Jul 30, 2021
Patricia Bueno
Good morning, everyone, and welcome to BBVA's Second Quarter 2021 Results Presentation. I am Patricia Bueno, Head of Investor Relations.
And here with me today is Onur Genc, Chief Executive Officer of the Group; and Jaime Saenz de Tejada, BBVA Group's CFO. As in previous quarters, Onur will begin with the presentation of the group results, and then Jaime will review the business areas.
We will move straight to the live Q&A session after that.
Onur Genc
Thank you, Patricia. Good morning, everyone.
Welcome, and thank you for joining our second quarter results audio webcast. As always, I hope everyone is safe and sound.
Let me just jump into it, starting with slide number 3. So on slide number 3, on the left-hand side of the slide, you can see our net attributable profit, excluding nonrecurring impacts, which continues its upward trend, very good nice trend you see on these numbers.
And now the number is up to €1.294 billion in the second quarter. It implies obviously doubling the results in the same period last year, when we had some obviously, extraordinary provisions due to COVID.
And as compared to the first quarter of 2021, net attributable profit is also growing very nicely by 25%. Earnings per share, we are going to be reporting this very previously in all the presentations from now on, €0.18 -- €0.18, again, very nice growth.
These numbers, they are two very important notes that I would like to do here. The -- first of all, these numbers represent the all-time high quarterly results in the perimeter that we have.
And they have been achieved very important, preserving all the accumulated 2020 extraordinary quality reserves intact. So we are not releasing anything from the reserves that we built for COVID in 2020.
Let me note, for comparison purposes, that all these figures, they exclude the nonrecurring impacts, more specifically, the results from our US business sold to P&C. And the one-off from the restructuring costs of the collective layoff process in Spain, including all these concepts, the final reported profits amount to €701 million.
The graph on the right-hand side of the slide shows our capital position with the CET1 up to 14.17% now, including the impact from the US sales and also including the restructuring process in Spain. This obviously represents a new level of capital strength, providing ample strategic optionality for us, even considering the targeted 10% share buyback, our capital position will still remain at a very high level, 12.89%, well above our target range and well above our minimum requirements.
The CET1 ratio pro forma, the 12.89% that, I was telling you about, it has been calculated with the share price of July 22, which implies an amount of the share buyback of €3.5 billion. On the share buyback, I'm very happy to report right upfront that following the ECB's announcement last week, we have already initiated the necessary steps to start the program in the fourth quarter 2021, as we have been sharing with you before.
Jaime Saenz de Tejada
Thank you. Thank you very much, Onur, and good morning, everybody.
Let me start as usual with Spain. Again, economic growth is strengthening in the country.
2021, GDP growth estimates have been revised upwards by a full percentage point to 6.5%. And it remains at 7% for 2022, mainly thanks to better data in the first half of the year.
Growth going forward will also be supported by the next-generation EU recovery fund, as you all know. New lending flows, as Onur has commented, have increased by 13% quarter-on-quarter.
On top of a very solid loan demand in retail segments, credit is also steadily picking up in the commercial sector, except in CIB, where it's still lagging. This has allowed a quarter-on-quarter loan growth of 2.3%, with the consumer portfolio growing at over and the SME book at 3.4% quarter-on-quarter.
Even the mortgage book is happening in Q2. For the full 2021, we expect the loan portfolio to remain broadly flat with consumer lending growing at high single digits.
Looking at the six months P&L, BBVA Spain delivered an outstanding pre-provision profit growing by 13.2% versus last year, mainly driven by a very strong core revenue growth, up over 4%, supported mainly by the strong fee performance, up 16%, led by activity recovery and a robust growth, particularly in banking fees, especially credit cards asset management, but also insurance fees, as you know, positively impacted by the closing of the JV with Allianz since December of last year. This dynamism allows us to expect fee growing by mid-single-digits for the whole 2021 versus our high-single-digit guidance before.
Another highlight of the half is clearly net trading income, thanks to the strong Global Markets results, but particularly in Q1. Our continued cost control efforts decreasing by 2.2%, resulting in a significant improvement of our efficiency ratio now at 49% in the first half of 2021 versus almost 55% at the end of 2020.
For the whole 2021, and including the savings from the restructuring plan recently announced, expenses are expected to go down by around 3%. Net attributable profit year-to-date was also positively impacted by the significant reduction of impairments, mainly explained by the front-loading of COVID-related provisions that set aside last year and the very good dynamics of NPL's net entries.
As a result, the cost of risk of the first half of 2021 stands at 45 basis points better than expected. For the entire 2021, we now expect cost of risk to stand below 40 basis points, clearly better than the original guidance.
All in all, a very good set of results in Spain with the first half net attributable profit reaching pre-COVID levels of €745 million. Let's now move to Mexico.
In Mexico, we have once again improved our GDP growth forecast for 2021 to 6.3% and also for 2022 to 3%, driven by a better investment and consumption supported by the higher US demand and record remittances, which should support activity and asset quality trends in the second half of the year. Year-to-date, the loan portfolio is growing by 2.1%, driven by retail segments, as we've discussed before, up 3.3%, with wholesale segments also in positive territories.
These loan growth levels have led to a 60 basis points market share gain in the 12 months to May, particularly supported by credit cards and the commercial segment. In short, very solid activity dynamics that make us even more confident on achieving our mid-single-digit growth guidance for 2021.
In terms of P&L, BBVA Mexico's net attributable profit year-to-date increased by 75% and compared to last year, driven by the reduction of impairments and the excellent core revenue performance. Core revenues as of June are improving by 5.8% year-on-year, thanks to the strong fee performance, up over 15% due to the higher activity and transactionality.
NII is also up, increasing 3.9% and due to a better customer spread and our efforts to reduce customer funding cost, which has clearly paid off, also lower wholesale funding cost and also helped, of course, by the base effect, as remember that we did not accrue interest on some loan deferrals granted 2020. For 2021, we expect NII to grow at mid-single-digits levered on activity growth and margin improvements.
Expenses have increased year-on-year by 7.4% and driven by higher inflation and variable remuneration normalizing, ending June with a very strong cost-to-income ratio of 35.2%. The cost of risk stands at 283 basis points, thanks to the good dynamics in retail segments and lower impairments in commercial.
The good asset quality trends during the first six months make us revise our estimates for the year in Mexico. And we now believe that we will end 2021 with a cost of risk around 300 basis points.
Let's now turn to Turkey. On the macro, GDP growth estimates for 2021 have been significantly revised upwards also in Turkey to 9% versus 5% previously.
Thanks to the strong momentum and upward global growth forecast as the economy reopens. For 2022, we expect a 4% GDP growth in line with, what we could consider to be the long-term structural growth rate for the country.
In terms of activity in the TL loan portfolio grew by over 23% year-on-year with double-digit growth in both the retail and the commercial segments, while foreign currency loans continue decreasing, by 11% year-on-year, in line with our strategy in this segment. This strong tier loan growth continues in Q2, which is up 6.7% quarter-on-quarter with similar growth rates, both in retail and commercial segments.
For the full 2021, we maintain our expectations for tier loan growth at mid-teens, but now with an upward bias. The foreign currency portfolio will continue decreasing.
In terms of P&L, gross income in the half of the year grew by 6.9% year-on-year, supported by the excellent performance of fees and also net trading income. While NII was negatively impacted by the strong compression of the customer spread in Turkish lira after the sharp increase in rates.
Having said this, NII grew by over 9% quarter-on-quarter, thanks to strong tie loan growth, the improvement in customer spread, both in TL and foreign currency and the higher contribution from the CPI linkers portfolio as inflation expectations increase. We expect spreads to continue improving after reaching the bottom in Q1, thanks to higher new loan rates, which will support NII going forward.
Net fees and commissions grew by almost 50% year-on-year in the first half, mainly driven by payment systems due to the significant higher levels of activity, but also to brokerage fees in CIB. We had an excellent net traded income up almost 90% year-on-year due to FX results, higher contribution from global markets, but also to gains in the ALCO portfolio.
Expenses grew by 18% year-on-year, above inflation above the 12-month inflation, which stands at 14.5%, negatively impact by the TL depreciation and by higher personnel expenses as we've discussed previously to variable remuneration normalizing. The cost-to-income ratio remains very strong at 31.7%.
In permits declined significantly, down almost 64% on impacted by the high provisions booked in the first half of last year. And to a better underlying performance, resulting in a cost of risk of 97 basis points in the first half and clearly exceeding expectations.
As a result, we are also improving our cost of risk guidance in Turkey, and now we expect to end the year below 150 million basis points. Also, a very strong set of results in Turkey with net attributable profit in the first half, up by 92% year-on-year in constant and 44% in current.
And finally, South America. BBVA Research has also revised its macro prospects for the region in 2021 and now expect a stronger recovery in Colombia, with a 7.5% GDP growth rate for the year.
In Peru, we expect GDP to grow at 9% and 6.5% in Argentina. Let me give you some color on the three main countries.
In Colombia, loan growth is up 1.7% year-on-year, but accelerating quarter-on-quarter to 2.2% with positive trends both in retail and commercial, supported by the reopening of the economy. Operating income grew by 5.2% year-on-year, thanks to core revenue growth and positive jaws.
Additionally, impairments decreased 33%, driving net attributable profit to €106 million in the first six months of the year. In Peru, loan growth is up over 12% year-on-year, supported by the state guarantee programs.
Operating income increased by almost 16% on the back of fee growth up over 37% and an excellent net trading income evolution. This, together with the reduction of impairments drove net attributable profit to $55 million as of June.
And finally, Argentina, that was able to deliver a positive net attributable profit of €15 million in the first half of the year, even after a high inflation adjustment. And now back to you, Onur.
Onur Genc
Thank you, Jaime. We have -- it's my 11th call with you.
It's one of the best quarters that we are showing in terms of results, in my view. The -- so rather than the summary, I will jump into the last page.
The thing that you have been all looking for. You have been asking for this for quite a long time.
BBVA has not been doing this for many years. I would like to announce the upcoming Investor Day.
In this event, we will have the chance to share with you more details on our strategy and our obviously, future goals and targets. We had to postpone the one that we previously announced due to pandemic.
The pandemic is continuing still, but the still by popular demand, we have decided to go for it. Please mark November 18th in your calendar.
This event will be fully online, still due to pandemic to be able to place a say. Patricia and investors relations team, they will be in contact with you, with more details in due time.
And Q&A, but before going into the Q&A session, we might be even more short squeeze on time at the end. So let me do it right away.
You might have seen it yesterday we have done some organizational announcements. As part of those changes, Jaime, our dear CFO, is assuming the group's Chief Risk Officer Role.
So I would like to congratulate Jaime for his new role. Thank and recognize him for the terrific job that he has done as a group CFO for the past seven years.
It your opinion, actually, Jamie been recognized several times as the best CFO in Europe and Spain. You will be missed in this role, but you will be contributing so much, to the bank in your new role.
Congratulations, once again, Jaime. And it was great to have you in this role.
And it's great to have you in the new Chief Risk Officer role. Rafael Salinas, our current Chief Risk Officer, will be the new Chief Financial Officer for the bank.
Again, a lot of experience in Rafa, and he will be joining us for the next quarter's earnings call, as the new CFO. All said, Patricia, Q&A.
Patricia Bueno
Okay. Thank you, Onur.
We are now ready to move into the live Q&A session. So first question, please.
Question-and
Operator
Our first question comes from Sofie Peterzens from JPMorgan. Sofie, your line is now open.
Sofie Peterzens
Yeah. Hi.
Here it's Sofie from JPMorgan. Thank you very much for taking my question.
On the presentation, you mentioned that you have initiated the discussions with on the tender share buyback. Could you just elaborate a little bit more what this means, what the timeframe is kind of when we should expect you to start buying back those shares?
And how we should think about the kind of timeframe of buying back shares 10%? Will it be done within six months or shorter or longer time period?
So if you could elaborate a little bit more here if that would be great. And then, my second question would be on the curve reserves.
You mentioned on slide 14 that you haven't touched your COVID management reserves. Could you just remind us how much unused COVID reserves you have?
Thank you.
Onur Genc
Thank you, Sofie, for both questions. On the first one, as we mentioned today, a few times actually, because it's an important program for us.
Our expectation is that, we are going to start the program in the fourth quarter. We have initiated the process.
You're asking what does that mean. We basically submitted our application to start this process yesterday, to the respective authorities in ITV.
It takes some time for them to evaluate and approve this. The maximum time frame foreseen for that is three months which means, if it's approved, obviously, subject to regulatory approvals, if it's approved as we were forecasting as we have been planning, we will start the process in the first quarter of this year -- in the fourth quarter of this year.
You asked about the time frame of how to rent to completed, €3.5 billion. It is one of the largest share buybacks out there.
So given the size and given some restrictions on this, and the most relevant restriction is that, for market regulation, you cannot be buying back shares more than 25% of the daily average max volume of a certain period. So it takes time to complete this.
Given the size of 3.5%, 10% of shares, we do think that it's going to take six to nine months to complete the full program. On the second one, COVID management reserves, on that one, there are two components that you should be aware.
The first one is what we call the macro adjustment. So beyond the regular deterioration that you might be seeing in the portfolios, your PDs or the probability of defaults, LGDs and so on, it is being adjusted every quarter with the evolution of the macro with a future perspective.
If you look into the macro adjustments that, we have done since the first quarter of 2020, so at the beginning of COVID, from that day, from the first quarter 2020 to the end of second quarter 2021, in the last six quarters, the macro net effect on the bottom line -- on the provisions has been around €700 million, €800 million. I'm giving you the rough figures.
So that's one piece that is still out there. So if macro improves, which is improving, some releases might be done from that.
That macro is actually integrated into the portfolio, into the PDs of every single file and so on. But it is integrated in a way that you are expecting something bad in terms of macro, if those macro improves, as it is happening now, some releases might be happening.
So that's one component, €700 million to €800 million. There is a second component, which we call and management adjustment.
And on that management adjustment, you basically say you don't see a specific issue in a specific client yet but you might see in the future so you become prudent and you do these adjustments. On that one, we have another €700 million to €800 million.
So in total, €1.5 billion is the total of macro, plus management adjustments. The €700 million to €800 million management adjustments that you have, we have allocated some of this already to clients and to certain portfolios, for example, the tourisms acted in certain countries and so on.
So €450 million of that is allocated to certain portfolios, €350 million is left at the general level. I'm giving you all these details, but it is very important.
So from the beginning of the crisis of COVID, we have accumulated 1.5. Some of it is allocated to portfolio, some of it is not.
But given the signals that we are seeing, there might be some releases from this portfolio from these reserves, especially in 2022. But I hope you do realize that we are very prudent on these type of things.
Until we see the clear, clear, clear signals on the economic development, we will hold on to those reserves.
Patricia Bueno
Thank you, Sofie. Next question, please.
Sofie Peterzens
Thank you.
Operator
Our next question comes from Ignacio Ulargui from Exane BNP Paribas. Your line is now open.
Ignacio Ulargui
Hi. Thanks very much for taking my questions.
And good luck to Jaime for his new position. Just have two questions.
One is on NII outlook. What should we expect for the second half, particularly focused in Spain after one of your competitors has been in a bit of a more prudent guidance today?
How do you see competition and loan growth demand into the coming two quarters? Also, linked to that, have been quite bullish on Turkish recovery of NII, what should we expect?
So we start to see in the second half a recovery of margins on the interest rate hikes are absorbed. And on the cost of risk, I mean you are guiding 410 bps at a group level this quarter has been – I mean, the first half has been around 100 basis points.
Where do you see the deterioration coming in your franchise, or is the aspect that you want to take on shares still in the light of what would you have recommended on Sofie's question? Thank you.
Onur Genc
Thank you, Ignacio, On – three questions, I guess, on NII, and you're asking specifically for Spain. On Spain, I think we should have put it in the as presentation as well.
So yearly year-to-date, you have year-over-year growth and so on. But I don’t comment, obviously, on competitors, but our numbers are quite positive in terms of volumes and looking into the quarter-over-quarter figures.
So end of March, end of June, we are basically seeing growth everywhere. Mortgages after the – I don't know, I mean core time, but mortgages is growing stock.
Consumer is growing 4.3% stock. PMS is growing, midsized companies, is we call back commercial companies, it's growing.
Everywhere, except CIB is growing. And as you know, the margins are coming from those portfolios.
So I'm quite positive in the sense that the volumes are coming quite nicely. And as such, the second quarter, I think Jaime mentioned that we are confirming our perspective on the fact that NII will be delivering what we were projecting at the beginning of the year, but quite positive because the volumes are coming very strong.
On the margins, I didn't get a big nice, but you were asking Turkey or you were asking the Turkey?
Ignacio Ulargui
Yes, yes about Turkey.
Onur Genc
On Turkey. You see it in one of the charts that we put in here.
We wanted to reflect a bit to the future on that page. But in the Turkish numbers, you see it bottomed out in the first quarter of 2021.
The June number for the TL spread is 3.12. So as you know, in Turkey, there is this time lag that happens with respect to margins, because the deposits – the average duration is slightly more than a month.
But average duration for your loans is around one year. As a result, when rates go up, you immediately re-price the deposits, you get hit on the deposit on the cost of funding, but it takes a while for you to come back on the loans.
And that process is still continuing. As you know, I mean the country has increased the rate by 9%, it's huge.
And the first six months of this year, it has come down. I'm actually looking into it every single day.
It's one of my focus areas. What happens to that margin?
And every single day, it is improving. Every single day is improving.
So I'm quite positive on the second half margin expectation unless, obviously, there is a new rate hike in Turkey, which we don't expect. But unless that happens, there will be continued improvements in the margins in Turkey as well.
Then 110, why are you guiding 110, when the first half is 100, it's regular business as usual. And in the context of what we're doing not the total loan book and so on, 100, 110, it's not a huge difference between the two.
Actually, we don't see any negativity in the second half at all. But 110, looking into the past portfolios and so on, we said in that range would be probably the final number.
Do you want to add anything, Jaime?
Jaime Saenz de Tejada
No, it's perfect.
Patricia Bueno
So thank you, Ignacio. Next question, please.
Operator
Our next question comes from Carlos Peixoto from CaixaBank. Carlos, your line is now open.
Carlos Peixoto
Hi. Good morning.
Thank you very much for taking my questions. So first on the share buyback, again, just a follow-up.
I was wondering because – well, given the share performance and depending on the future share, share performance as well. But basically, the cost or the capital deployment for a 10% buyback have been going up has gone up since you announced the intention to do so.
So I was wondering, up to what level of capital are you willing to go all the way up to the 10% share buyback or whether we should think about the buyback more in near-term on capital deployment terms, or -- well, basically, where is the limitations to that or any certain threshold of capital? Then on the asset quality front, I was wondering, we saw here an increase in NPLs across or in NPLs across several business areas in and at the same time, we witnessed some deterioration in coverage levels, which, I guess, it's part of the point in the cycle we are in.
But I was wondering to what levels of down to what levels of coverage could the NPL coverage go in what levels do you see has been the minimum or the level at which you wouldn't be comfortable any longer? I know this is a very feel question, but just if you could give us some color on that.
Thank you.
Onur Genc
Thanks, Carlos. On the first one, as I said, the AGM approval is up to 10%.
We have done the calculations as you have seen in the document, the 12.89% after the share buyback, we have done the calculations there with the June 22 share price, which implies €3.5 billion in amounts, those are the numbers that we are currently thinking about, but we are going to execute this in tranches. And Obviously, we will -- our commitment is to the 10% -- up to 10% as we say, in the AGM approval.
And that's kind of the amount that we are talking about. On the NPL and on the NPL coverage, we don't have a commitment or goal on coverage.
I mean what happens is we look into every single client, actually, it's client-specific as you know, every single client when we see signs of deterioration, and we have expectations of future deterioration we take provisions. As a result of that, the coverage comes up.
So we don't optimize for a certain coverage number. It's all driven by the underlying quality of the portfolio.
It's in the appendix. But on Page 45, as a result of this, what comes out is we are more conservative or I don't know, prudent, I guess, than the rest of the industry.
On Page 45, you see that our coverage is 77% versus 66% of European peers average, again, it's very tough to compare because of the mix of the portfolios. But in different countries, Spain, we have 64% coverage, Spanish banking appears the average is 56%.
And I remind you that we are more mortgage heavy in our portfolio as compared to our competitors. In Turkey, we are 69%, the industry is 66%.
Again, I'm giving you some final numbers on this, but our prudent policy will continue on provisioning, I would say, and what matters is the underlying quality of the portfolio. So we don't manage the coverage as an optimization variable.
We look into the portfolios.
Jaime Saenz de Tejada
Regarding the comment on the deterioration in certain countries, the deceleration has taken place in two, maybe a little bit more relevant in Turkey. But that's because of one specific client that was included in Stage 3 this quarter.
But as you were able to see, it didn't require any provisions the quarter risk didn't increase. He's already well provisioning in Stage 2.
And a lot lower in terms of size, only a 9 basis point increase Mexico because of a one-off also from a client in the leisure sector. The underlying behavior, both of the retail portfolios and the commercial portfolios apart from these two one-offs remain very, very...
Onur Genc
Again, the specific lines in Mexico was provisioned fully. So we didn't increase the provision because of that client either.
Patricia Bueno
So thank you, Carlos. And next question, please.
Operator
The next question comes from Francisco Riquel from Alantra. Francisco, your line is now open.
Francisco Riquel
Yes. So thank you for taking my questions and best wishes for Jaime.
First question on Mexico, you can update on the NII guidance and the interest rate outlook has changed. You were budgeting for rate cuts, if I remember well.
So I know the sensitivity to rates is limited in Mexico, but I don't know if there is any upward bias on the guidance because of the repricing is delayed into 2022 or not? You can update on this.
And then I wanted to ask about the fee income. It's the positive surprise in the quarter, if you can update guidance for the group and the main units and explain where the growth comes from because if you are raising tariffs, if it is because of external factors, the market or the macro helping or if you are really improving cross energy geography?
Thank you.
Onur Genc
Perfect. Thank you very much.
for the questions on the first one. And the second one, Jaime, is your last call, and you're not taking too many questions.
Jaime Saenz de Tejada
No, you're being gentle to me. You are being gentle.
Onur Genc
Take the second one. It's one of my favorite topics, but it's yours.
On the first one, the sensitivity of the Mexican book, there is sensitivity. The local currency Mexican peso sensitivity, 200 basis points is 1.5%.
So it's a positive sensitivity in that sense. But the rate rises that we are expecting will probably be coming towards the end of the year, which means towards the end of the year, implies that we are not going to be seeing the impact this year.
For the next year, there will be some impacts, limited, but there will be some impact positive, as you highlighted in your comments. On the implications of NII this year, again positive.
What I see in the production, you already see it in the page that we put into the presentation. But in terms of stock growth, stock has also grown very nicely in retail, in the retail book in Mexico in the second quarter, and that's going to be reflecting into the figures.
On the fees, Jaime?
Jaime Saenz de Tejada
Yes. Thank you, Paco.
Fees year-on-year increase everywhere in the footprint. We are up almost 20%.
It's mainly explained by banking services, particularly those related to credit cards and other payment services, due to the economies reopening after the different lockdowns. But also asset management that has behaved extremely well, particularly in Spain, both because of net entries, but also because of the market performance, but also affected by the insurance fees that, as I've mentioned in my comments, due to the joint venture agreement with Allianz.
But also, thanks to CIB. CIB, particularly, in the first half, has behaved extremely strongly.
These numbers on a quarter-on-quarter basis are even more impressive, because we are up 6.3%, again, due to the same -- to exactly the same concept. As you know, Paco, we do not provide guidance for fee income growth at all, except in Spain.
And I take this opportunity to highlight that maybe it wasn't well understood in my presentation. We have upgraded the guidance for Spain and for a growth of mid-teens versus the previous high single-digit growth that we have.
So very confident that what we're seeing today is going to be sustained going forward.
Patricia Bueno
Thank you, Paco. Next question, please.
Operator
Our next question comes from Benjamin Toms from RBC. Benjamin, your line is now open.
Benjamin Toms
Good morning. Thank you for taking my questions.
Firstly, in relation to the ECB announcement last week on dividends and the guidance, the banks remained prudent post September. For bank like BBVA, which is so far ahead of its ROT target, do you think that the Board basically doesn't have to think too much about that statement that defines constraints and they sit down to decide the bank's full year dividend?
And presumably, the guidance doesn't change the aspiration to be within your target range within two to three years? And then secondly, in your presentation, you mentioned you don't expect any significant registry impact for the rest of the year.
Are there any other types of headwinds this year that we should think about? And are there any regulatory headwinds for next year that are worth noting?
Thank you.
Onur Genc
Okay. Benjamin, we had some problems in the line.
So I hope we got it properly, if not, please correct us or ask the missing pieces at the end. On the capital and on the target and whether -- you're asking whether the Board might be looking into it, obviously it’s the board's call.
But in terms of this affecting the ECB, the dividends and so on, as I mentioned, we are ending the second quarter at 14.17. This is 557 basis points above our requirements.
I would remind once again, I personally failed in explaining this properly to our analyst community and the investor community, the fact that we are one of the lowest requirement bank in Europe. I mean, we should compare our capital positions to the requirement.
When you do that comparison, we are one of the best capitalized banks out there. In that context, after the 10% that we have put here, the pro forma with the share price of June 22, with the €3.5 billion.
With those numbers, we are 12.89. And I remind once again that this number is coming from a bank one of the best organic generation -- organic capital generation capacity.
So we will add on to this number every quarter. To cut the long story short, given our capital position, given the capital position of others, given our organic capital generation capacity, I do think that we are one of the ones who can take these capital decisions in a comfortable way in terms of our capital position.
Then the Board deciding on the rest, obviously, it's the board's call, but I don't foresee anything in the short term. The second question was on the headwinds on the regulatory side.
On the headwind for regulatory, as I said, this year, we have done the new definition of default. We have done soccer.
We have done the low default portfolios, which was a relatively big impact. We have done the new PD-LGD guidelines, the PD side of this is done.
So we have done a lot. The only remaining thing for next year would be the new guidelines on the LGDs.
The PD-LGD guidelines, the PD side is completed. The only thing that is remaining is this LGD topic.
It's like, if I'm not mistaken, 10 to 15 basis points that might come in, in 2022. But unlike other years, our expectation is that 2022 would be not -- new things should not be popping up in our view, because it's the year before Basel.
So the Basel impact will be coming in 2023. So it's going to be -- in our view, at least, as it seems, it's a light year in terms of regulatory impact.
And the only thing remaining is that the final piece. LGD one.
Patricia Bueno
Thank you, Benji. Next question, please.
Operator
The next question comes from Maksym Mishyn from JB Capital Market. Maksym, your line is now open.
Maksym Mishyn
Hi. Good morning.
Thank you for the presentation and taking my questions. I have one technical question.
What was the final impact of coin based on your accounts in the second quarter? And then I also have a question on restructuring in Spain.
Does the agreement that you've reached with the labor unions limit you from any further restructuring in the coming years? Thank you.
Onur Genc
On the coin base, the number is -- it's not just coin base. We don't specifically tell exactly this company impact, but Propel Venture business, including coin base, obviously, the impact in the second quarter was €160 million, €110 million of that came in net trading income, €50 million of that came in other income, €160 million in total.
This is slightly -- this is lower than the €200 million to €250 million that I guided you at the end of the first quarter. Two reasons, coinbase share price has come down.
from the time that I talked to you about it and to the end of the quarter, plus one of the portfolio companies, which is going to post a good -- good trading income as well. It is delayed to the third quarter.
That's why it's €160 million. And in the third quarter, by the way, we are from the other portfolio companies of Propel we are expecting some good registry of trading income as well.
So it's -- that's a venture capital arm that we have is proving to be a very good investment vehicle for the bank. On the -- any further restructuring, you're asking whether we can -- we are bottlenecked by the existing area?
The answer is no. Obviously, no.
I mean, this area has to be complete and done. The process is still ongoing.
And in the future years, obviously, you can do other restructuring programs, obviously. That's not our plan at the moment, but you can.
You're asking legally whether you are bound by it. If that's the question, no, you are not legally bound.
You can do others.
Maksym Mishyn
Exactly. Thank you very much.
Patricia Bueno
Thank you, Maksym. Next question, please.
Operator
Our next question comes from Benjie Creelan-Sandford from Jefferies. Benjie, your line is now open.
Benjie Creelan-Sandford
Yes. Good morning, everyone.
And two questions for me, just on lending growth, please. First of all, in Spain, I guess, after the strong performance this quarter as we guide the full year, perhaps it's a little bit cautious in terms of guiding for flattish trends still.
So I was just wondering whether there's any specific pockets of weakness in loan growth in Spain in the second half of the year that you're expecting? I'm thinking slightly further forward, what impact do you think that the next-generation EU funds could have on loan growth in the European business?
And the second part is just on Mexico. You've touched on this already, but if we look at consumer lending ex-cars is still shrinking on a year-on-year basis in Mexico.
Can you perhaps talk a little bit more about how you see that developing through the rest of the year and the mix of volume growth in Mexico going forward? Thank you.
Jaime Saenz de Tejada
Okay. I'll take the first question.
On Spain, actually, the behavior in Q2 has been quite good. It's up, as I said during my presentation, 2.3%.
What was probably the best news is that except for the CIB portfolio, all the remaining portfolios increased during the half the quarter. And as I highlighted also the mortgage book.
It was particularly relevant in the consumer and credit card portfolio and the midsized the SME segment that grew at 4% and 3%, respectively. I think those trends will be able to be sustained in the second half of the year.
And that's why we've also gave guidance on the consumer portfolio evolution for the full year. There's probably -- the only question mark of this CIB book evolution.
As you know, the base effect is very negative, a number of clients drew massively underlined during Q1 and Q2 of last year, and that still creates a large space effect that will start to disappear. Because as you remember, at the end of Q2, but also during Q3 and Q4 we received a significant amount of paydowns in this portfolio, pretty much all across the footprint, but particularly in Spain.
So we are maintaining our guidance of broadly flat. But clearly, with a much stronger confidence that this guidance can even potentially be beat.
Benjie Creelan-Sandford
Okay.
Onur Genc
Okay. On Mexico, Benji, I guess you're referring to page 21 of the presentation.
The credit card is actually growing year-over-year growth in balances. The stock balance is 4.3%.
The negative was consumer. But on that one, what I would say is, in general, as you see, mortgages is growing.
Credit card is growing. The only one that the same as is growing, the only one that's not growing is consumer in the retail SME side.
And the reason for that is, as you know, this is a very short duration book. As such, in COVID – during COVID, we have obviously slowed down our production and the customer demand was not fully there, but we also wanted to be a bit prudent in terms of new production.
As a result, the lack of production, in the second half of last year -- in the second quarter of last year, that production it takes time to ramp it up. So -- because the balanced product -- the reflection to the balances comes after a while.
As such, the 3.3% reduction is what you are seeing in the year-over-year. But again, we don't have the quarter-over-quarter numbers there.
I have it in front of me. In consumer, the quarter-over-quarter growth is 1.2% in stock, March versus June.
Credit cards, you said credit cards. Credit cards is actually 4.8% growth quarter-over-quarter.
SMEs, 5.4% growth. We are seeing growth across the board in Mexico.
In credit cards, you mentioned, again, credit cards, which is very important for us in terms of margins and there's a product linked with the customer, the new production, the new cards that we generated, the total limits, first quarter versus the second quarter is up 14%. So the production is coming, and you will see the implications of this in the balances in the coming quarters.
So we see very positive signals in short in the production.
Patricia Bueno
Thank you, Benjie. Next question please.
Operator
The next question comes from Marta Romero from Bank of America. Marta, your line is now open.
Marta Romero
Thank you very much. I have a couple of follow-ups on NII in Spain.
Your previous guidance was minus 1% minus 2% this year, but you're running at plus 1%, assuming similar levels that in Q2? Can you please provide an update on whether what's driven the improvement in the quarter; you've done much better than your competitors.
I'm wondering whether that is lending activity or there could be some ALCO portfolio additions and TLTRO and so on. And related to the NII as well, would you say you have more risk appetite in Spain than your competitors?
You've guided for very strong growth in consumer lending. So I'm wondering whether your cleaner balance sheet and your stronger capital position is driving that increase in risk appetite?
Thank you.
Jaime Saenz de Tejada
Thank you, Marta. I'll take the first question.
On NII in Spain, there's nothing really that I could qualify as a one-off in Q2. First of all, we have the very positive news of volume growth.
Average loans have increased by 0.6% in this quarter. There's been a mix improvement also, which is also quite relevant.
Consumer and SME books clearly are more profitable. I would probably highlight the fact that as Honor clearly highlighted in the Q1 results presentation, the Euribor re-pricing is almost done.
The mark-to-market of the whole portfolio at this historically lows 12-month Euribor has already been done. Onur mentioned that we could have one, two basis points negative impact going forward, and that's what has happened in Q2.
We feel that that is now over. Of course, during the first half of the year, we have benefited from the TLTRO.
We were able, as we guided in Q1 that we were able to meet the volume requirement. We expect to do so also at the end of this year to also benefit from June 2021 to June 2022 of the TLTRO minus 1%.
ALCO, it's true that we had a slightly more positive contribution in Q2 versus Q1, but it was marginal. And NPL recoveries were fine, but still nothing particularly relevant.
So what we are saying is that things are behaving more or less as we were expecting. That's why we are reiterating the guidance.
It is important to highlight in Spain that Q2 of last year did had a significant one-off that we very clearly highlighted them. So we feel very confident that we will be able to achieve the guidance that we are producing.
Onur Genc
Marta, on the country page in Spain, there are so many numbers on these pages. I don't know, which ones you look into.
So we are a bit purposeful in selecting which to put. But the quarter-over-quarter numbers, we could have put, which is very good for Spain that I would like to very quickly give to you for the first question that you were asking.
In the quarter-over-quarter, quarter one, quarter one, stock growth. Mortgages is growing 0.1%.
Consumer and credit cards, very high margin, growing 4.3%. Very small businesses is growing 0.1%.
Midsized companies, which is very important to us, commercial companies is growing 3.4%. All these high-margin areas are growing very nicely quarter-over-quarter.
That is the reason why you are seeing these good figures. Linking to the second question, say, you are saying that so on.
So you are growing in certain areas like consumer is at high risk and so on. I think the numbers should speak here.
If you take the past whatever the years, how many years you take and the cost of risk of BBVA versus cost of risk of competitors, you will see that we do have this conservative profile and a prudent profile in our risk appetite. On consumer, I would like to remind you or tell you that the reason that we are growing so nicely is for two reasons.
Number one, a very high percentage of these customers, they either have their payroll with us or they flow of income to us if they're not employed, if they're autonomous and so on. So, we are looking into that income flow.
We have the perils. We are a franchise in Spain.
So, we are looking into that relationship and going from there. But why are they getting it from us?
Because if they are also a payroll customer, it is so easy for them to get it. I mean, more than 70% of these loans are now digitally given.
So, they just go to the app and click and get the money, the convenience and the relationship that we have is what is different here. And I remind you, the lending yield for consumer is around 6%.
The probability of default and the cost of risk on that portfolio is very, very little. So, we have to optimize for that return.
Patricia Bueno
Thank you, Marta. Next question please.
Operator
The next question comes from Mario Ropero from Bestinver. Mario, your line is now open.
Mario Ropero
Hi, good everybody. A follow-up question, please, on fee guidance in Spain.
You mentioned mid-teens in 2021. If you were to repeat in the second half, what you did in the first half, get to 20%.
So, I would like to ask if we should consider any one-off in the fee number in second quarter, or you just want to give yourself some leeway? And then capital, I just wanted to ask a follow-up.
Is any additional decision on what to do with the excess capital will be delayed until the buyback is completed, or these are to completely independent processes that you can make at the same time? thank you.
Jaime Saenz de Tejada
Okay. I'll take the first question, Onur.
On fee in Spain, nothing relevant, except that as you remember. During January and February, we did get some extra fees, some extra success fees in the asset under management arm of Spain.
And that's what probably explains the slightly lower contribution in the second half versus the first. The rest of the underlying trends remained pretty much the same.
Onur Genc
Mario, on your second question, you're saying, are you going to wait for the other thing, I don't know what that other thing is, I guess, you referred to M&A?
Mario Ropero
Yes. Sorry, I mean any additional decision that you can make with the remaining excess capital, whether it is M&A or whatever it could be?
Onur Genc
Okay. No, I mean, these decisions are independent and it's all driven by value creation.
We don't wait for something to finish before we can do another thing. If there is an opportunity, if we have the means to do it, we do it.
So, we don't wait for things to happen before we can do other things. But on M&A, I was very clear all in my view, which is for M&A, the fact that we have excess capital has no relation to what we might want to do in M&A.
As I said it before as well, we are not naive. There is some convenience benefits from having the capital and so on.
But an M&A decision should make sense whether you have capital or not. If you have a great deal, I'm sure you can find ways to finance that deal.
So, the fact that you have the excess capital doesn't create this motivation in us that now we have to spend it. Otherwise, no, that's somehow we look into it.
The project has to make sense. If the project does not make sense, then we don't use that money for M&A.
And as we mentioned before, I mean, this share buyback program is six to nine months in the future, if we cannot find reasonable alternatives to make the best for the capital deployment, then we might do other programs. What we have been saying is that every single capital deployment opportunity is in competition with another one.
They have to compete with each other. And if there is an opportunity, I'm sure we'll find the way to finance the deal.
Mario Ropero
Thank you.
Patricia Bueno
Thank you, Mario. Next question please.
Operator
Our next question comes from Stefan Nedialkov from Citigroup. Stefan, your line is now open.
Stefan Nedialkov
Thank you and good morning guys. Jaime, all the best in your role as well and welcome to the new Head of Finance.
A couple of questions, if I may here. By the way, my line dropped for a little bit.
So, if I'm repeating a question tell me to not ask that question. I can check later with you like.
But having said that, number one on Mexico. You seem to be implicitly guiding to stable margins for the rest of the year.
It seems like consumer lending; credit card volumes plays a part in terms of loan mix and how that affects the overall NIM in Mexico. So, with limited rate sensitivity until the remaining period of 2021 and stable spreads, what you seem to be saying is that there isn't really much upside to Mexican NII for 2021.
I was just curious to see what is your outlook for 2022? It may be a little bit early to say.
However, if you can just give some color on how the competition is evolving. The underlying competition, so to say, when it comes to consumer lending, credit cards, SMEs heading into next year?
It will be really full for our understanding of how Mexican NII is going to develop going forward. The second question is on digital.
You guys keep on posting very good digital metrics in terms of mobile penetration, overall digital penetration numbers are 60% to 66%. Wondering what is the digital contribution to fees?
How much of your fees are currently raised via digital channels. And I'm not only talking about payments, which are obviously mostly digital, but the actual value-added for you going digital, how can we measure that when it comes to fees and any other metrics you can give us as well?
And if I may, a quick bonus question here. At your Investor Day on the November 18, are you going to break with tradition and actually give the market an ROT target?
Thank you.
Jaime Saenz de Tejada
Thank you, Stefan. On the first one, Mexico, actually, I'm expecting margins to slightly go up in the second half.
mainly because of the customer mix that I was talking to you about because we are growing more in the high-margin products. Retail actually has grown in the second quarter very nicely.
And we are seeing very nice production pick up in those portfolios. So given the fact that they come with high margins due to mix effect, I would expect some slight pickup in the margin.
And for 2022, as I said, even better. But for 2022, we don't provide guidance yet, but you're asking about competitive positioning and so on.
On that one I'm extremely happy with what we have been doing in Mexico, from a competitive perspective. Our lending market share has grown year after year, but even last year, year-over-year number is 59 basis points in the total lending market share.
We are growing market share in credit card. We are now 30.4% market share in credit cards, which is a very important product and portfolio, as you know, in Mexico.
Year-over-year market share gain is 224 basis points. Commercial, which we wanted to increase here gaining market share, public sector gaining market share.
I mean, in general, we are doing really well. And overall lending market share has gone up, as I said, by 59 basis points.
We have a wonderful bank in Mexico. As I did mention in some other calls in the previous times, I would encourage you, you are covering BBVA.
If you have the time, if you go to Mexico, please go and meet our teams there. It's a wonderful bank, that.
We have the best talent. We have the best NPS, clearly the best NPS by far.
And we have been gaining market share every single year. So we are doing extremely well.
So I made a positive for 2022 as well. Let me now deep dive more.
On the digital contribution all the channels. We don't tag it because at the end of the day, it's the customer fee.
The customer can do the transaction wherever. The only thing I can tell you is that the share of digital has been going up and up in the daily transaction, in the daily account activity of the customer.
When you look into the what we call accounting entry generating transactions, accounting entry generating transactions. So it's not like checking your balance because it doesn't create an accounting entry.
But an accounting entry generating transaction, the digital share in the total number of transactions has been going up. In the first six months of, for example, 2018, I have it in front of me, let me just share it.
It was 24%. All the channels, ATMs, branches, digital, other channels, call center and so on, if it's 100 that accounting generating entry transactions, 24% in 2018 was digital.
That 24% has become 54%. So it has been going up dramatically.
And as they generate accounting entries, some of those transactions, again, I'm not specifically tying it to fees, but they also generate fees. So very, very positive evolution.
And these percentages of digital sales that we are sharing with you from time to time, you can find them at the backup of the presentation. Digital penetration competitively in our view, as far as you can see, they are one of the clearly the best banks out there in terms of using digital in our banking business.
Are we going to give a return on tangible equity target in Investor Day, we have not obviously finalized it. But yes, I do think that we will put something on the table for sure.
Patricia Bueno
Thank you, Stefan. Next?
Stefan Nedialkov
Great. Thanks.
Operator
Our next question comes from Pamela Zuluaga from Credit Suisse. Pamela, your line is now open.
Pamela Zuluaga
Hello, good morning and thank you for taking my questions. A couple of questions.
So you gave the new customers guidance of 110 basis points. What does that imply in terms of the release of provisions on that overlay that you were mentioning earlier?
Is there any further potential upside to that guidance, its release we've actually achieved? Another one is, you talked about the pricing action on margins.
Could you maybe please give us an example of differentiation versus the market -- the market price? And then if I may, sorry, one last.
You were saying that you're almost done with Basel III, but maybe can you give us some guidance on the impact from Basel IV? Thank you.
Onur Genc
Pamela, we couldn't get the last question. Can you repeat that, please?
Pamela Zuluaga
Yes. Sorry, can you hear me?
Onur Genc
Yes. Now yes.
Pamela Zuluaga
Yes. Yes, I was saying you mentioned that you're almost done with Basel III.
So I was wondering if maybe you can give us some guidance on the impact that you expect from Basel IV?
Onur Genc
Okay. On the first one, 110 basis points, the overlay are we going to be using that is very limited to none in that guidance that we are giving to you.
Our again, expectation is that if things continue to improve and so on. There might be some releases from that, but we would probably have that in 2022.
We have to see, especially in Spain, the development of the portfolios until we do any releases from that. On the pricing, you were asking what exactly you were doing the different than the market and so on.
If that's the question, if not please alert me. The thing that we are doing is, especially for what we call mid-corporate above SMEs.
All the capital that has to be deployed to a client has to generate a return. So we have now a new system, we had it, but we upgraded it, which is basically looking into the return on regulatory capital of every single client loans.
So if you're giving a loan you have to create the returns for it for the client. You might choose to invest into a client because you might not be able to create the return right away.
So you have the time, we create these what we call exception pools, and in those exception pools, after a certain while, you have to invest, yes, but then you have to take that client from that exception pool so that it's still profitable at the return on capital levels. That's how we manage it.
And I do think that the diligence that we have in this process is better than the rest of the industry. On the Basel IV, the answer is we are going to be one of the good ones out there because, as you know, Again, we keep saying this every quarter, and it's a little bubble in the presentation.
Nobody pays too much attention probably, but we are the best risk density bank out there. So we are not going to be affected from the key impact of Basel IV, which is output floor.
Output floor will have no impact on BBVA. As a result, our initial estimations are that we are going to be affected from Basel IV, one of the lowest staff there because of the -- no impact coming from the output floor.
Unidentified Analyst
Thank you.
Patricia Bueno
Next question please.
Operator
The next question comes from Andrea Filtri from Mediobanca. Andrea, your line is now open.
Andrea Filtri
Thank you. Two questions.
One as the quality and one on capital. On asset quality, there is clearly no signs of deterioration so far.
I just wanted to understand in terms of constraints on usage of overlay provisions, both the macro and the management parts. At what point do you envisage auditors to come in and ask you to either allocate or release the provisions you have indicated 2022, but if you could explain a bit better the mechanics of it, it would be very helpful.
On the capital side, today's price reaction is kind of saying that the market got what I was expecting to get. What are the kind of next steps beyond the buyback that you will start in Q4 to actually start giving some visibility to your shareholders as to if there is more juice coming or if this would be translated into organic or inorganic growth?
And just finally, I didn't understand before after the question of Martha on the Spanish NII guidance, if you're actually confirming the negative 1% to 2% NII growth in Spain for this year? Thank you.
Onur Genc
The Martha’s question, Andrea. Yes, we are confirming.
On the other two questions, asset quality, usage or the overlay, a good part of our daily life is spent with our stakeholders, including the audit obviously, to analyze everything, what that money is for, is the regulation driven. The regulation tells us that if you have an uncertainty for the future, then you have that overlay.
That's what we have. And when we see the signs of overlay not being realized, obviously, we will release it.
And all of this obviously is under the full management and control of the auditors as well. On the capital, you are asking, is there more juice coming?
I don't know what you mean by juice, but if it's share buyback or return of capital back to the shareholders. As we mentioned before, possible, we are one of the now the 14.17 after the share buyback, 12.89, our organic capital generation capacity.
We will have excess capital, and we don't like to operate with structurally excess capital. We have a clear target.
Anything above that we will be subject to capital deployment decisions. On the -- if you're asking about the M&A, again, I'm not sure that you were there with the previous call question.
But we don't have this reserved money for M&A. The M&A, once again, the project has to make sense.
If the project doesn't make sense, we don't keep the capital waiting for something that might be coming in the future and the future and so on. Will give back the capital if the project is good, we can always raise capital in the future.
To cut the long story short, on the share buyback, the first 10%, the targeted 10% program, we will start it hopefully, as we were expecting, as we were hoping in the fourth quarter. There are now even more certainty in my view on that whole thing.
We initiated the process. Actually, yesterday, we sent the full documentation and the application to the ECB.
So we are -- we have initiated the whole thing, which is a great, great message to the market, in my view. That will take six to nine months to complete because of the market regulation, market abuse regulation.
After that, we might do even more. It depends on what alternatives we have, and each one has to compete with each other.
Depending on the share price, if nothing else beats the share buyback alternative as a capital deployment alternative, we will do even more capital deployment, the share buyback alternatives. So obviously, we have to make sure that they all compete with each other and we deliver the best value to the shareholders.
I hope we have shown in the past few years that we are very disciplined on this value-based capital approach. We sold USA.
You know how difficult that was, that decision was, but we have to do it from that value perspective, and there was a better natural owner for that asset. I don't see many other banks in that same camp.
We are very disciplined on this approach, and we will continue to be. Whatever delivers the best return, we'll be using that capital.
Patricia Bueno
Thank you, Andrea. Well, I'm afraid we are running out of time.
So, just one last question, please.
Onur Genc
Whatever the question is, it's going to be you, Jaime. That's the last question, so it's you.
Operator
Our final question comes from Britta Schmidt from Autonomous Research. Britta, your line is now open.
Britta Schmidt
Hi, there. I make it easy for you.
My questions have actually been answered. Thanks.
Onur Genc
Already answer. So, maybe take one more.
Jaime Saenz de Tejada
So that -- no, no, no, no. Brita, was very nice to me.
Brita was very nice to me. Don't take that way.
Now that I have the microphone, I've been asked to repeat the guidance for Turkey, because it seems that we had some audio issues during my speech. So, I talked about PL loan growth for 2021.
You reiterated that we expect PL loan growth at mid-teens. But now with an upward bias and then the foreign currency portfolio, should continue decreasing.
And then on the cost of results, we now expect to end the year below 150 basis points.
Onur Genc
And maybe one final thing to add, because we didn't get to it, but I have in front of me this wonderful page, which is talking about the guidance previous quarter versus guidance this quarter in attract change version. And I hope we could have put that into the presentation as well, but which is, it's improving everywhere for the group asset quality improvement from 130, 140 to 110.
In Spain, we are improving our net fees and commissions from previous high-single-digit to mid-teens growth. We are improving our expenses guidance to minus 3%.
We are improving our asset quality guidance in Spain, less than 40 bps. We are improving our asset quality guidance in Mexico, and we are confirming with positive biased NII numbers there.
We are improving the cost of risk guidance in Turkey. And South America is more or less flat.
But overall, I have red and green tags into these track versions and all of them are green. So, we are providing good guidance for the rest of the year.
And anything else on your side, Patricia. We close?
No?
Patricia Bueno
Yes. Thank you very much all of you for participating in this call.
Let me remind you that, of course, the entire IR team will be available to answer any questions you may have. So Onur, if you want to close?
Onur Genc
I want to close by thanking once again, Jaime. He will be missed dearly.
And I want to thank everyone for the ones on the call. Stay safe.
And if you have not taken your vacations yet, have a great summer. So thank you so much.