Banco Bilbao Vizcaya Argentaria S.A.

Good morning, everyone, and welcome to BBVA First Quarter 2021 Resource Presentation. I am Patricia Bueno, Head of Investor Relations. It's my pleasure taking on this new responsibility within the group, and I'm looking forward to getting to know you soon. Here with me today is Sonor Heng, Chief Executive Officer of the group, and Jaime Saez de Tejada, BBVA Chief Financial Officer. As in previous quarters, Onur will begin with the presentation of group results, and then Jaime will review the business areas. We will move straight to the live Q&A session after that. And now I will turn it over to Onur to start with the presentation.

Thank you very much. I'm glad to have you here today in your first earnings presentation as the new head of investor relations. I'm sure the audience will treat us really well because it's your first. Good morning, everyone, and welcome and thank you for joining our call today. I would be saying it for more than a year now, but I really hope. that you and your families and friends are all healthy and safe in this continued pandemia. Let me start with slide number three by presenting the positive evolution of our results in the first quarter of this year. On the left-hand side of the page, you can see our net attributable profit, which continues its upward trend, obviously, because we have taken all these provisions last year quarterly. But this quarter, 1,210,000,000 euros. up from obviously a year ago, the year ago was 292 million, as you all know, because we have done this again, front loading in the provisions. As compared to the last quarter of 2020, it also grew 19%. Even more remarkable in our view, we have already reached pre-COVID profit levels. So if you compare to the first quarter, 19%, it's up 2.4%. Our earnings per share closed at 0.17, 17 cents, euro cents, one of the highest first quarter figures that we had in the past few years. I need to emphasize the fact that these numbers are achieved without any release in the extraordinary COVID provisioning of 2020. So no release is factored in here, although we clearly see improvement in the underlying this perspective, which we will discuss in a second. There has been that improvement. We have not released from the provisions of last year. The graph on the right-hand side of the slide, it shows the capital generation in the quarter, 15 bps, even absorbing some regulatory impacts, which we will discuss. If we include the impact from the sale of BBVA USA The CET1 pro forma stands at 1458, and after the targeted 10% share buyback, it will still remain at a very high level, 1355, well above our target range and minimum requirements. Slide number four, moving to slide number four, we keep advancing in our commitment to value creation to our shareholders. That's why we put this page right up front all the time. Our tangible book value per share, it closed 615, a 6.5% increase year over year. And regarding profitability, on the right-hand side, we have gained double digits in our profitability metrics, regained our position, 10% in ROE, 11% in return on tangible equity. Moving on to slide number five, key messages of the quarter. First, positive core revenue evolution, growing 0.5% versus the first quarter of last year. It's a complex environment still, especially in this rate environment. We will discuss it in a second. But in this context of complex environment, double-digit growth in fee income is very good. And as we will see in a second, the NII perspectives are very positive going forward. Second. Good management of our operating expenses, which increased 1.8% despite a 4.7% blended inflation in our footprint. Third, our solid risk indicators, our cost of risk continues its decreasing trend to 117 in the quarter, better than our expectations. Again, we will discuss it by geography in a second. Fourth, as mentioned, strong capital generation in the quarter and great capital position after the sale of U.S., And lastly, our outstanding progress in key areas of our strategy. This is the area which will ensure the sustainability of our results in the mid to long term, and we are doing really well. Our differential digital capabilities, it led to new customer growth. customers acquired through digital channels are 64% higher than a year ago. And regarding sustainability, one of our strategic pillars, in just three years, we have already mobilized more than half of the 100 billion euros in sustainable financing committed in BBVA's 2025 pledge. Slide number six. The summarized P&L, first I should highlight the new convention here, where in the discontinued operations line, we are registering the results from BBVA USA sale perimeter until it's expected to close mid-year. So we will have that line until then. As such, the operational P&L line items that you see in this page, they do exclude the BBVA USA sale perimeter. We'll talk about most of them in a second, but if you ask me, the highlight, the very good points of the quarter looking at the summarized P&L, great performance in fee income, great performance in trading income, and also a wonderful progression in my view as compared to our expectations, obviously, in the impairments. Slide number seven. So some light into the quarterly revenues breakdown. Our net interest income decreased 2.3% versus last year, mainly affected by the significant rate rises in Turkey. So most of the difference versus a regular quarter is Turkey, which we will discuss in a second. But in short, the banks deposits in the country, they reprice much faster than the assets. And as a result, that has been an impact on Turkey, which is in the recovery mode, as we will discuss. Outstanding evolution in our view in net fees and commissions, one of our core focuses since many years, but we are yielding the results. Net fees and commissions increasing 10% year over year. Across the board, positive evolution in all the countries in most of the fee line items, and this is the highest quarterly figure reported over the past few years. Very good performance on the net trading income in the quarter, even better than the exceptional quarters that we had a year ago, mainly explained by the positive contribution from global markets in CIB. Finally, gross income grew nicely from the last quarter, 9.4%. Only slight growth year over year. The year over year evolution had a negative impact from other income and expenses, which is not depicted on this page. And it's mainly due to Argentina. Argentina had a very high hyperinflation adjustment. And there were some tax policy changes in the country affecting the other income line. Excluding other income, the year-on-year growth in the gross income would have been 2%. Moving to slide number eight. In order to shed some light on the evolution of the revenues going forward, a few pages. A few pages very quickly on slide number eight. No need to dwell on this page too much, but you see the economic development perspectives. We are expecting the growth to accelerate, especially starting this quarter in the second half of 2021 as well. So there is a positive economic backdrop here. More importantly, in my view, if you go to slide number nine, you can see how new retail loan production is picking up and reaching pre-COVID levels in all of our markets already. So with the positive economic backdrop, this trend is going to continue to pick up. And this is the area, especially the consumer loans, as you know, where we have high margins and high returns. We are very glad that this activity pickup is happening. Slide number 10, an important page. You see some positive signals indicating the future recovery of customer spreads because the interest rates are stabilizing in our core markets. You have the three core markets here. So for asset-sensitive countries, there is a positive correlation between the NII and the rates. And this is the case in Spain and Mexico. Interest rates are significantly lower, as you all know, than a year ago, but now they're stable. With the stabilization of the spreads, we do think that the customer spreads are also going to be benefiting tremendously from this. So in the case of Spain, most of the Euribor repricing has already happened. As you all know, 85% of our mortgages are variable rate. They're all indexed to Euribor, one sort or another. Typically, Euribor 12 months. But the repricing frequency is very important. So two-thirds of our mortgage portfolio, it reprices every six months. And one third reprices every year. Given the curve that you see on the left hand side of the page, the remaining mortgage repricing impact will be very minimal. That's why you see some sort of a stabilization in the customer spreads. In Mexico, a similar story where we are also asset sensitive. The cost of funding reduction has already caught up with time after the rate declines. And it will offset the negative impact coming from the lending yield contraction. Also, with the increased production of higher margin retail loans, as you have just seen in the previous page, we do think that there is a clear upward trend for customer spreads going forward. And finally, in the case of Turkey, where banks deposits, as I mentioned, reprice much faster than the loans. As you all know, the ones who know Turkey well, the typical deposit is a 32-day deposit. So very short-term repricing happening. So there is a negative correlation of NII with increasing rates, especially in the timeframes of the three months and the six months, with neutral impact in 12 months as the repricing of the loans catch up. That is why the NII has been negatively affected in the first quarter, because there has been significant policy rate rises in the country. But this is a short-term repricing impact that we see in the customer spread. And as you would see on the bottom right, The Turkish tera spreads have already started to improve and are expected to improve even more in the coming quarters, in the coming months. Again, in April, we see the same trend continuing. Moving to slide number 11, risk indicators. Total impairments for the quarter are now more aligned with pre-COVID levels. Year-to-date cost of risk, as I mentioned, 117 BIPs versus 155 of 2020. We see a slight increase in the MPL ratio in the quarter to 4.3% due to some prudential staging in Spain and Turkey, but nothing relevant. And our coverage ratio, it is still very high at 81%. Page 12, on the capital generation, I would like to break down the 15 BIPs that I mentioned, the CET1 capital accumulation over the quarter. So following the waterfall on the page, main impacts. First, our result generation contributes 34 BIPs. Dividend accrual at 40% payout, we are accruing at 40%. And the CET1 coupon payments, we detract them, 17 BIPs impact. Third, two BIPs impact from the RWA's bucket, which includes 11 BIPs due to RWA evolution in the constant euros terms, so positive 11 BIPs, deducted nine BIPs, minus nine BIPs coming from trim on the low default portfolio. So the net impact from the trim on low default portfolios, Plus 11, minus 9, 2 bps impact in that third tier. And lastly, the last bucket, others, minus 4 bps, including among others, the market impact and also the sale of BBVA Paraguay, which is 6 bps. Moving to slide number 13, continuing on capital. After the BVA USA sale, our performance CET1, as of the first quarter, at the end of first quarter 2021, it stands at 1458, 600 pips above the minimum requirement that we have, and well above, obviously, our target range of 11.5 to 12. So how will we use this capital buffer? First, deploying capital in our markets in an efficient way through profitable growth. through cost reduction, strengthening the leadership position that we have in the markets that we are in. And second, increasing distributions to shareholders. You all know these plans. We have already announced them. But we are targeting a buyback of 10% of the shares after the sale of the BVA USA, obviously subject to market conditions and the required approvals. But after the targeted 10% buyback program, our CET1 pro forma stands at 1355, still representing an ample buffer and giving us strategic optionality. And also, I reiterate again the fact that once these ECB restrictions on distributions to shareholders are lifted, our plan is to recover our traditional dividend policy of 35% to 40% payout, all paid in cash. Slide number 14, moving to slide 14, we also continue to advance in key elements of our strategy, as I mentioned up front. You all know our sector is in the midst of a profound transformation. I mean, needless to say, but substantial competitive pressure with new entrants coming in, very low interest rates, even negative rates in developed economies, as you all know, and customers accelerated adoption of digital channels. As you can see from the two graphs on the right-hand side of the slide, this adoption of digital channels, digital customer transactions have more than doubled in just two years, while branch transactions at the same time have decreased substantially. So in the last two years, you see that the branch transactions have declined 25% in the group and 50% in Spain. And also given our focus to go beyond servicing and execute sales through remote channels, our digital sales, it continues to break records. It now reached 70%, close to 70%, as shown on the right-hand side of the page. Slide 15, this is an important page. This is an important page that we like a lot, that we have a clear KPI on this in the management team to track. Providing a better service and selling our products through digital channels is the first step in digital. But beyond that, one of the challenges that we face as an industry is to acquire new customers through digital. And regarding this, our focus on building end-to-end digital products, end-to-end, It is proving to be differential in reaching more customers, as you know, one of our strategic priorities. The graph on the left-hand side of the page, it illustrates the growing trend of the new customers acquired digitally. Each already represents 35% of total new customer acquisition in the first quarter, and it is a 64% increase versus the same quarter of last year, an all-time record in digital customer acquisition. And on the right, you see a very quick example of customer acquisition through new innovative solutions. In a mature market like Spain, we have issued in just six months 500,000 aqua cards, as we call them. 50% are credit cards of the sales. It's a new line of cards improving the payment experience and the safety perception of the customer. For example, with no numbers back and front, no numbers printed on the card. And slide number 16, to close, another key trend that has accelerated in our strategy is the transformation towards a more sustainable world, obviously, which involve important investments that at the same time represents a huge business opportunity for the society and for the banks. We always talk about the risk perspective around sustainability. No, it's a huge business opportunity as well, and you see that on this page. We have already mobilized 59 billion euros in sustainable financing. We have our pledge of 100 billion until 2025. We have already done that much faster than the pace required for the pledge. And in the first quarter of this year, we have already done 8 billion euros, 8 billion euros of sustainable financing. So a huge business opportunity as well. And as you might have seen, BBVA has been recognized as the most sustainable bank in Europe and the second most sustainable bank in the world, according to Dow Jones Sustainability Index. And as you might have also seen, we have also announced our commitment to net zero emissions by 2050. All of these is indicating the fact that this is a topic that we embraced like no other, one of our strategic pillars, and we are progressing really well on this strategic priority as well. And now for the business areas update, I turn it to Jaime.

Thank you. Thank you very much, Honor. Good morning, everybody. And of course, Patricia, welcome to your first results presentation. Let me begin with Spain. BBB Research, it's maintaining its GDP growth forecast for Spain. GDP is expected to grow by 5.5% in 2021 and by 7% in 2022, supported by the Next Generation European Recovery Fund. Having said so, the very good reading today, better than expected on Q1, probably means that these numbers, especially 21, has an upward bias. The loans have slightly decreased 1.4% year-on-year in Q1, as you see in the presentation, impacted mainly by the leveraging in the mortgage portfolio, although at a lower level than before, thanks to the very strong new production that we're seeing, especially in the last six months. and also the public sector portfolio. However, it's worth highlighting the strong performance of very small businesses and SMEs supported by state guarantees. For 21, we expect the positive dynamics in new retail lending to continue. And all in all, the portfolio is expected to remain broadly flat, but dependent on demand from commercial segments. Moving to the P&L, the operating income increased by 22% versus a year ago, mainly driven by first higher core revenues, up 2%, supported by the very strong fee performance, thanks to credit card, banking services, but also insurance. A significant increase in net trading income, thanks to strong global market results, but also higher fixed income portfolio sales. and also our continued cost control efforts with operating expenses improving by 3.5%. And net attributable profit was further supported in the quarter by the significant reductions of impairments, many explained, as Honor mentioned before, by the front-loading of COVID-related provisions in Q1 of last year. So cost of risk stands at 45 basis points in the quarter for the full year. We now think that our cost of risk guidance of around 50 basis points has a positive bias. All in all, I think good results with net attributable profit reaching pre-COVID levels at 380 million euros. For 21, I would like to highlight the main trends that we expect on our core revenues. A slight decrease in NII between 1% and 2%, negatively impacted by the arrival of pricing and the lower contribution from the ALCO portfolios. And in terms of fees, we expect a high single-digit increase. Let me now move to Mexico on page 25. We have improved our 21 GDP growth forecast for the country to 4.7%, mainly explained by the milder regional lockdowns and the positive effects from the U.S. fiscal stimulus. Our estimates have an upper bias due to the positive industrial activity figures that we've seen in Mexico lately. and also by the U.S. GDP growth potential that we think could go even higher, all of which will support demand for credit in upcoming quarters. Year-in-year, the long portfolio was down 6.5%, explained mainly by the significant drawdowns by commercial clients in Q1 of last year. In the first three months of 2021, we're seeing a positive evolution of the long portfolio. It's up 1.5%, with positive growth figures both in retail segments, where we gain again market share, and also in commercial segments. So for 21, we expect long growth to grow by, I would say, mid-single digits, supported by the good economic situation. Moving to the P&L, BBVA's Mexico net attributable profit is up 47%, 32% in current euros. explained by lowering permits while gross income remained quite resilient. NII is down 1.8% due to long volumes but also yields, partly offset by the lower deposit prices and also wholesale funding costs. For 2021, we maintain our guidance of mid-single-digit growth in NII. supported by both activity in retail segments and customer spreads, which will evolve positively and will be above 2020 levels. Fees are up 5.8% year-on-year, thanks mainly to credit cards, but also to investment funds and a very good CID activity. The cost of risk stands in the first quarter at 355 basis points. That is below guidance with a positive performance of retail portfolios. but also a limited deterioration of commercial clients. For 2021, we maintain our cost of risk guidance. It should improve versus 2020 levels to around 380 basis points, but now clearly with a positive bias. The RBL ratio improved as expected, 37 basis points, quarter-on-quarter, to 296, thanks to the positive payment performance and the strong recoveries in retail portfolios, but also some write-offs. Let's now focus on Turkey. On the macro, Turkey was one of the few countries, as you know, in the world that grew in 2020. It showed a positive GDP growth of 1.8%. For 21, we maintain our GDP growth expectation at around 5%. The TL loan portfolio grew by over 35% year-on-year due to very high loan demand, while the foreign currency portfolio continued decreasing at 12% as expected. This strong TL loan growth continues in the first three months of 2021. It's up 6% quarter-on-quarter. especially with retail clients, thanks to the good economic activity that we've seen in Q1. For 2021, for the whole year, we expect TL loan growth at mid-teens and a shrinkage in the foreign currency loan book to continue. Regarding gross income, it grew by almost 3% year-on-year, supported by the excellent net trading income and commissions, while NII was negatively impacted by the interest rate environment. NII was down 14% year-on-year due to this more strict monetary policy that the central bank has been applying, which translated into higher deposit costs and spread compression, both in TL and foreign currency. that the remarkable TL loan growth was not able to offset. We expect the spreads to have bottom already in this first quarter, and we'll recover along the year, thanks to the higher loan yields. For the full 21, we maintain our expectation of a high single-digit NII increase below loan growth, though, due to these lower customer spreads. Net fee and commissions are up over 23% thanks to both payments and brokerage fees. Excellent net traded income. Very good gains from security sales, but also from FX results and a very good performance in the global markets area. Expenses grew 13%, spot on in terms of inflation. That brings the efficiency ratio to a very strong 31.8%. Impairments declined significantly year on year, 60%. resulting in a cost of risk of 134 basis points, and that is significantly below 2020 levels, but also below our guidance. Having said so, for 21, we maintain our guidance and expect cost of risk to be around 180 basis points, but now again, with a clearly positive bias. All in all, a good set of results in Turkey with net attributable profit up 96% in constant terms and 48% in current. And then in slide 27, some data points on South America. BBVA research slightly improved also in Latin America. It's macro prospect for 21 with GDP recoveries of 10% in Peru, 7% in Argentina, and 5.5% in Colombia. Let me give you some color on the two countries. Colombia increased its operating income by over 13% year-on-year. Thanks to gross income growing by over 7% and expenses going down by 2.5. Impairments also decreased significantly, over 40%, driving net attributable profit to 48 million euros in the quarter. In the case of Peru, loan growth is up significantly, 16% year-on-year, supported by state guarantees, but, of course, with lower spreads. Gross income increased 1.7% on the back of fees, while the reduction in expenses also in Peru and in permits drove net achievable profit up 10% in constant to $28 million in the first quarter. And Argentina was able to deliver a positive net equitable profit, €6 million in the quarter, even after a quite high inflation adjustment. And that's all on my side. Now back to Anand.

Thank you. Thank you, Ayme. In conclusion, so the last page, slide number 22. First, we believe we have reported excellent results reaching pre-COVID levels, and our CET1 fully loaded has also increased 15 BIPs in the quarter, which is good to achieve in such a quarter. Second, we continue to deliver on our clear commitment to shareholder value creation. We are at the forefront of the European Bank's profitability in terms of return on equity, return on tangible equity. Third, it is important to note our ample strategic optionality, Shown our CET1 fully loaded ratio pro forma after the sale and after the target of 10% buyback to 5, representing an ample buffer of 155 bps above the upper part of our target range. Fourth, we are leveraging on our leading digital capabilities to better serve our customers and acquire new clients. In the first quarter, we have reported an all-time record in digital customer acquisition, increasing 64% versus a year ago. And lastly, we are strengthening our commitment to sustainability, helping our clients transition towards a more sustainable future, using this also as a business opportunity, business opportunity, and we have taken a step forward with our commitment to net zero emissions by 2050. Now I turn it back to Patricia to coordinate the Q&A.

Okay, thank you, Onur. We are now ready to move into the live Q&A session. So first question, please.

Ladies and gentlemen, if you'd like to ask a question, you can do so by pressing star followed by one on your telephone keypad. The first question today comes from Benjamin Toms from RBC Capital. Benjamin, please go ahead.

Good morning, and thank you for taking my questions. The first is on Turkish politics. Can you just confirm and potentially flesh out the details? The key points here are that BBVA is a relatively small book value exposure. A large portion of its P&L and excess capital is hedged. There's no interest rate funding, and there's a significant reduction in foreign currency loans over the last couple of years. Perhaps you could also just discuss what you're seeing operationally on the ground in the country. And then secondly, on cost of risk, I think you said last quarter you expect cost of risk to be lower year over year, but I think in the Q&A you also said 10 to 20 bits lower in all jog fees. Does that guidance still stand versus the 117-bit print today, and is the positive bias commentary discussed on the call the same kind of magnitude as 10 to 20 bits lower, or is it perhaps a little bit better? Thank you.

Thanks, Benjamin. You said you opened it up as Turkish politics. We don't comment on politics, but let me talk to you a little bit about our strategies regarding Turkey. So in terms of the hedging, as you all know, we do have this hedging policy for the P&L and also for the excess capital, as we call it. For the excess capital, It's only looking into the surplus capital that you have because there is some natural hedging in the capital ratio, and we always do that hedging. And in the P&L, we typically have 30% to 50% of the year P&L hedged against currency deviations. But given the situation in Turkey, it is higher for the Turkish case. It is at the moment 60% P&L hedged. So the hedging side is already... protecting us against some negative deviations. You asked about intergroup funding. That's one of the best things about the EVA. We do have zero intergroup funding, not withholding in the countries, but also between countries. There is no intergroup holding. As you all know, we are a multiple point of entry bank, which means There is no, every entity, every subsidiary, every country has to stand on its own. As a result, there is no intergroup funding. And then you ask about what we see operationally on the ground and so on. What we see is basically some stabilization. As we mentioned, There has been a major significant rate rise starting lately. No, it was 1025. Now it's 19%. So 875 bps increase in the interest rates in a short amount of time. And obviously that was required to tame inflation. That was required. to, again, to protect the macro fundamentals of the country. But that has hurt us, as I mentioned, in the very short term, in the very short term because of the margin impact. As I mentioned again, in Turkey, we are very not asset sensitive or negatively correlated. NAI is negatively correlated to the interest rate. And 875 bps increase in the rates has a direct negative implication on the NII because deposits reprice right away. The average deposit is 35 days, immediate repricing in deposits, but it takes time for the loans to reprice. So that's the key impact on the P&L. But as you all know, We are long-term investors, we trust on the fundamentals of the country and we do stick, I mean, Jaime mentioned it, we do stick to our guidance on the NAI for the whole year because we do see that it is picking up and we do see that in these type of periods, it comes back up very quickly. For the 12 months, by the way, NAI sensitivity for the 12 months is basically zero. So in 12 months, it recovers. But in the first three months, in the first six months, there is negative impact of interest rate rises. The year-over-year guidance on the risk, 117 is the first quarter number. We have not upgraded our guidance, but we wanted to clearly say that there is a clear positive bias, as Jaime was mentioning, in most of the geographies, particularly in Spain, in Mexico, in Turkey. For South America, we have to see, because the health situation is still not going in the right direction. The numbers are quite high in Colombia, in Peru, and so on. So we have to see a bit more. But in general, there is a positive bias in our core geographies. As such, our guidance, as you remember, was it's going to be much better. It's going to be better than 2020. We stick with that guidance, and we do think that it's going to be positively changed maybe in the second quarter, but we wanted to be prudent on this.

Thank you, Benjamin. Next question, please.

The next question comes from Francisco Raquel of Elantra. Francisco, please go ahead.

Yes, thank you. I would like to ask about Mexico in particular, the NII. There is a slight decline in the first quarter, which is less bad than feared if we compare it to what we have seen in sector data or other local peers reporting to date. And you have also maintained the mid-single-digit growth guidance for the full year, which is reassuring. So I wonder... What is different BBVA Mexico relative to the local peers? And how do you plan to get to the full year growth? I see that you are gaining market share, that you are improving the lending mix or your risk appetite, if you can comment. I have also seen that you are increasing the bond portfolio. So you can please comment on the NII dynamics. And second question, Mexico is about the cost of risk. 3.5% is more or less the historical average. There is limited local support for the economy. I was expecting a longer timeframe to normalize. But I see that the MPLs are down quarter on quarter. The moratoria has already expired. So you can comment what you are seeing on the ground in terms of asset quality in Mexico. And then as a side question, There are meaningful elections in both Mexico and Peru this quarter. If you can comment, do you have any view on these elections and do you see any impact on the business operating environment in the coming months in these two countries? Thank you.

Thank you, Francisco. Mexico, the first one around the NAI. Why are we doing better than the local peers? Multiple reasons, but two things. Number one, we are growing in higher yield products lately. We were quite cautious in Mexico, if you remember, in the third quarter last year, even in the starting part of the fourth quarter last year, because we wanted to see. We wanted to see how the economy responds to COVID. There was limited support from the government to the economy, so we wanted to be a bit cautious. But as you all know, we do have very high market shares in high margin products, in credit cards, in consumer. We have close to 29%, relatively speaking, very high as compared to our 23% overall lending market share. So as those products pick up, and I did show you in Daniel's presentation, how it's picking up very nicely in Mexico, we do expect that the lending mix is going to help on the lending side. Then on the funding side, you see for Mexico, 1% cost of funding, 102 on the page for Mexico. That 102 is 1.7%, so 70 bips higher for the industry. We are by far the lowest funding bank in the country, by far. Why? Because... We are BBVA in Mexico. I mean, I keep talking about this, but our customer franchise, our talent is wonderful. It's a unique bank that we have. We have 40% market share in payrolls, for example, which creates transactionality, which creates that low-cost funding base. So we have reduced our cost of funding better than competitors and at a level which is now 70 bips better than the competition. When you combine them all, looking forward, I'm very positive. In the context of the lending mix is improving towards higher margin products, which we are really good at. The cost of funding differential that we have is going to be maintained going forward because we have a much stronger bank in the country. NII perspectives are quite positive, I would say. Regarding the second point on the cost of risk, you said 350. The 10-year average is like, if you exclude last year, the COVID year, 340 is the average of the cost of risk. But you might remember in 2019, 2018, we have done even better than 340. It was around 300, 310. So that was kind of the cost of risk that we were looking into. Be guided for 380 BIPs at the beginning of the year. Today, what we are telling you is we are seeing a better trend. So we are having a positive bias. On that figure, we haven't upgraded it, but probably the momentum is positive. So we will see it in the next quarter. We want it to be prudent. But there's a clear positive bias on this one. And why is this happening? I say two things. The economy, despite all the implications of COVID, is not doing bad. We recently upgraded our Mexican growth figure from 3% to 4.7%. One of the good things about Mexico is it's right next to the U.S. There is a lot of benefits that would be coming from the pickup in the economic activity in the U.S. It's going to be trickling down to Mexico for sure. The remittances, it's an important figure. It has broken a record last year, and in the first two months of this year, January, February, it's up 17%. So we're expecting 43 billion of remittances from U.S. to Mexico. this year. So it's breaking records again, basically, in 2021 as well. All of that tail impact from the U.S., the fundamentals of the country, very low age, the demographic dividend, I mean, the age of Mexico is 30. The age of Europe is 46. The leverage situation, we talk about them all the time, but the fact that the banking debt over GDP is 29%, as compared to 65 in Brazil or 45 in Peru. So there's room for leverage. The demographic dividend is there. The tail impact from the US is there. It's going to all help Mexico. And we do have a very good quality portfolio. If you are in the cash flow of the customer, which has been proven last year, your risk profile is better. So if you have a good economy and good quality portfolio, we do think that there is a positive upside in the risk for Mexico. Elections, we don't comment on politics. Obviously, let's see. Let's see how it goes in Mexico and in Peru. But our perspective is that independent of what happens, we are a very sizable long-term investor in those respective countries, and we will do well. If you do your job well... you'll get the benefit. So we don't comment on what might happen, but we are not expecting any major deviation from our path.

Okay, thank you, Paco. Next question, please.

The next question comes from Adrian of Credit Suisse. Adrian, please go ahead.

Hi there, thank you very much. Two questions from my side, one on costs in Spain and one on provisions at the group level. Last quarter you mentioned a potential cost plan in Spain, and over the last few weeks we've seen Spanish press discuss various figures. Could you give us a contour or maybe a timeline for when you plan to outline this? And in terms of provisions, you've mentioned that you have not released any provisions, but can you give us any indication of the quantum of unutilized provisions from the overlays you've taken last year? Thank you.

On the first one, on the cost restructuring in Spain, Edwin, thank you for the questions. As you know, it's in the negotiation phase. There's a very legal, defined process on this topic. We are in the negotiation process with the unions. So we have to see the process to come to a conclusion. to a fruition before we can comment more on this one. What we mentioned in the last quarterly presentation is that we will define this plan, discuss it with the unions, and start executing, start taking actions in the first half of the year. That's still our base case, but we will see. On the provisions, we have not released, as I mentioned regarding the extraordinary provisioning that we did last year, you might look into the last year's but more or less the first quarter and the second quarter of last year due to COVID, the extraordinary provisioning that we did was 2.2 billion euros, 2.2 billion euros. That's the macro and management adjustment combined impact due to COVID. And that's the number that is still there because we want to see again how the situation evolves. I'm going to pick up my speed. Apologies.

Let me jump in. Yeah, let me jump in. Yes, the post-model adjustments that have not been used yet stood at 223 million in Spain in Q4. And now they have become 316 million euros. So actually they've gone up slightly in Q1.

Okay, thank you. Adrian, next question, please.

The next question comes from Ignacio Agui from Exane BNP. Ignacio, please go ahead.

Hi, good morning. Thanks for taking the questions. I have just two questions. One is if you could just give a bit of color on what should we expect from the GAB with Allianz and on the insurance revenues both in Mexico and in Spain, which I think is a bit of an area of strong potential for the bank that should grow in the future. And the other one is on the buyback. And if you could update us a bit on what would be the timeline that you are thinking, so how should we expect your approach once the removal of the ban is in place from the ECB? Thank you.

Thank you, Ignacio. Jaime is not with me today due to COVID protocols. We are in different rooms. So, Jaime, why don't you take the first one, the alliance in Mexico and Spain, the JV with the alliance. I'll take the buyback right away. The buyback, the process is, as you all know, there's an ongoing restriction on shareholder distributions by ECB that is expected to end at the end of September. We have said that our expectation for the closure of the BBVA USA deal is mid-year. Both the expectation still stands. So when those two events happen, depending again also on the share price evolution and everything else, our base case expectation is that we will start the buyback in the fourth quarter of this year. And given the restrictions, because you can buy up to maximum 25% of a certain period's trading volume, average trading volume, given those restrictions, it might take six to slightly more than six months, let's say, on average, on the base case, to complete that process. So hopefully, we will start it in the fourth quarter of this year, and we will finish it mid-next year, the full process of 10% buyback. On the JV with Allianz, Jaime?

Yes. As you know, the JV gave us a capital gain of a little over $300 million last year. The impact this year is going to be slightly negative. It's going to differ slightly in its recognition between other income and fee and commission income versus other years. But the reality is that overall, the joint venture will penalize us by roughly $40 million. The idea is that this will recover very, very fast in the next, I would say, two years. In terms of, in general, the evolution of the insurance business, as activity is recovering, and this is particularly relevant in retail portfolios, both in Spain and Europe, and Mexico, very rapidly insurance sales and insurance premiums start to go up. And as I explained during my review of the business area, it's been one of the reasons why our revenue behaves well. You have also need to take into account that during 2020, and also we are seeing some impact during the beginning of 2021, we've had to pay for more siniestros. I forgot the word in English. So that is also something that is affecting slightly the contribution of the insurance business.

Okay. Thank you, Ignacio. Next question, please.

The next question comes from Stefan Nidalcov of Citi. Stefan, please go ahead.

Thank you. Thank you. Good morning, guys. Thanks for the call. Two questions, if I may. On Spain, you point to alcohol sales having an impact on NII. At the same time, when I look at your Euro alcohol portfolio, it's actually gone up queue on queue, mostly on non-Spanish debts, Italy and other countries. Can you just explain a little bit the dynamics of the alcohol portfolio going forward? Should that be a positive net contributor to NII from 2Q onwards? And related to that, you did take higher provision top-ups on non-loan related provisions. Compared to the past few quarters, it's around 80 to 100 million more. What were those provisions due to? So that's on Spain. And my second question is on your interest rate sensitivity that you disclosed in your presentation. It looks quite asymmetric. In Euro terms, for example, you have around 20% increase for 100 bps of rate rises compared to 10% decline for the same change on the way down. But in Mexico, it's a lot more muted. It's only 3% to 5% in either direction. I'm a little bit surprised here because US rates should be doing better over the medium to long term, yet your sensitivity in Mexico is a lot lower. And obviously, US rates are quite a big determinant of Mexican rates. And if I may put in a bonus, a quick bonus question here, how much of a gain are you expecting from the Coinbase IPO in Tokyo? Thank you.

Very good. Thank you, Stefan, for all the questions. On the Spain NII, the impact of ALCO, yes, as you have said, there has been a slight increase, but it's a slight increase, so it will not be changing the NII contribution in a major way. So I wouldn't expect the ALCO portfolio to be creating a massive impact in the NAI in the coming quarters because the slight increase in the volumes is going to be taken away because of the lower yields in general that we are seeing in the sovereign yields especially. Regarding the non-loan related provisions, it is mainly related to restructuring and branch closures a bit and so on. We are typically doing that in business as usual scenario in every year in the first quarter. Last year was a bit different because of COVID. In March, the COVID has come in and so on. That's mainly because of that restructuring related early retirements and all of that typically comes front loaded in the year. That's the reason why you are seeing that increase. NIA sensitivity Why is it that it's 100 pips increase in Spain is much higher than it is in Mexico? Because most of our loan portfolio, if you look into the loan portfolio of Mexico, you would see that a good chunk is in consumer, in mortgages, credit cards, and so on. And mortgages, for example, in Mexico, or consumer, they are fixed rate. So the fixed rate component of the balance sheet is much higher in Mexico. As a result, the implication of The rate rises or the other way around is less pronounced in the P&L, but still it's 2%. 2% NAI for the 100 pips increase is a nice figure if you look into the Mexican figures. So that's the reason. It's because of the structure of the balance sheet. Coinbase, the last one. We have not commented too much about this in the past calls, but I do think that it's a very positive thing that is happening out there. We do have this, what we call Venture Capital Fund, Propel. We have invested 250 million euros equity into that vehicle. And we just announced another 150 million to be done in stages, but another 150 million commitment equity to that vehicle. The 250 that has already been mostly invested, the vehicle invested into 40 or so fintechs in the U.S., And with the latest count, around eight of them are already unicorns. So beyond Coinbase, there are some other very good names. I mean, SumUp, Hippo, Grow, all of those companies, unicorn status, eight out of 40 is a very good hit rate. And as a result of Coinbase, and as a result of these other investments as well, which are really good investments, we are expecting in the second quarter, to register 200 to 250 million gross margin in the net trading income and in the other income lines. It's going to come in different line items. But 200 to 250 million euros of trading income and other income gains in the second quarter P&L this year. So going very well. I mean, we are very pleased with the performance. of that fund after the Coinbase revaluation, 30% IRR. I mean, very positive developments, and we are glad that we are one of the ones who have been investing into this vehicle and into these great companies, which is also a signal that the industry is restructuring and changing, and we have to be at the forefront of that change.

Thank you, Stefan. Next question, please.

The next question comes from Andrea Filtri of Mediabank. Andrea, please go ahead.

Yes, good morning. I want to ask if you could reconcile how much of the government-guaranteed loans overlaps with the riskier exposure defaults breakdown that you provided, slide 39, please. Second question, you're guiding for flat loan evolution in Spain. How comfortable are you that you will make the TLTRO benchmark to get the bonus on the TLTRO3. And just finally, we see deposits continue to grow very, very strongly across the board. Should we factor in an increase in deposit guarantee fund contributions and resolution fund contributions for next year? Thank you.

I'll take the second and the third one. Jaime, as always, you got the tough ones, so you get the first one, the overlap question of page 39. How confident are we with the loan growth to be able to meet the TLTO conditions? We are quite confident, so we don't see any risk there. The deposits, are we expecting an increase in the deposit guarantee fund? There's a Spanish version, the one, and there's also the European one, as you all know. We don't expect an increase. in our contribution this year, because as you know very well, last March, April timeframe, there was a big spike in deposits because lots of corporate deposits and lots of other deposits were flowing into the system. Given the fact that the averages did not change too much, we don't expect a major, we don't expect actually an increase in the contributions in a significant way. On the first one, Jaime.

I do not know the answer. I do not know the overlap between the credit guarantee funds and the high-risk sector. So we will find the info and we will provide it to Andrea.

But Andrea, yeah, okay. Let's provide the precise answer. That's better. Okay?

Okay. Thank you, Andrea. Next question, please.

The next question comes from Carlos Bixuto of CaixaBank. Carlos, please go ahead.

Hi, good morning. I think you were clicking my calls. My question, sorry. So the first question would actually be on capital. Basically, whether there will be any regulatory impacts for 2021, given that you already did the trim on the low default ratio, low default portfolio, and if I remember correctly, last year you had anticipated some regulatory impacts as well. Basically, is there anything pending throughout the year? And then secondly, more of a nearly theoretical question, but basically looking at the behavior we're seeing now, so basically we're experiencing We're witnessing some increases in NPLs across some of the bank's geographies, which I believe was already expected post the COVID pandemic. And at the same time, given the provisioning overlay that was done last year, you have cost of risk going down. Here the question is basically up to what level of NPLs do you think that the current level of provisions or the guidance in cost of risk that you're giving for the full year would be sustainable and so basically where the threshold from where we could start, we could become more concerned regarding the evolution of cost of risk and up to when and up to which level it is already included in your guidance and in the provisions that were already done. Thank you.

Okay, Carlos, we had some hard time in hearing you out, but if we are missing your questions, please raise your voice once again. But on the capital, you asked about the regulatory impacts, if I'm not mistaken. On the regulatory impacts, we guided you in the first quarterly, in the February call or the January call, that there are three major regulatory topics that will be hitting us this year. The first one was the trim on the low default portfolio, which we already factored in in this quarter. Then there are two others that will be coming in in the coming quarters, or two others or two buckets of other things. The new definition of default and PD-LGD, the new guidance on the PD-LGD. We expect 10 to 15 BIPs, as we also told you last time. 10 to 15 BIPs impact on this one. And then the third one that we also told you last time is soccer. It's the counterparty credit risk for the markets and for derivative transactions. We expect another 10 to 15 bips on that one. So the total of those two There's 20 to 30 bips in total that would be coming in in the second and the third quarters. The sucker, we will see. But to be on the prudent side, in the second and third quarters, we will be realizing those two further impacts. And that's the... Final, we hope that we would see on this chapter. The second question on the MPLs and the cost of risk. As you all know, the MPL bucket is an in and out bucket. So there's a lot of entries, but there's also out from that bucket as we do the write-offs. That number changes a lot. The cost of risk that we have done since last year, this 2.2 billion that I mentioned to you due to COVID, the extraordinary provisioning that we were doing, the main macro adjustments and also some management adjustments. has nothing to do with that MPL forecast because the MPLs are not going to go up too much. That's not our expectation at all. The slight increase that you have seen this quarter in the MPL ratio is because of Spain and Turkey. For Spain, Just to be, again, on the prudent side, if there is one thing that defines our risk approach, it's quite prudent. We wanted to be prudent, although we don't see any deterioration, any deterioration in that portfolio. We wanted to stage some of the deferred mortgages in Spain to stage three. Although, as I mentioned again, because they are in deferrals, we don't see any deterioration. We wanted to be prudent. Same for Turkey. For some large ticket wholesale clients, we wanted to move them to stage three. but no impact or no deterioration in the payment behavior of those. That's the slight pickup in MPLs. And beyond that, we don't see, we don't expect a major increase in the MPL ratio because, again, there are ins and outs. The cost of risk is foreseeing a much larger figure, a much larger deterioration that we have taken already. In 2020, again, because we wanted to be prudent and we wanted to see the impact of the COVID on the economy and on our portfolio. That's the reason that there is very little connection between the two of them. We are front-loading the potential risks, but the NPL would not show that at all.

Okay, thank you, Carlos. Next question, please.

The next question comes from Sophie Petersens of J.P. Morgan. Sophie, please go ahead.

Yeah, hi, thanks a lot for taking my question. So here is the fee from JT Morgan. So I was wondering fees in Spain are up 12% quarter-and-quarter, which looks very, very strong. Could you just comment if there are any one-off items in the fee line that drive this 12% quarter-and-quarter increment, or should we expect this to be a run rate going forward? And then my second question would be just kind of you commented that you want to do the 10% share buybacks, but you still have plenty of excess capital after that. How should we think about excess capital and how that will be deployed? What's your kind of view on M&A? If you could just remind us again what your kind of, when you look at M&A, what the potential criteria is for any potential M&A target. Thank you.

Thank you, Safi. On the fees, 10%, actually, year-over-year growth is across the board. One of the best things about that number, it's double-digit. We haven't seen that double-digit for a while. And it's across the board, across all the countries, and across different fee income categories. It's asset management. its payments, it was a bit CIV as well, in general banking services as we call them, in different countries there are different nuances, but in general across the board very, let's say, decentralized or dispersed increase, which is very good. I would say that if there is one theme, that if I want to pick one theme that is common across all the countries, it's the payment topic. Especially in Mexico, we have a very nice market share. In Turkey, we have a very nice market share. Spain as well. So we are pushing a lot on the payments topic. And in every single country, we are registering good increases in that. Also, the economy picking up, especially in March, is helping. But payment systems is one thing that's kind of common across the board. But in different countries, there are different buckets. And you should see it in every single country's P&L. In every country, we are seeing very nice growth in free income. Excess capital, how should we think about that? As we talked about it in the last call as well, our perspective is very clear. There are multiple options, multiple alternatives for the deployment of capital. Each one of them has to compete with each other. which delivers the best return should win. And obviously, there are strategic considerations. Obviously, there are process-related considerations because some of the things that you might want to do might take much longer and so on. But that's the whole concept. The return has to be coming for that capital and different alternatives has to compete. Regarding M&A, also we discussed it last time. But our perspective is very clear. We don't see M&A as... We have capital, so let's do M&A. No, not at all. The M&A has to justify itself in terms of numbers. You have to come up with a value creation opportunity. The numbers have to say that this is a great opportunity, independent of whether you have excess capital or not. That's our perspective. If you have a great project, you can always ask for capital if you need to. Again, we are not naive. There are some process things. If you have the capital, it might be easier and so on. But the concept is that M&A has to make sense by itself, independent of whether you have excess capital or not. And then you ask about our M&A criteria. Very straightforward. The strategic fit has to be there. Obviously, in terms of the market, the market has to make sense. The returns, the IRR, tangible book value, and EPS accretion has to make sense. And for that to make sense, you have to create value. So scale has to be coming in. That's why we kept saying last time that it seems there's better value in our existing markets to create value. But the numbers, the strategic fit has to be there. And independent of whether we have excess capital or not, the numbers should justify that there is a clear value creation opportunity for the shareholders.

Thank you, Sophie. Next question, please.

The next question comes from Carlos Cabo of Societe Generale. Carlos, please go ahead.

Good morning. Thank you all for the presentation. Just a couple of things, one on capital and the other one is a very simple one. You pushed back the investor day because of the pandemic, which was obviously understandable. I was wondering if you are thinking about committing to a strategic plan in front of the market and if you are already having enough confidence on the businesses, which it seems you are because everything points in a good direction in terms of cost of risk was the main uncertainty. And the second one is on capital. It's kind of a theoretical question, but I would like to understand how this is the, let's say, embedded capital support in the capital ratio from the state guarantees. If you were to unwind that, theoretically, and also factor in some rate in migrations, what would be the pro forma capital ratio? Is that something you are capable to discuss? And more specifically this quarter, you said that the trim impact is around nine basis points in the capital ratio, right? Out of the plus two positive impact in the capital ratio. So the net positive impact from risk-weighted assets is plus 11. You did the math right, right? So if the loan book was flat in euros, what drives the positive contribution from risk-weighted assets? Sorry, I can't repeat if it wasn't clear enough. Thank you.

It was very clear. It was very clear. So on investor day, maybe as the state guarantees, if you know the answer, maybe you can take the second one. But investor day, we are committed to it. We told you before. called us old-fashioned, but we think it might be nice because we have never done one, and we thought it might be nice if you do it on site so we can host you in this wonderful building, and we can also show you the culture of the Spang, which is... which in my view is amazing. Our people and our culture is the one that makes a difference. And we want to display that and show that to you all. So our expectation is to do it by the end of the year. Hopefully if the pandemic allows it to be on site, that's our base case. So we will have it by the end of the year and you will experience it. On the state guarantees, anything, Jaime?

Well, one very important thing, Carlos, is it's very important to realize that the rating of the client does not depend on the existence or not of an estate guarantee. You need to classify the client based on the characteristic of the client and the client's business profile. Okay, so we, of course, we have in states, too, loans with the guarantee of the state. What will be different, of course, is the PD, and because of the payment schedule that these state support loans have, and, of course, the LGD. And from that point of view is where you have, and from that angle is where you have the biggest positive impact in terms of capital. We disclosed, I think, at one point in time during last year that cost of risk would have been 70 million euros lower in Spain thanks to the state guarantees, for example. So not much more than that. So up to now, I don't think in some material, it will mean a material impact on the capital base. That will be my answer.

And Carlos, on the last one, the question was very clear. So the two bips is actually two things, as you said, for the benefit of the rest of the audience. So the 11 bips positive is coming from RWA evolution in constant terms. And minus nine is coming from the trim impact, the low default portfolio. So you're asking why positive 11 in the context of the loan portfolio is not changing too much. It is basically two things. First of all, the mix of the, it's not because of the guarantees, if that's the question that you are trying to go after, because the new production that we have done in the guaranteed loans in this quarter is very little. So it's not at all regarding the guarantees. It is because of the mix of the growth, and it's also because of the dollar, because in some of our geographies, the dollar impact is affecting it. It's in the constant number, this 11 bps. That's why the portfolios adjust, With the USD evolution, in the case of Turkey, in the case of Peru, Mexico, we have some USD portfolio, and that is being factored into those figures.

Thank you, Carlos. Next question, please.

The next question comes from Benji Creeland Sanford of Jefferies. Benji, please go ahead.

Yes, good morning. Perhaps just one follow-up from me on the redeployment of excess capital and thinking about cost reduction. I realize you can't comment on Spain, given that the negotiations are ongoing, but are there any material efficiency plans under consideration elsewhere in the group outside of Spain? And perhaps more broadly, if you could just give us a sense of your expectations around cost growth in the group X going forward. Thank you.

Again, if you're asking for the size and the number details of the restructuring plan, Benji, unfortunately we are in the negotiation process. So given the process sanity, we cannot share anything at the moment. We are negotiating with the unions. But on this topic, I would like to highlight one thing that you have seen in the document already. Why is this critical and why are we doing this? It's not an easy process. It's a complicated process. It's a painful process on certain dimensions. But we are looking at a business where the transactions done in the branch network, in the physical channels, is down by 50% in two years. And mainly because of COVID, the trend has accelerated in the last part of these two years, so mainly last year. But two years, some part of your business is down by 50%. It's half. We have to react to this. That's the reason why we are doing it. I mean, the business is changing. The business is transforming. If you have a certain part of your business which is shrinking by half in two years, you have to react. And that's what we are doing in the process. I would assume that hopefully in the second quarter call, we would be able to share more details on the figures that you are after. And outside Spain, I mean, our guidance was very clear on this topic. In general, in all the geographies, our goal is to make sure that in general for the group, let me talk about for the group overall, we are going to definitely grow less than in constant euros, obviously less than the inflation, blended inflation rate of our footprint. So we are going to be in real terms actually reducing our costs going forward.

Thank you, Wendy. Next question, please.

The next question comes from Marta Romero of Bank of America. Marta, please go ahead.

Thank you very much. The first question is on Turkey. The market over-penalizes the group for your exposure to the country, which you must find very frustrating. So if you received an attractive offer for your 50% in guarantee, would you take it? My second question is a follow-up on Mexico NII. Could you please elaborate a bit more on the expected recovery in long growth by segments? because consumer and credit card volumes remain weak and the credit demand from corporates is muted. So that would be helpful. And finally, on Mexico fees, I believe you have not provided the guidance yet, but after the strong recovery in Q1, do you have more visibility around where you could finish the year? Thank you.

Thank you, Marta, as always, for the questions. Let's start with Turkey. I will repeat the two messages that we keep repeating in every call, but the two messages is, number one, we are long-term investors in the countries that we are in. We still believe in the long-term potential of the country, for sure. Similar dynamics, but very low... Leverage in the household segment especially in in Turkey as compared to other emerging economies as well household debt or GDP if you look into the figures There's much less. So there's low leverage. There's the demographic dividend point as well. I mean the average age of Turkey is 31 and And more importantly as importantly similar to Mexico Mexico is getting benefit from being at the tail in terms of a manufacturing hub for the US and In the case of Turkey, Turkey is also a manufacturing hub for Europe. That helps a lot. So the fundamentals, the long-term fundamentals of the country, in our view, are still positive. We were saying, I am in these calls for, what, nine quarters now? In every call, quarter, I said that if there's one risk that we have to be careful about in Turkey, it's the currency risk. And on that one, as you might know, we have reduced our FX book in four years by 40%, more than 40% actually. We are very prudent in the hedging, as I mentioned at the beginning of this call. So we did know and we did realize the risk, and I think we are... prepared as much as we can for that risk as well. And in that context, regarding the strategic discussion that you just asked, we are comfortable with our share, as we say. And my team always tells me that this is what you should say, and that's what I would say. We are very comfortable with our share. 49.85% is where we are, and we will continue. Then regarding Mexico... Obviously, given the high velocity of those products, you don't see it in the figures, because when you look into the page in Daniel's presentation, for example, that consumer book is coming down in stock. But you should know that in the first quarter of this year, quarter over quarter, so first quarter of this year versus the fourth quarter of last year, there's 22% increase in new production in consumer, which is... number that we like and I did show it to you in Dallas presentation showing how the consumer production is going up very nicely in Mexico to cut the Long story short. We are expecting growth still in those portfolios and we are guiding as you know mid single-digit Growth we are still sticking with that if there is anything there is a positive bias in my view on that figure given what we have been seeing credit cards the production was slightly lower than fourth quarter, which is another important segment for us, but we are seeing very positive signals in March, in April, in production there as well. To cut the long story short, the production numbers, underlying production numbers is actually quite robust. And what you also should know is we are gaining market share on those products. We are gaining market share. which again implies that our NAI performance in the coming quarters, in my view, will be quite strong. And that's why we are sticking with our guidance for the full year. And we actually have a positive bias on those figures. What was the third question? Marta, I missed it. That was the third question, no?

No.

Say guidance for Mexico. Do you want to take it, Jaime? Yeah, it's very simple. We don't provide guidance on fees for Mexico. But what I would say is what Honor said before. The beat has been widespread because we've had very good behavior in investment funds, in CIB, in banking services, credit cards also. So I think overall this gives us confidence that fee income revenue, not only in Mexico, but I would say overall in the group, is going to be one of the most important drivers in 2021.

Okay, thank you, Marta. Next question, please.

The next question comes from Britta Smith of Autonomous Research. Britta, please go ahead.

Yeah, hi there. Good morning. I've got two quick questions. The first one would be, could you provide us a little bit of commentary around the provisioning in Spain? The Bank of Spain has come out in its financial stability review encouraging banks to continue to book high loan loss provisions, yet most of the banks are guiding to provisions for 2021 to be below 2020. And your tone has been more optimistic there as well. Maybe you can tell us a little bit how we can square that. And then secondly, regarding the TLTO3, could you comment on what the actual benchmark lending has been so far? What sort of percentage growth are we looking at? Or is it flat?

Thank you. Okay. I only have the numbers for the second. But why don't you take the second, Jaime, if that's okay. And on the first one, on the provisioning, actually in all the countries that we are looking into, The deferrals, the moratoriums are done, and it has been done for a while. In Mexico, you might remember this. We were discussing it last year in the third quarter call. Most of the deferrals, moratoriums, they ended in... in August, in September timeframe. So it has been more than six months that they have all expired and they are in the business as usual portfolios. Same in other countries, in Turkey, in South America and so on. So whatever you see in the figures, In all the other countries, they are the business. You would see them because we don't have this carved out portfolio, which might be masking some of the underlying deterioration and so on. They are all in the figures. The only country that we still have a remaining deferrals or or as we call them, which is a non-payment period, is Spain. So in Spain, there is this moratoriums of $4 billion still in our portfolio. As you know, it's mainly mortgages. Close to 60% is mortgages. So we feel very comfortable with that portfolio. But it is still out there. So it's in the deferral period. And in the government guarantee programs, there is a period of nonpayment as well. That is why, although we see very positive signals underneath, because we know those clients, especially on the wholesale side, although there is very positive signals in general, as Jaime mentioned, we have increased actually our management adjustment in Spain by 100 million euros this quarter just to be on the prudential side. So regarding provisioning, are we conservative? I do think we are prudent. But I do think that given the fact that some of those deferrals are still live, it is better to be prudent, which is our culture in the bank. It is better to be prudent than otherwise. I do feel... that in the future we would see better figures, clearly, but we want it to be prudent. That's why you see the NPLs going up a little bit in Spain. You see cost of risk, some additional management adjustments coming into the cost of risk, and so on. So for the second question, Jaime.

Yeah, first of all, we reached the benchmark that we had to comply with as of March 21 in order to benefit from the extra remuneration up to June 2021. Just to give you some sense of the numbers, the target was slightly below $71 billion, and our portfolio was slightly below $80 billion. So over $9 billion buffer versus the benchmark as of March. The benchmark as of December, which will allow us to benefit for an extra year between June 21 and June 22, it's slightly below $77 billion. So as we stand at 80 billion, we are quite confident that that should not be an issue.

Okay. Thank you. Thank you very much. I'm afraid we're running out of time. So just two last questions, please.

So the next question comes from Ignacio Cerezo of UBS. Ignacio, please go ahead.

Yeah. Hello. Good morning. Thank you for the presentation. Two very quick follow-ups. The first one is if you can give us the breakdown of the Spanish fee in the quarter between transactional risk and markets. And the second one is, I don't know if it has been mentioned in the presentation, but can you remind us the CPI or the inflation number you're going to be using for the CPI linker contribution from now on? Thank you.

The CPI question was for Turkey, I guess, no? Okay, so for CPI, in the quarter, the underlying CPI that we have used for the NAI was 13%, and it seems like BBA research just upgraded, increased its inflation expectation for the year to 15%. So for the coming quarter and quarters, we will increase the contribution from CPIs. The first one was on Spain fee, because there was a noise in the line, I guess. And on the growth, it's across the board. Most of the growth was actually coming from insurance. In insurance, we did really well. Some on asset management. And the bulk is... Insurance is number one in terms of, if you look into the delta and the breakdown of the delta, close to 50% of delta is insurance. Then there is like 10% or so in asset management. There is another 30, 40% is what we call banking services, which is basically two things. Banking services, which is accounts and credit cards. Credit cards, as I said, payments in general has done really well across the board in all the countries. And Spain has also benefited from that. So banking services, the other 30% to 40%. The markets was also good in terms of what fee income generation was. It wasn't that differential from year over year.

Thank you very much. So last question, please.

The last question comes from Mario Rapiro of Best Invert. Mario, please go ahead.

Hi. Just a follow-up question on the fee one. I mean, from what you mentioned, there is no particularly, no extraordinary on the fee income in Spain. But if we were to analyze that figure into the rest of the year, you would clearly beat the guidance that you have provided of high single digit. So would you say that you have a positive bias here? And if not, why? Thank you.

Mario, very simple. There can be, there is a positive bias. We'll see in the coming quarters. But there's a positive bias, I would say, with regards to the guidance. We don't provide a free income specific guidance, but there's a positive guidance, positive development versus our own expectations. Let's see in the coming quarters.

So thank you very much for participating in this call, and let me remind you that the entire IR team will be available to answer any questions you may have. So, Onur, if you want to close.

Well, thank you to everyone. Patricia, this was your first. I hope many calls in the coming quarters. Thank you to everyone for joining in. Thanks for the attendance. Bye-bye.