 basis points to 5.7% even if activity doesn't help much.
Cost of risk reaches 35 basis points year-to-date. This level is below 40 basis points, which is the year-end guidance, but as Q2 behaved very strongly, cost of risk was only 31 basis points.
We might have some upside here. Now to real estate, the real estate market dynamics in Spain continue to improve.
Household demand in the year to May went up by almost 15%, and also real estate prices increased on average by 5.3% year-on-year, this data as of March. Leveraging on these market trends, we are delivering on our strategic goal to accelerate the runoff of this portfolio.
Year-to-date, we have reduced our net exposure by over 14%, €1.4 billion, using all available sources; retail sales, wholesale transactions and transfer of real estate assets in exchange of shares in JVs. In the second quarter, these wholesale transactions have generated positive results, allowing for a reduction of the negative contribution of the unit to the overall group results.
Moving on to the U.S., GDP growth expectations for the samples (17:27) have also been revised upwards. BBVA Research now expects GDP in the region to grow by 3.4% in 2017.
This upward revision is particularly relevant for Texas where most of our business is located. We're now expecting the state to grow by 4.3% this year.
As you already know, this quarter, DFAST and CCAR results have been released and, once again, we've received a positive response to our capital plans. This proves not only our solid capital levels in the U.S., but also the strength of our capital and risk management processes.
Net attributable profits almost reached €300 million in the half, a 62% year-on-year increase in constant terms. They were mainly driven by net interest income growing at over 14% year-on-year, supported by a very good performance of customer spreads.
Fees are increasing by 8% year-on-year, thanks to strong CIB business, but also thanks to very good evolution of our retail fees. A significant decline in impairment and other provisions, as a result of improvement in asset quality indicators versus last year, has also helped.
In terms of activity, we continue to focus on profitable growth. Although total loans have remained practically stable in the quarter, the consumer segments grew again this quarter by over 1% quarter-on-quarter.
We expect loan growth to be positive in 2017. The deposit mix continues to improve, having a positive impact on the cost of deposits even despite higher rates.
Customer spreads keep on growing, reaching levels around 3.8%, and NIMs are also up in the U.S. by 13 basis points versus Q1.
Our balance sheet is asset-sensitive. A parallel increase of 100 basis points will have a positive impact of 7% in NII.
We expect NII to grow at double digits in 2017, and loan growth should return in the second half. Costs are up in the half by 1.4%, showing positive jaws, as revenues are growing over 7%.
Asset quality indicators improved significantly versus last year, negatively impacted by increased provisions in the oil and gas and basic materials portfolio. At 38 basis points, year-to-date cost of risk remains well below our 2017 guidance of 50 basis points.
Let's move now to Mexico. BBVA Research maintains its GDP growth rate expectations at 1.6% for 2017, still below Mexico's long-term potential growth rate, but above the estimates we had at the beginning of the year.
Bancomer shows once again very strong results in the quarter and net attributable profit of almost €1.1 billion for the first six months of the year, representing a year-on-year increase of over 16%. NII is growing in the high single-digit range, driven by activity and a favorable evolution of customer spreads.
Fees are also growing fast at over 11% versus the first half of 2016, mainly due to larger volumes of credit card transactions and higher mutual funds and investment banking fees. The evolution of fees and commissions have been better than initially expected, and we could see them growing this year in line with activity.
NTI is up by more than 25%, thanks to a good performance in Q1 of the global markets area, positively impacted by the revaluation of the inflation linked bonds. Together with the good evolution of the insurance business, this leads to a gross income above €3.5 billion in the first six months, a 10.5% year-on-year growth rate, in line with our year-end expectations.
Loans are growing around 9% year-on-year, slowing down slightly versus Q1. Nevertheless, this growth rate remains in line with our expectations for the year.
The funding mix also improved in Mexico, if that is still possible. DDAs now represent over 80% of total deposits.
Customer spreads continue to improve. Rate hikes are translating into higher deals, especially in the commercial segments, more than offsetting the increase in the deposit costs.
Outstanding expense control with cuts growing at over 4%, well below inflation. And although we do expect them grow above these levels in 2017, we will maintain operating jaws positive.
Efficiency stands at 34.2%, 200 basis points better than a year ago. Risk indicators remain solid with NPLs and coverage ratios stable in the quarter, and our year-to-date cost of risk of 335 basis points below our year-end guidance of 350 basis points.
Moving on to Turkey, GDP growth has significantly accelerated during the first quarter of the year to 5% year-on-year, and the pace of economic activity remain robust into the second quarter. This has allowed BBVA Research to revise its GDP growth forecast strongly upwards to 5% for 2017 from 3% before.
This environment has allowed Garanti to show impressive results with the net attributable profits growing in the half by 39% despite a significant decrease in NTIs, as the second quarter of last year include €86 million from the sale of VISA. The main drivers behind these growth rates are a strong net interest income, growing at over 21% year-on-year, mainly explained by volume growth and successful customer spread management and a higher contribution from CPI linkers.
Last May, the CPI referenced the right to calculate the NII contribution from the linkers was increased from 7% to 9%. In the first half of the year, these positive drivers have more than offset the increase in swap funding cost and higher deposit prices in liras.
We also had another good quarter in fees growing by 5.6% versus Q1. Impairments have been lower in the quarter, performing better than initially expected.
Solid loan growth rates continue in the second quarter, focused on TL-denominated loans, supported by the Credit Guarantee Fund, while U.S. dollar loans continue to go down year-on-year now by 8%.
During the second half of the year, we expect loan growth to slow down as Garanti's share on the Credit Guarantee Fund facility is going down. We expect double digits growth rates in loans in the year, although below the 17% increase we saw in 2016.
In a higher rate environment, we have continued to grow our demand deposits and diversify our funding sources. In the quarter, we've issued $150 million in covered bonds and $750 million Tier 2 at the lowest cost ever in the Turkish market.
In the quarter, we've seen some pressure on customer spreads as a consequence of increase in the cost of deposits in local currency. Total costs are growing by 11% year-on-year, very much in line with inflation.
And the cost-to-income ratio continues to improve to 38.4% in the half, slightly better than in the previous quarter. As the quality indicators keep on improving, behaving better than expected, the NPL ratio decreases, coverage is up and cost of risk falls to 0.8%.
Having said these, we maintain our 2017 cost of risk guidance at 110 basis points. Now moving to South America, we expect 2017 GDP growth below 2016 levels in most countries of our footprint except for Argentina.
Despite this, net attributable in the quarter reached €222 million, up 21% versus Q1. We had a good evolution of core revenues in the first half, NII growing at over 10% above activity, thanks to wider spreads, and fees are also growing above double digits.
Impairments, though, are up especially in Colombia and Peru. Regarding Argentina, this month, BBVA Francés completed a capital increase of $400 million to take advantage of the expected growth opportunities in the country.
At almost 3 times book value, we think this a good transaction both for Banco Francés and BBVA shareholders. In the region, loans are growing at 6.4%, in line with our mid single-digit guidance for the whole 2017.
Argentina remains the most dynamic country, followed by Chile and Colombia. And we do expect the evolution of the loan book in Peru to be more favorable in the second half.
Customer funds are up by over 10%, and also in the region improving our funding mix. The customer spreads widens by 5 basis points versus Q1, mainly explained by a decrease in the cost of risk.
Expenses are growing slightly above inflation due to Argentina, but should smooth going forward as inflation in the country goes down. Cost to income improves quarter-on-quarter.
Excluding Argentina and Uruguay, all countries enjoy positive jaws. Risk indicators are deteriorating in line with our expectations.
In any case, they remain at reasonable levels and compare well with peers in almost every country. In 2017, we expect the area cost of risk to remain around the 140, 150 basis points range.
Now back to Carlos for some final remarks.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Thank you, Jaime. So as you've seen, we have excellent results in the first half with the solid trends that we saw in the first quarter continuing, even stronger with growth in core revenues, control of costs, low cost of risk and solid capital generation.
We're progressing in our transformation. We have the best mobile banking app in the world.
We're growing our digital sales which are already a relevant part of our business overall and in all of the countries, and we are creating value for our shareholders. Thank you very much, and I give the floor to Gloria for the Q&A.
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
And the first question comes from Jose Abad from Goldman Sachs. Jose, please go ahead.
Jose Abad - Goldman Sachs International
Hello. Good afternoon.
Thank you very much for the presentation. Just two questions from my side.
The first question is on Mexico. Bancomer has one of the highest balance sheets in consumer loans.
I think customers account for around 25% of your loan book in the country. And even though you've been slowing down, coming from levels of around 40% growth, I think the latest numbers I've seen in the Central Bank is that you are still growing your loan book at rates of around 20%, which is much higher than what competitors are doing.
So, could you give us some color on your strategy here and now whether you are also seeing some deterioration in credit quality? Some of your competitors in the country are saying they are starting to see some deterioration in the credit card portfolios.
And the second question is on IFRS 9, whether you could give us some guidance regarding the impact on capital. Thank you very much.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Okay. Regarding the first question, we are growing the consumer portfolio by 11.1% year-on-year as of June, so not the rates that, Jose, you've mentioned in the call.
I think in this portfolio, as in many others, I think we've been very clear during the last few quarters that we've been acting in a fairly defensive fashion, and this is allowing us to maintain very good cost of risk numbers in Mexico, which will probably end the year slightly below, where we were expecting at the beginning of the year, so no significant impact whatsoever.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Yeah. There's another question on IFRS9.
We are currently not providing an estimate. This is still work in progress.
We have yet to see what the final impact is. In any case, you might have seen the EBA's latest publication of the results of the quantitative impact study, which shows some results, averages and ranges, might give you an idea we, in any case, are very comfortable that the effect would be a manageable effect for us.
But again, we're not providing estimates just yet because it's work in progress.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay. Thank you, Jose.
Jose Abad - Goldman Sachs International
Thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Next question, please?
Operator
The next question comes from Francisco Riquel from Alantra. Please go ahead.
Francisco Riquel - Alantra Equities Sociedad de Valores SA
Yes, and also thank you for taking my questions, two for me. In Spain, we have seen another letdown in the NII, which is now down 4% year-on-year, so then a flattish guidance that you admitted was already challenging, and I wonder if you can update on trends here, when do you see the floor and update the guidance, and also differentiate it between the banking business volumes, margins and the bond portfolios' contribution here.
Thank you.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Thank you, Paco. We believe that we've reached the floor in the second quarter of the year.
As I mentioned in my presentation, if it – it isn't for – if we exclude the CIB business, the rest of the businesses will be, more or less, flat in the first half of the year versus last, so behaving, more or less, as we were expecting. What has been not expected is that the CIB contribution, especially on the global markets area, has been much lower that what we had in the budget.
And that was showing in the first half of the – in the first quarter of the year and also in the second. This has also been helped by the fact that additional securities sales have been done in that area.
The contribution of the ALCO portfolio is pretty similar to what we had last year, if we net out the lower cost of wholesale funding, and that remains the case, is what we were expecting at the beginning of the year, and that's still the case as of today. But it's true that flattish NII, taking all things together, it's going to be extremely challenging.
We will now be expecting, more or less, to repeat in the second half what we made in the first half of the year.
Francisco Riquel - Alantra Equities Sociedad de Valores SA
Okay. Thank you.
And the second question, if I may, is if you believe that this shortfall in NII could be offset with lower fee income and cost of risk for the second half of the year, if you can update also on these trends. Thank you.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Fees are behaving very well, both on the CIB and the retail banking side. This is a general trend, as you can see in the whole footprint.
We stick with our mid-single-digit guidance for the year, although we might see some upside risk here. Where it's more clear is the potential upside around our cost of risk.
Second quarter numbers came in very good, 31 basis points in the quarter. It's much lower than what we were expecting in the year, so we might have additional upside on this line, too.
Francisco Riquel - Alantra Equities Sociedad de Valores SA
Okay, thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay, thank you, Paco. Next question, please?
Operator
The next question comes from Sofie Peterzens from JPMorgan. Sofie, please go ahead.
Sofie Peterzens - JPMorgan Securities Plc
Yeah. Hi.
Yeah, it's Sofie Peterzens from JPMorgan. My first question was around your real estate division and your strategy here.
Could you just remind us how long we should expect losses in the real estate division and when they should disappear? And also, at what level and what kind of gains or losses you're seeing for the real estate that you're selling?
So, that was my first question. And my second question is around TRIM.
Is there any update on TRIM? Is the regulator – or my understanding is that the ECB is looking at Spanish mortgages.
Is there anything you can say here? Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Okay. On the real estate, as we mentioned in prior quarters, we have a strategy of really accelerating divestiture of the portfolio.
So this is really a run-off portfolio that we expect to really run it off in about three years' time. So, depending on the speed of that run-off, and we are really going faster than expected, in the first half of the year, we have reduced, as I mentioned already in the presentation, our portfolio in a faster way and there are additional wholesale transactions that are being carried out.
So depending on the speed, that would go through the P&L faster, whatever loss there is left. So, that's why we don't provide a specific guidance for 2017.
And on the TRIM, do you want to comment, Jaime?
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Yes. The TRIM exercise has already begun, but it hasn't finalized yet, so we don't have anything to comment.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay. Thank you, Sofie.
Sofie Peterzens - JPMorgan Securities Plc
Thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Next question, please?
Operator
The next question comes from Alvaro Serrano from Morgan Stanley. Alvaro, please go ahead.
Alvaro Serrano - Morgan Stanley & Co. International Plc
Hi. Yes.
The first one is on Spain NII again, and it's around the visibility you have. You said that you expect Q2 to be the trough.
But does that mean you don't expect to sell further bonds? And also in the loan growth, you've grown now 0.7% quarter-on-quarter.
In previous occasions, I think you were a bit more cautious. Is the loan growth improving?
Do you think you can grow this year and is that contributing to that visibility? And in Mexico, the second question is the costs are doing very well on my numbers, it is very well in Q1.
The message was maybe that was too good to be sustainable, I seem to be remember, that it looks like Q2 has been quite good as well. Maybe we have commentary, the Mexican cost specifically?
Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Yeah. Well, thank you.
Maybe I should take that, Jaime, on the NII, just to add on what Jaime said. I think the best way to think about this is that the NII for the remainder of the year would be, more or less, to repeat the number that we have recorded in the first half.
Now, the underlying commercial trends have been in line with what we expected. And as Jaime said, the main reason why we are behind our guidance overall is because the CIB unit has underperformed in this respect of NII.
We did have a better net rating income but on NII particular because of the sale of portfolios. But really that's over in the sense that in the comparison with the first half, there will be no further reductions of size of the portfolio.
And in terms of the volumes, we do expect flattish or slightly decreasing volumes of the year-end balances versus 2016. And in Mexico, yes, again, this is something that one has to work every quarter to ensure that costs, especially in countries which are emerging countries, don't continue to grow at high levels in context of growing activity.
And in Mexico, we have so far been quite successful at doing that during the first half, and we have many more plans in place in Mexico and elsewhere to try to continue to have this great evolution. But we're not changing any guidance in this respect, which is happy to see that the results are bearing fruit, and we expect to continue to work hard at this.
Alvaro Serrano - Morgan Stanley & Co. International Plc
Thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay, thank you, Alvaro. Next question, please?
Operator
The next question comes from Carlos Peixoto from CaixaBank. Carlos, please go ahead.
Carlos Peixoto - CaixaBank SA
Hi. Good morning – I'm sorry, good afternoon.
My questions would be basically, first of all, if you could update us on your main business area sensitivity to interest rates movements? And also the – and the second question would be on whether there were any restructuring costs booked in the second quarter.
I know there were some restructuring costs pending. And what was the split of such restructuring costs between Spain and the Corporate Center?
Thanks.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Yeah, I'll take that one. Quickly, I think it's about $50 million, about $40 million and $10 million restructuring costs, Jaime?
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Yes, more or less, along those numbers.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
And do you want to comment on the NII sensitivity?
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Yeah. On sensitivities, I already mentioned in the presentation, Spain and the U.S., Mexico and Latin America, they are more or less around the same levels as in the previous quarter, around 2% both.
And then Turkey, again, is the only country where we have negative sensitivity. And for every 100 basis points increase, NII goes down now by 3.7%.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay, thank you, Carlos. Next question, please?
Operator
The next question comes from Ignacio Ulargui from Deutsche Bank. Ignacio, please go ahead.
Ignacio Ulargui - Deutsche Bank AG (Spain)
Hi. Good afternoon.
I just have one question on the Mexican NII. Could you just update on how do you see the competitive landscape in Mexico and what will be your guidance in terms of loan growth or if you'd stick to the high single-digit 10% level that you have given before?
Thanks.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
We stick with our guidance of high single-digits growth, both in volumes and in NII. Regarding the competitive dynamics, there's probably one bank that is growing very fast this first half of the year.
The rest, I think, are following a more of a conservative approach, taking into account the situation in the country, but that's the most I think that I could say. In our case, we maintain a very disciplined approach, as we've had in the last few quarters, and we don't expect any major changes in our strategy.
Ignacio Ulargui - Deutsche Bank AG (Spain)
Thanks very much.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Ignacio. Next question, please?
Operator
Next question comes from Marta Romero from Bank of America Merrill Lynch. Marta, please go ahead.
Marta Sanchez Romero - Bank of America Merrill Lynch
Thank you. Good afternoon.
My first question is on Turkey. Thank you for the update on your outlook for loan growth and cost of risk for 2017.
I'm aware you don't provide guidance for 2018, but it would be great to hear your thoughts on the government-sponsored measures and whether using that loan growth rates that we are seeing today are sustainable, the asset quality trends are sustainable in the cost of risk, and where do you see more normalized levels for Turkey? And the second question is on loan growth in Spain.
Are there any seasonal element this quarter that would go away in the following quarters? Where do you expect to end your loan book and spend for this year?
Thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Well, I think I did mention that we expect the loan book to be flattish or decrease slightly versus last year. And in Turkey, it's a great question.
We have seen very significant growth rates of activity, very much driven also by the support given by the government fund to the small business lending, so that should be decreasing as we go forward. And in terms of asset quality, Jaime did mention that our performance has been so far better than expected in a significant way, about 30 basis points below our guidance of 110 basis points.
And we, going forward, are not counting on an increase of size of that cost of risk but, of course, it all depends as well on how the activity continues to evolve. Jaime, I don't know if you want to add.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Yes. We want to be conservative, and that's why we're not increasing the – reducing, in this case, the cost of risk guidance for Turkey.
And in the case of Spain, there is one large transaction in the quarter that has positively affected the numbers, but those are seasonal impacts that they happen from time to time, but it won't change significantly the trend, though.
Marta Sanchez Romero - Bank of America Merrill Lynch
Thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Marta. Next question, please?
Operator
Next question comes from Adrian Cighi from RBC. Adrian, please go ahead.
Adrian Cighi - RBC Europe Ltd.
Hi there. This is Adrian Cighi from RBC.
Thank you for taking my questions, two follow-up, please. On Spain, can you please provide the amount of the TLTRO-II that you included in Q2 NII?
And also on Spain on cost, given the restructuring cost you've taken in H1, what is your expectation now on the development cost of costs from 2017 to 2018? Do you still expect them to decline by mid single digits?
Thank you.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Yes. The first question, the answer is €36 million, exactly the same number as in the first quarter.
And regarding cost, we're expecting cost to go down by – in the mid single-digits range, so that hasn't changed.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
That's for this year. We're not yet just yet providing guidance for 2018, just to be clear.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Yeah.
Adrian Cighi - RBC Europe Ltd.
Okay, thank you.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Now, the restructuring which was questioned earlier, we don't expect significant restructuring charges for the second half of the year. That's also relevant.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Adrian. Next question, please?
Operator
The next question comes from Carlos Cobo from Société Générale. Carlos, please go ahead.
Carlos Cobo Catena - Société Générale SA (Spain)
Hello. Thank you very much for the presentation and also for changing the date and the time of the call.
That was also very much appreciated. A quick question on volumes in Spain.
Earlier today, we've heard other peers guiding to some potential growth in lending even when they are also focused on mortgages in Spain, which is presumably the segment that grows the less. So, could you explain a little bit your strategy towards lending in Spain and why are you that conservative compared with other peers, which are already growing the loans books?
And secondly, just if you could help me to understand a little bit the cost of risk in Mexico and the resiliency that we've seen after a significant increase in interest rates in the market for 100 basis points or more. So what are the changes to study during some – or asset quality as you implemented just to maintain the cost of risk so flattish and whether you expect any pickups for next year?
Thank you.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
I think the main difference versus some of our competitors is the size of our mortgage portfolio. This portfolio keeps deleveraging.
It's true that they're clearly slowing down, and we could end the year maybe growing this portfolio. But so far in the quarter, that portfolio went down by €1.2 billion.
And that's lower than the €1.5 billion that was down in the first quarter, but those are significant numbers and probably conditioned a little bit the numbers. Our consumer book keeps growing and keeps growing very fast, almost 7% quarter-on-quarter.
We had very good numbers in general in the commercial segment in the quarter, although helped by that one-off transaction. And that's what I think can probably differentiates us more from our competitors.
So I think in the rest, Spain is really focusing on profitable growth but looking forward to increase its loan exposure. Regarding cost of risk in Mexico, I think we've been saying this all along.
I think there are competitors, and that's the question you always ask us. When some competitors start to lend a lot to certain segments of the economy, you always ask us why we're not doing the same thing.
We always tell you exactly the same answer, which is that we are much more consistent than in general the rest of our peers in the country. We have very good information.
I think we have very good credit risk modeling in the country, so we are able to anticipate very well the behavior of our clientele. And that allows for more recurrent loan growth rates, maybe and not always the highest, but if you take a medium-term perspective, I think what Bancomer always shows is a huge resiliency and very consistent numbers, and this is the same answer that I'm able to give you today.
We did reduce, and we shared this with you in the past, the consumer portfolio in Centenario (52:04) is more affected by the restructuring that PEMEX was doing, but that was pretty much the only measure that we had to take. The rest is following our models that worked very well.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Carlos. Next question, please?
Operator
The next question comes from Britta Schmidt from Autonomous Research. Britta, please go ahead.
Britta Schmidt - Autonomous Research LLP
Yes, hi there. I've got two questions.
Coming back to the cost of risk outlook, you mentioned that there's some upside versus the guidance in Spain, but it's trending well below your targets also in Mexico, U.S. and we just discussed Turkey.
What are the reasons for not changing the guidance in these areas? Is there anything that you're aware of that's around the corner?
I know in Turkey there might be some cases that are still unknown, but what about the Mexico and the U.S.? And my second question will be on the other income in the Spanish division that has performed very well, especially in light of the SLM (53:06) charges that were booked this quarter.
Is there anything unusual in there in this quarter? And perhaps, you can also comment a little bit on the outlook for the growth rate for the insurance business.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
There's nothing in particular we're seeing in any of the countries that you mentioned. I think it's a general policy not to change guidance too much during the course of the year.
We are seeing very good numbers in the U.S., in Turkey and Spain. And we feel that there is some upside, but that does not necessarily lead to change the guidance.
The same thing happened last year. And I think at the end, we did – presented better numbers.
We're not seeing anything in particular that we think that we should share. On other income, well, there are two major effects, as Carlos pointed out.
Spain's contribution to the Resolution Fund was €98 million, slightly less than what we were expecting. We were expecting a figure around €117 million, €120 million, which is what we paid last year.
But then the more recurrent and sustainable impact is the very good behavior that we are having in the insurance business. Their fees are growing year-on-year by 8.5%, quarter-on-quarter by 11%, and this is what is allowing Spain to show a very good showing in this line.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Britta. Next question, please?
Operator
The next question comes from Benjie Creelan-Sandford from Jefferies. Benjie, please go ahead.
Benjie Creelan-Sandford - Jefferies International Ltd.
Yeah. Good afternoon.
Just one quick question left from my side on risk-weighted assets. I mean, obviously, the risk weightings are still comparatively high, but it does look like the risk weightings have gone down about 1 percentage point quarter-on-quarter.
I just wondered whether there's any particular driver of that in terms of the risk weightings.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
No, nothing in particular. RWAs went down in the quarter mainly because of FX movements.
85% of the impact is explained by FX movements. The only particular impact worth sharing is in Spain.
We did do a synthetic ABS on a SME portfolio in the quarter that has free up some capital. And in general, the risk profile in Spain is behaving a little bit better than what we were expecting.
But risk weightings haven't changed much in the last few quarters. They remain fairly stable.
Benjie Creelan-Sandford - Jefferies International Ltd.
Thanks.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Benjie. Next question, please?
Operator
The next question comes from Mario Ropero from Fidentiis. Mario, please go ahead.
Mario Ropero - Fidentiis
Hello. Two questions.
The first one is if you can give a little bit more color on the asset quality indicators for Colombia and Peru. I don't know if maybe just NPL ratios or, if possible, what are the portfolios driving the deterioration there and what to expect going forward?
When can we expect the stabilization in this deterioration? Some more color on these, please.
And then the second question is on how should we think about the cost structure of the real estate unit in Spain. I'm talking about mainly personnel cost, if these costs should go down as the portfolio of assets goes down or not because these personnel cost will be eventually reallocated to other units as assets are sold.
Thank you.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Okay. On the first question, asset quality in Colombia and Peru, these are two countries where BBVA Research has revised downwards in a fairly significant fashion its GDP growth estimates for the year.
Probably for different reasons in each country, Peru affected by the Niño and lower basic material prices, and Colombia mainly affected by the lower price of oil. This has had an impact on cost of risk in both countries, but in different portfolios.
In the case of Peru, it has more to do with the commercial book. And in the case of Colombia has more to do with the consumer portfolios.
If you remember also in Colombia, we had a fairly significant one-off in the first quarter coming from one very large ticket.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Yeah. And on the real estate question, absolutely, the cost structure of real estate, I guess, the best way to see is it has two parts, one of which would be the costs associated with the assets themselves, another which would be the structure of managing those assets.
And both will be coming down as the assets are sold, one of them very directly, the ones linked to maintaining the assets, which are very significant costs. And the cost of managing sort of the assets from our side would be reducing that cost base, as this non-core business really runs off completely, as I said, in that timeframe of three years.
Mario Ropero - Fidentiis
Okay, thank you.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Thank you, Mario. We have also received two questions by e-mail.
The first one is a question from Carlos García Gonzalez from Kepler, and it's regarding the NII sensitivity in Spain, the 15% in the first 12 months. How much could be after the full re-pricing?
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
That means beyond first 12 months. I don't remember, but some of you have actually done a very good analysis on NII sensitivity all across a number of our peers.
And you came with a conclusion that Spain, it's a good play to play the 12 to 24 months' timeframe. Well, that is correct according to our internal metrics, although we haven't disclosed that sensitivity as of yet, but it's still significant, still significant.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay, thank you. And there's another question from Marissa Massa (01:00:25) from Bankinter.
She's asking, are you planning to issue annual compliant bonds?
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Yes, we are. We were waiting for the law to be approved in Spain, that has happened, and we will expect to issue and senior non-preferred probably after the summer.
As you know, we've already made the necessary changes in our MTM program.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Okay. So, operator, are there any more questions?
Operator
There are currently no further questions on the line.
D. Carlos Torres Vila - Banco Bilbao Vizcaya Argentaria SA
Okay then, I would really like to thank you all for connecting today in the evening and also for the flexibility on your side. We were also sorry that the information was not readily available at the CNMV, as it should have been.
As Gloria indicated at the beginning of the call, we did experience some technical problems in trying to get the information over published probably because it was a busy day of communications, as she indicated. In any event, we again appreciate your time and connecting to the call, your questions as well, and wish you all a great rest of the summer.
And for those of you who can take a break, I really hope that it's a fruitful time to rest and enjoy some time off, and we'll see you in the fall. Bye-bye.
Gloria Couceiro - Banco Bilbao Vizcaya Argentaria SA
Bye. Thank you.
Jaime Sáenz de Tejada - Banco Bilbao Vizcaya Argentaria SA
Thank you.