Banco Bilbao Vizcaya Argentaria S.A.

Good morning and welcome to BBVA's second quarter results conference call. I'm joined today by Anur Ghent, our CEO, and Luisa Gomez-Bravo, the group CFO. As in previous quarters, Anur will start reviewing the group figures, followed by Luisa, who will go through the business areas results. Then, Anur will give a brief update on the offer to Sabadell shareholders, and finally, we will open the live to receive your questions. Thank you very much for participating, and now I turn the call over to Anur.

Thank you. Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining BBVA's second quarter 2024 earnings webcast. Let's jump into the presentation as always, starting with slide number three. On the left-hand side of this page, you can see our net attributable profit in the quarter reaching €2,794,000,000. showing obviously another quarter of record results. This figure is 38% above the results of the same quarter of last year and 27% above last quarter results. Our results, they represent 47 euro cents earnings per share, 28% quarter over quarter and 42% year over year growth, both higher growth rates than the ones of the net attributable profit due to obviously to the positive impact of the share buyback programs that we executed. And then the graph on the right-hand side of the slide, it shows the excellent tangible book value per share plus dividends growth with a 20% increase year over year and a 2.4% growth in the quarter. We always highlight the importance of this figure to all of you. We are very happy to see a solid number in the quarter, the 2.4%, despite all the market impacts, especially the upper movement of the interest rate curves and the Mexican peso depreciation in the quarter. On page number four, Our CET1 capital ratio at 12.75, reflecting a seven basis points decrease in the quarter, impacted by the market impacts, as I just mentioned in the previous page, but also due to a very positive development in our view of very strong lending growth, very strong lending growth in our core markets, leading to market share gains. I'm sure we can discuss that in the Q&A as well. The 12.75 CET1 ratio obviously is much above our target range and regulatory requirements. Regarding profitability, on the left-hand side, on the right-hand side, sorry, in the page, we continue to improve our metrics, reaching an outstanding 20% in return on tangible equity and 19.1% in return on equity in the first six months of 2024. We have been truly looking forward to this day of reaching the 20% threshold on return on tangible equity for so many years and it makes us really happy getting to 20%. On page number five, More important than, in our view, the 20%, the consistency of how we got there and the comparison with our competitors, which obviously to us is the most important measure of success, I do think we are doing really well. On the left-hand side, you see the evolution of our first-half profits in current euros. Not only did we achieve almost, again, the mark of 5 billion euros of net interpretable profit in the first six months of this year, we managed to do it by increasing our six-month profits by nearly 1 billion euro in a consistent manner every year. Every year. And then, on the right side of the page, we wanted to compare our return on tangible equity evolution to that of our European and Spanish peers. As you can see, our 20% Rote and its positive evolution, it clearly stands out. It clearly stands out. With these figures, we are clearly one of the most profitable banks out there. Moving to slide number six, this page is a summary of the pages to follow where I will talk to you about the activity, the P&L, the revenue growth, costs, asset quality. So allow me to directly move to the next slide to talk to details in the respective pages. So slide seven, as always, the summarized P&L of the quarter. You can find the year-over-year quarterly evolution in the second column from the left in constant. And right next to it, in current terms, the third column from the left. Basically, the P&L continues its impressive evolution thanks to the strong revenue growth with an increase in gross income of 31% in constant and 28% in current euros and obviously maintaining positive jobs. And as a result of all of this, net attributable profit at the last line item, net attributable profit grows 37% in constant and 38% in current euros. Slide number eight, the summarized P&L of the first half. I would once again highlight the very positive gross income evolution, which increases 31% in constant euros and 23% in current euros. And then the strong gross income growth, coupled with the positive jaws, as is true for the quarter, it led to an outstanding recurrent net attributable profit of almost 5 billion euros, implying 37% growth in constant and 29% in current. Slide number nine, some light into the revenue breakdown and the quarterly evolution. In this page, we show that the excellent trend in revenues continues. showing the strength of our revenue generation capacity quarter after quarter. First, our net interest income. It keeps increasing, 17% versus last year and 1% compared to last quarter, driven by strong activity growth, especially in the last part of the quarter, and good customer spread management. Second, outstanding evolution of net fees and commissions, increasing 35% year-on-year, and 4.4% versus last quarter, levered mainly on payments and asset management. Third, very strong quarter in the net trading income heading, benefiting from a good quarter in the global markets unit and also from the positive mark-to-market of the FX hedges of the Mexican peso in the corporate centers. All in all, excellent growth in gross income. Again, 31% year-over-year and 13.9% quarter-over-quarter. Moving to slide number 10, in this page, we also wanted to provide you with the breakdown of that gross income by geography in current euros. In current euros, important. And gross income is growing year-over-year at double digits in all of our markets. 29% growth in Spain, 14% growth in Mexico, 47% growth in Turkey, and 16% growth in South America. when you look into the quarterly trends you see the continued strength of revenues in spain posting another record basically and then despite a relatively large depreciation in mexican peso eight percent depreciation in the quarter it is important to register the fact that in current euros we managed to keep the revenues stable thanks to a very robust activity

Again, that came towards the end of the quarter.

You also see clear recovery trends in this page for Turkey and South America. In both cases, we are posting the best quarterly figures in current euros of the last few quarters, also implying better prospects looking into the future. And talking about the future, slide number 11. Let me focus a bit more on activity and growth in loans, which has increased at group level to 10.7% year over year in June. So great activity in the quarter. Obviously, this is very good news for the coming quarters, also considering the fact that we deliver this growth in a profitable manner. We measure this through return on capital metric, loan by loan, individually, and on a marginal basis to make sure that the growth comes with profitability. In the case of Spain, in the middle of the page, as we have been anticipating in previous quarters, loan growth has improved to 2.4%. And with our most profitable segments, consumer and credit cards, growing 8.3%, mid-sized companies growing 5.5%. And in Mexico, loan growth has accelerated to 12.6% year-over-year, with consumer and credit cards growing 16.6% and SMEs growing 17.4%. So, in short, very good prospects for the future. Moving to slide number 12, on the left-hand side of the slide, we continue showing positive jaws at the group level, thanks to the good performance of gross income, as I mentioned before, and then costs are growing 19.5% below the group's average inflation. On the right side of the slide, you can see our efficiency ratio. which shows an outstanding improvement to 39.3%, breaking the 40% barrier. Again, we have been looking forward to this date for so many years. 362 basis points lower than last year. We clearly remain with this number, clearly as the most efficient European bank. Slide number 13 on asset quality, they remain in line with our expectations and shows relative stability in a context of strong activity growth in the most profitable segments, as I was mentioning. On the left-hand side of the slide, at the bottom of the page, our cost of risk slightly increased quarter over quarter to 142 basis points, and the increase is mainly explained by two factors. The aforementioned activity growth in highly profitable but high cost of risk retail segments and emerging market geographies. In other words, the mixed impact. And second, Turkey that continued its gradual but completely expected increase after abnormally low levels of cost of risk in 2023. The MPL ratio on the right bottom slightly improved to 3.3% and our coverage ratio is also broadly stable at 75% affected partially by some portfolio sales. Slide 14, on capital, the CET1 ratio remains well above our target range despite decreasing by seven basis points quarter over quarter. In a quarter, largely constrained by, again, quite a significant market-related impact, and as mentioned, marked positively by a very strong growth in lending activity. That lending activity brings us more capital, organic capital, more profits in the coming quarters, but obviously you get the hit in the quarter that you have that growth. But following the waterfall in the page, main drivers of the quarterly evolution, first, strong results generation, 73 basis points. Second, dividend accrual and 81 coupons, minus 39 basis points. Third, minus 40 basis points due to the RWA's growth. Again, a quarter in which this impact is higher than a typical one, given everything that I talked to you about, about the lending growth, which is again very positive for us. And last, a bucket of others of minus one basis points, minus one basis point, which comprises, among others, the hyperinflationary accounting credit in Aussies because of the hyperinflationary accounting geographies, and the market-related impact, totaling minus 23 basis points. Again, also higher than usual, mainly due to depreciation of the Mexican peso in the quarter. It is worth to say in this page, though, there is a bubble at the top. It's important to highlight that our Still very preliminary because we need to see many of the details coming out in the coming quarters. But the Basel IV impact, it reduces from our previously guided stated below minus 40 basis points to below minus 15 basis points. And looking ahead, let me emphasize that both our ability to keep generating capital and to continue re-masking in growth At very attractive return on tangible equity levels, it remains intact. And we clearly maintain our 40% to 50% payout distribution policy and fully committed we are to distribute any excess capital above 12% C to 1 ratio. Slide 15, our strategic progress, new customer acquisition on this page. Many times before I said it, but the most healthy way of growing the balance sheet is in our view, growing the franchise of clients. And in that sense, we acquired 5.6 million new customers in the first half, continuing our upward trend. And I particularly would like to highlight again the digital share here. 67% of these customers, they came from pure digital acquisition channels. Slide 16, another pillar of our strategy, sustainability. It's an incredible business opportunity where we continue to deliver quarter after quarter, even above our expectations. In the first six months of 2024, we have channeled 46 billion euros in sustainable business and a total of 252 billion since 2018. We remain very committed to accompany our clients in their decarbonisation path and as such this quarter it's in the bottom of the page, but this quarter we have also set decarbonisation targets for 2030 in two new sectors, aluminium at a global level and real estate in Spain, which is at the core of our portfolio, that add to the other eight sectors where we already have clear portfolio decarbonisation targets. Slide number 17, I also would like to highlight our positive impact on the society, as always, as a result of our activity. In the first half of this year, we have helped 75,000 families buy their homes. We have awarded more than 340,000 new loans to SMEs and self-employed individuals, and we continue to finance around 70,000 larger corporates in their growth. We also mobilized 11 billion euros in financing for inclusive growth like social housing, like infrastructure, social infrastructure, hospitals in the first six months of this year. As we grow our activity, it's a simple message but an important one, we promote employment, we promote investment, we promote welfare in the society. And finally, slide number 18 in this chapter regarding our 2021-2024 goals announced on the investor day. As always, I will choose to not go into each one of them for time purposes, but all the metrics. On all the metrics, we are clearly on a path of significant overperformance versus originally established goals. And now for the business areas update, I turn it to Luisa. Luisa.

Thank you very much, Onur, and good morning, everyone. We're starting with Spain on slide number 20. As you can see in the slide, Spain has delivered outstanding record results in the second quarter of 2024, exceeding the €1 billion in the quarter, which is an amazing milestone driven by an outstanding performance in all P&L headings on the back of strong commercial momentum. The sound activity trends already observed in the first quarter of the year have been confirmed in the second quarter. New loan production has increased by 12% in the first six months of the year, leading to a 2.4% loan book growth above the system average. In such a context, we are reviewing upwards our loan growth expectations for 2024. We now expect the loan book to grow at low single digits in 2024 and to continue gaining market share. This is clearly reflected in the P&L, which shows impressive year-on-year and quarter-on-quarter growth, driven by strong core revenue increases. NII continues to grow on a quarterly basis, levered on activity growth and effective price management. As you can see on this slide, the customer spread has remained flat in the quarter despite declining rates. Fees have also showed another very positive performance in the quarter, mainly explained by the strong contribution coming from asset management and credit cards. Expenses have remained flat quarter on quarter, and efficiency has continued to improve to an outstanding 35.4% cost-to-income ratio in the first half of the year. Finally, on asset quality, really no major developments. Trends remain solid, cost of risk at 38 basis points, fairly in line with our guidance. All in, these very solid underlying trends have led us to also improve our P&L guidance for the year. We now expect NII to grow at low teams. Remember, we had double-digit growth before. Now we are expecting to grow at low teams on NII on the back of strong activity growth and higher than expected rates by the end of the year. But we are also reviewing upward our fees. Fees are expected to grow at mid-single digit, where we had a slight growth of positive bias before. We are going to be growing fees at mid-single digit in 2024, and expenses are also expected to increase below 5%, maintaining the efficiency ratio at current levels. In conclusion, we are extremely happy with the results of Spain this quarter and the half year. and with the improved outlook for the P&L as well. Moving on to Mexico in slide 21, one more quarter of very strong earnings coming from Mexico, reaching the 2.9 billion euro in the first half of the year on the back of sound activity dynamics and effective price management. Looking specifically at the quarter, I would like to highlight the strong business dynamics in terms of new lending flows. New flows have grown by 13% quarter on quarter with very favorable trends across the board. As we anticipated in the last quarter, this quarter loan growth has accelerated in wholesale portfolios, while the positive performance in retail lending has remained. This led to a more balanced loan growth between these segments, leading to a total loan growth of close to 13% year-on-year. This sound lending momentum continues to drive NII growth close to 7% year-on-year, while customer spread is roughly stable in the quarter. Managing the cost of deposits continues to be a key priority for BBVA Mexico, considering our large deposit base. In fact, this strategy is what partially explains NII being broadly flat in the quarter. In the context of accelerated loan growth, we have relied to a greater extent on market financing to fund activity growth, leading to higher wholesale funding costs. Having said that, as you can see in the slide around, we have sound underlying trends in core drivers for Mexico NII, which remains strong activity and wide customer spread. As such, we expect NII to continue growing over the coming quarters. Fees remained at very high levels, supported by robust activity and transactionality and an increasing contribution from asset management and CIV business, while expense growth has decelerated in the quarter. All in all, strong revenue growth drives efficiency ratios to a remarkable 30.4%, lower than the last quarter and a very outstanding mark for the first half of the year. Finally, on asset quality, the increase in impairments is consistent with the economic cycle and our growth strategy focused on retail segments. In a context of higher rates than previously anticipated for the rest of the year, we now expect the cost of risk to stand at around current levels in 2024. With these results, we remain confident on our capacity to deliver on the guidance that we committed to the market at the beginning of the year for Mexico. Going to slide 22 in Turkey, the franchise has reported a net profit of €351 million in the first half of the year. This has been supported by higher NII, benefiting from nominal activity growth, and an improved customer spread in Turkish lira, favored by higher lending yields. Higher fees, mainly from payment services, brokerage, and asset management, while trading income remains at a very strong level despite the quarterly decline. And very significant lower hyperinflation adjustment thanks to the deceleration of the quarterly inflation, which you see there on the footnote. The quarterly inflation has gone down to 8.4% in the second quarter versus 15.1% in the first quarter. We see a normalization in cost of risk due to the ongoing macro rebalancing, which is in any case expected to be manageable and within the guidance that we have given to the market. The cost of risk increased to 84 basis points in the first half after what we've always maintained was an abnormally low level in 2023, mainly due to higher provisioning needs today in retail. After the strong performance of the franchise in the first half of 2024, we now expect net income for the second half of 2024 to be in line with a slightly higher or slightly higher than the first half of the year under a continued normalization of regulatory and macroeconomic conditions. So improved guidance and outlook for Turkey as well. Going to South America on slide 23, The region has shown sound earnings contributions well during the first half of 2024 by achieving a net profit of 317 million euros, paving the way for a gradual recovery. During the first half of the year, revenues showed a positive trend, sound NII performance driven by loan growth focus in the most profitable segments and an improving customer spreads across the countries and strong evolution of fees and higher NTI. These trends were somewhat offset by higher hyperinflation adjustments in Argentina due to a higher inflation rate in the first half of 2024 compared to the last year, but with a positive quarterly trend, which has been significant because, as you see also in the footnote, it means that the second quarter inflation has come down to 19% versus the first quarter one, which was 52%. Expense growth has continued to be pressured by inflation, but it is important to highlight that on a quarterly basis, growth has slowed down mainly in Peru and Colombia. Finally, cost of risk has remained stable at 312 basis points, in line with the macroeconomic expectations for the region. In this regard, we expect the cost of risk for the year to stand below current levels, but slightly above than our previous guidance of around 280 basis points. And now, back to Anu for the final remarks on the quarterly results and the update on the OPA.

Thank you, Louisa. So for the main takeaways from the presentation of the results on page 24, let me not take time by repeating, because we always have this commitment that you'll be finishing by the hour, but let me not take the time repeating the messages, but in our view, it was a quarter that made us really happy, as Louisa was also saying. Reaching elusive milestones that we thought We were unreachable some years ago. I mean, you have it in that little box on the right-hand side, delivering 20% in ROTE, Return on Tangible Equity, a growth of 20% in tangible book value per share plus dividends, and breaking the 40% barrier in efficiency. In our view, amazing numbers in that sense. I know that many of my colleagues from BBVA are listening to to this call, a shout out to our people of BBVA. You are doing an amazing job. You should be very proud of yourselves. Then slide number 25 and forward, it's basically the update on the OPA. Given the interest that you have shown on the matter, which is understandable, we would like to update you on the latest regarding the takeover bid process. So slide number 26, basically where we left you off and where we are. First, This is about creating a stronger and more profitable franchise with an increased lending capacity to families and businesses estimated at 5 billion euros per year. Second, the transaction shows our strategic appetite for gaining scale in our core markets and particularly a strategic push for the semi-segment in Spain. Third, given especially the ever-increasing need we have been experiencing to invest in technology and the associated large fixed costs, There are substantial synergies in the combination. And fourth, due to these significant synergies, we decided to present an extremely attractive offer to Banco Sabadell shareholders, while at the same time preserving the value creation for BBVA shareholders. And lastly, as an update, the takeover process is progressing positively in full accordance with the plan, as we will show you later in detail. On page 27, I would like to give you some additional details on synergies and earnings accretion. On the left-hand side of the page, we are now able to give you some more color on the breakdown of the already announced €850 million synergies. The split that we have put in May into our regulatory filings initially, and we are making it transparent to you today. First, the breakdown of the €850 million. €450 million coming from administrative and technology savings. As we have been explaining since the beginning of this process, technology is one of the largest and growing expense headings for both banks, and such line items offer the most clear scale advantages, therefore representing the largest part of the synergies. Then €300 million in personnel savings. Third, 100 million on financing savings coming from a larger and more diversified group being reflected in the reduction of larger Sabadell risk spreads to BBVA ones. It's basically equalizing the spread. Sabadell had a larger spread. Now we are equalizing it for the wholesale funding tranches as such fundings expire throughout the time. As you would see, compared to some other integrations you might have seen, the percentage of personnel savings is lower than usual and more value is attributed to administrative and technology savings. This is, in our view, very fair given the different restructurings in both banks we have been executing in the past few years. This transaction is about keeping and growing the franchise of Sabadell, especially the SME franchise in Spain. In that context, I want to highlight that our estimates for the rationalization of the branch network in Spain has been limited to less than 10% of the combined network equivalent to, as you see on the page, 300 branches of the approximately 870 branch offices identified in the combined group with a proximity of less than 500 meters. So we have 870 branches within 500 meters and from that perimeter we are basically saving 300 branches. This whole breakdown obviously is also the key driver of the restructuring costs that we have announced. As you can imagine, if cost synergies mostly come from network restructuring, branch closures, redundancy of especially younger personnel, which are typically our colleagues in the branches, then the multiple of restructuring costs to synergies, it goes up. But this is not the case in this Envision transaction. Hence, there has been in the analyst community as well, there was some dialogue on this and so on. We reconfirm our comfort in the numbers that we have been sharing with you. Then on the right-hand side of this page, given these substantial synergies, the fact that we will serve the same market, optimizing our costs, our IT systems, our administrative costs, this deal would then create value. It would create value for both BBVA shareholders and also for Sabadel shareholders. This is a win-win for both. We create value and we share it. That is why you see the EPS accretions in this page are positive for both banks. But I would like to draw your particular focus to the number at the bottom right for Sabadel EPS accretion. This number, interestingly, did not receive much attention from you so far, but based on your own estimates, independently assessed end of April market consensus figures. Our numbers are even better, but let's go with the market consensus. and looking into the earnings, the source of cash flow for a Sabadell shareholder, standalone versus being part of BBVA. Earnings per share go up by 27%. 27%. I mean, the economic rationale, as you all know, is all about cash flow, and the 27% increase in earnings per share, it implies 27% more in cash flow through dividends, through sustained dividends along the time for Sabadell shareholders. This market consensus, obviously, it keeps changing since April, but this number since then has stayed around 30%. And we have a lot of sensitivity on this. It remains around that number. It all goes back to the 50% premium we are offering to Sabadell shareholders on top of the last three month average share price. That premium is so extraordinary that it gives you these very clear cash flow related EPS accretion figures. In short, let me not take more time here, but we reiterate our clear conviction that this is an extraordinarily attractive offer for Sabadell shareholders. Moving to page number 29 and I only have one minute, so a summary of the calendar of the transaction. Basically, the process is advancing positively according to our initial plan and it's fully on track. We filed all the relevant applications to regulators and we have already received approvals from competition authorities in several countries. Also, we received, as you know, overwhelming support from BBVA's shareholders in the extraordinary general meeting where the capital increased for the share exchange. It was approved with an overwhelming 96% support. And now, 9.59, I go back to Patricia for Q&A.

Thank you. Thank you, Anu. We are ready now to start with the live Q&A session. So first question, please.

Thank you. The Q&A session starts now. If you'd like to ask a question, please press star, fold by one on your telephone keypad now. If you change your mind, please press star, fold by two. When preparing to ask your question, please ensure your device is unmuted locally. Please note that we ask you to limit yourself to one question. Our first question is from Maxim Mission from JB Capital. Please go ahead.

Hi, good morning. Thank you very much for the presentation and taking our question. So my one question would be on the cost of deposits in Spain. I was wondering why they declined and how were you able to move part of term deposits back into site because their weight has reduced in the quarter as well. Thank you.

Max, thank you for the question. It's coming down because the curve is coming down a little bit. And some of the large corporate and even public sector clients that we have, it's basically more or less automatically linked to the curve. And given that large segment clients reducing the cost of deposits for that segment, the reflection of the weighted average is in that 91 basis points coming down to 87 basis points.

Thank you, Max. Next question, please.

Thank you. The next question is from Francisco Raquel from Elantra. Please go ahead.

Yes, thank you. My first question is on Mexico. The NIA is flattish in the quarter despite the 6% growth in loans. So you mentioned that you have resorted more to wholesale funding. so I wonder what is the profitability of the new lending now that the loan to deposit is above 100% that you have to resort to wholesale funding if you are from loading these issuances or not so if you can please elaborate on what's the NII trajectory going forward now that the loan to the point is above 100% and then on the On the Sabadell bit, I wonder if you can comment on the condition that you set regarding the antitrust approval. I wonder if you will go ahead with the tender offer regardless of any outcome that may come from the antitrust authorities, if you would agree if the CNMB were to wait for the antitrust approval before authorizing the tender offer. Thank you.

Do you want to take the Mexico one, Luisa?

Yes. Well, in the quarter, we managed the deposit base in Mexico in terms of wholesale deposits and wholesale funding, depending on where the pricing is. Sometimes we rely more on more costly deposits, which feed through the spread, and sometimes we rely more on wholesale funding. What happened this This quarter, as you mentioned, activity growth is higher, has increased significantly, especially on the wholesale side, and we've gone to the wholesale financing, but at the same time managing the cost of deposits, decreasing some of the more expensive cost of deposits as well. I think going forward, we're very comfortable with the profitability that we have, and we'll continue to manage the funding gap in this context. We do expect, however, for the second half of the year to grow in our customer deposit base because of seasonality. When you look at the results in Mexico, typically the first half of the year in terms of retail and customer funds is slower in terms of growth than the second half, and we do expect that the credit gap in the following months will be maintained at the levels that they are, and we expect to be finishing with an LCR ratio, which is more or less the same one that we have today. So we do expect customer deposits to increase and to continue managing the pricing of the deposits and the funding on the wholesale side accordingly.

Maybe just a quick addition on this one because, Paco, you were asking about the marginal profitability and marginal return on capital. This is how we function as a bank. Every single loan given at the marginal level, meaning the additional funding needed for that loan, the marginal funding that is needed for that loan, is it justified with the loan prices that we have? That's how we look into this. But at a very high level, so you have to look into it at a granular level, but at a very high level, the yield on loans, you see it in the page as well, the Mexico, it's 14.4%, okay? 14.4%. Our return on equity in Mexico is 27%. So wholesale funding at a marginal level, I can guarantee you that is very profitable and otherwise we wouldn't have been lending that number, okay? Then your second question is on the antitrust topic for the Sabadell transaction. You asked about the content of this and also the process as I understand. So on both of them, on the content and on the process. CNMC, the authority here for competition matters. As you all know, it's a highly regarded independent institution. It's up to them and we have full respect for their decisions and we have to wait for their decisions for sure. But you have seen us in the different dialogues relatively confident on the competition-related aspects of this transaction for a few reasons. Number one, there is a clear methodology and there are clear precedents in this case. And this is also being raised by the institution itself, saying that we have a clear methodology on this. because we have seen very recently some transactions in Spain where that methodology was applied, and CNMC has reiterated multiple times that they would use the same methodology. And there are clear precedents here. Looking into those precedents, we feel comfortable, number one. Number two, again, based on the precedents and based on where we are today, after this transaction, BBVA will not be the largest player in Spain, will not be. And even if you look at a regional level, certain segments, certain regions today, and in the recent transactions that were approved, there were situations where there were larger players in certain regions, in certain segments, and so on. So if you look into... The current market position of different players, I repeat once again, we are not the largest player, we will not be the largest player after this transaction, and also at different, because it's a national market, the market functions and the market functions perfectly in terms of competition, as is, which does have some of those topics that some of you have been raising to us. And then the third point I would put on the table is the triggers. It's based on European Commission, European regulations and so on. But there are certain triggers which trigger a much detailed and much more closer look in this type of transactions which is when the combined entity has more than 25% market share and when the integrated entity has more than 10% market share then it requires next round of detailing and so on. In this case, as you know the numbers very well, we don't trigger any of those two triggers. And the final thing I would say to you is that because we do discuss about competition and we do live through it every single day, we are in this market, we have 13.8% of the market share. We see it every single day. Competition is very fierce in Spain. When you look into all the loan prices, Loan prices for mortgages, loan prices for SMEs, loan prices for companies. We are, for example, much lower than average of Europe. We are much lower than Germany where we have many more players. So, we have to look into the facts. We keep raising many opinions But when we look into the facts, we do feel that there is a case here and we feel comfortable on the fact that the competition authority will give us the green light. Having said all of this, I go back to the first line, which is the institutional strength of Spain in general is very high. And this is a very respected institution in Spain. And we will wait and see what they say in terms of content and process.

Thank you, Paco. Next question, please.

Thank you. The next question is from Antonio Real from Bank of America. Please go ahead.

Good morning. It's Antonio from Bank of America. My one question is a follow-up on your outlook for NII growth in Spain. You guided to low-teens NII for this year. You've talked about better 2025 trends for the group. Can you tell us directionally how you would expect NII to perform in Spain in 2025, also in light of your commentary on better loan growth, which I guess will affect average balances? Thank you.

Let's go back to the activity growth. As we discussed before, this is not new maybe to most of you, but the spreads will be coming down because the rate curve will be coming down. ECB will be reducing rates in our view. But we have said to you that that decline, we would more or less compensate with two things. Number one, activity growth. Number two, the asset quality. On the activity growth, BBVA Research, our independent research entity, they are basically still seeing for the market a decline in the lending balances for the market in 2023 of minus 0.5%. They are foreseeing in 2025 that after so many years that the market will increase by around 1.5%, the lending volumes. Why? Because the rates will come down, it will trigger more volumes and so on. As you have seen, until May, the Spanish market has declined by minus 2% until May this year. Minus 2% and we have grown this quarter year over year and so on. We are growing above the market. If What we are expecting in terms of market growth is realized. I can tell you that the activity growth and the loan volume growth for BBVA will be compensating very nicely the spread decline that we would be seeing. And then there is the asset quality. We are guiding to around 40 basis points, as you know. Around 40 basis points for BBVA is relatively high, and we do expect that number to also, in the coming years, we'll see. I mean, we will see, but in the coming years, to come back down to normalized levels a bit. To cut the long story short, one other point that I would highlight, and then I cut the long story short, the other point that I would put on the table is the ALCO book, in the appendix you have that detail, but you would see that in the quarter, in the Euro balance sheet in Spain, we have increased our ALCO book by 7 billion euros. We did think that when the rate curve was relatively high that it was a good opportunity to do some more hedging, and as a result of this, the sensitivity guidance that we were we have been sharing with you five percent decline in nai for 100 basis points step function decline in interest rates that five percent is now four percent so we have been managing further the sensitivity of the spreads nai and nim to rate declines all combined We are quite positive. Antonio, you are asking me 2025 in a very specific way. I can see it from your question. The only thing I can tell you is we are very positive and we will provide you full guidance as we always do for the countries in February, in January when we do the end of year results presentation.

Thank you, Antonio. Next question, please.

Thank you. The next question is from Ignacio Yulagu from BNP Paribas. Exane, please go ahead.

Hi, good morning. Thanks for the presentation and for taking my question. I have one, if I may. How do you see lending and deposit growth evolving in Mexico? Linked to this, I wanted to get your thoughts a bit on how the competition is behaving, particularly in deposits. Thank you.

I mean, Lusa, you already mentioned it, but very quickly, Nacho, you see a small decline in cost of deposits, as you see in the quarter for us. We said it multiple times before, but it's a bit of a repetition, but it is important. As you know, 75% of our deposits are retail and SME. As you see in the page, 85% of our deposits are demand deposits. And even more impressive number in my view is 57% of our deposits are below the threshold of insurance scheme in Mexico, which is a very low threshold, which means it's very, very small granular transactional deposits. In that context, we have been defending our cost of deposits. We are basically half of the larger players in Mexico and we still see it positively. But you're asking NII in general. And again, I think Lucia has mentioned it already. But we can only tell you that we are quite positive. We are quite positive going forward in NII overall for the coming quarters. You see the 12.6% growth in lending. As I did mention in my presentation, most of that growth came towards the end of the quarters, which means it's going to be reflected in the coming quarters even more. So if you have 12.6% growth in loan volumes, The spread might be around these levels or slightly declining, but we are quite positive. I would expect NII to continue to increase in the coming quarters, quarter over quarter, because of that activity growth.

Thank you, Nat. Maybe I can add, because I think Nat was also mentioning about the competition from, I would understand, new players in the market on deposits and the evolution there. I think we have been very consistent in saying that obviously we respect the entry of these players into the market. They've not only obviously the most renowned one, but actually there are other very strong entities coming in. But I think that we have been managing both on the lending and the deposit side very actively as well, competing front to front with them. I think that we are, as we've mentioned, the largest and best fintech bank in Mexico in this regard. What we have been seeing on the lending side is obviously a pickup in, I think, issuance of cards from these players. Their market share has been growing in the first part of the year. But when you look at the revolving rates of balances, the market share there is still below their peak at the beginning of 2022. It's around 9.6%. So it's growing not as much as the issuance of cards, And in this regard, I think, as you know, we remain the largest player in the credit card market. We have a market share of above 31%, and we are very comfortable in competing with the players, not only in terms of the balances, but especially in functionality and delivering value to our clients. Today, our MPS stands the highest in the market above these players as well. On the deposit side, what I would say is that we have been very much allowing our customers to have alternatives to the rates that we offer on the deposit side. As Honor was mentioning, our deposit rates are 2.88% in cost of deposits compared to above 5% in the market. This is, I think, a very clear competitive advantage of ours. But that doesn't mean that we haven't been offering alternatives to our clients, especially on the asset management side, which have grown significantly year-on-year, above 25% growth, and we are the leading player there as well in terms of market share, and we will continue to offer the best products available in terms of returns to our clients while maintaining the competitive advantage on the cost of deposit side.

Thank you very much. So, thank you, Natza. Next question, please.

Thank you. The next question is from Carlos Peixoto from CaixaBank.

Please go ahead. Yes, hi, good morning.

Sorry, so one of my questions would actually be on deposit costs in Spain, and it's a bit of a follow-up for Mark's questions. So my doubt here is, looking forward, should we expect This same behavior, the same pattern of behavior of deposit costs moving more or less in tandem with market rates, given the, basically, if you could give some color on how much of the deposit base is pegged to market rates. And then just on the overall group outlook, and pardon me if I missed out on something during the presentation, but basically, given that you have some upgrades in outlook, particularly in Spain, in NII, as you mentioned, you see this still within the guidance that was provided for the group as a whole, or do you see it tied to the guidance you provided in the previous quarters? For the group, I mean. Thank you.

Okay. Thank you, Carlos, for both questions. Very quickly on cost of deposits. Yes, with the curve, it will continue to come down, the cost of deposits. But what matters is obviously the spread. The spread at the moment is 344. We are expecting for the rest of the year slightly below, not much difference, slightly below, because the decline in the lending yields will be compensated by the cost of deposits decline. On the guidance for the group, as Luisa has mentioned very clearly, we are upgrading basically everything in Spain. We are confirming the revenue guidance that we have been giving to you for Mexico, very clearly confirming what we have in Mexico. We are upgrading Turkey. South America is relatively stable. If you sum them all up, it's a really good picture for the group as well. But I think it was Brita who asked it last time. But what exactly is double digit? Because our guidance to you at the moment is double digit. We maintain that guidance of double digit, but double digit is a lot of numbers. The only thing I can tell you is that looking into the dynamics, we are very positive. I see no reason that we would not be able to replicate what we have done in the first half in the second half. If all the dimensions, all the guidance that we have been giving to you for different countries holds true, which we have full conviction that they would be, then you would see a very good second half as well.

Thank you, Carlos. Next question, please.

Thank you. The next question is from Sophia Peterson from JP Morgan. Please go ahead.

Yeah, thank you. This is Sophie from JP Morgan. Could you just remind us of your hedging policy, how much of profits are hedged in the various different countries and also how much of capital is hedged? And also related to this, one of your peers did a quite big FX adjustment for Argentina. How do you think about the FX? in Argentina and they should be kind of think about any ethics adjustments in Argentina going forward. And then if I may give you just briefly comment on your digital bank expansion into Germany and also maybe briefly how the Italian digital bank expansion is going. Thank you.

Perfect. Maybe, Lucy, you take the Argentina question. You are the expert for Argentina. But on hedging, Sophie, as you know, we have two types of hedges. We hedge capital and we hedge P&L. Capital, we hedge the excess capital so that the capital, the CET1 variability is managed. So we only look into the excess capital above capital. the group's CT1 ratio, what is the excess capital in every single currency, and then we do hedge that. Our policy is that we hedge 50 to 70% of the excess capital for capital The cost, the benefit, everything of that also goes through capital. Then for P&L, next 12-month profits, we typically hedge 40% to 50% of that. And depending on the cost of carry, depending on the currency expectations that we have, we can be within or slightly beyond these ranges, but we typically have this range. At the moment, the most relevant one is the Mexican peso hedge. We do have 54% of the excess capital for Mexican peso is hedged and we have 52% of the P&L is already hedged. That's why you have seen in the corporate centre some positive impact in this quarter. Argentina? Luisa?

Yes. Well, we are not applying a different exchange rate to our Argentinian accounts other than the official exchange rate. We'd rather use the official rate for now versus estimating a new one. As you know, the IIS 21 guidelines, which came out in August of last year, allow entities to change and use a different exchanger if they believe the current official exchanger is not exchangeable into other currencies. What we've been seeing is and what we saw last year is the strong depreciation of the official rate. That's why last year when the gap between the CCL rate or the parallel, whichever one, versus the official rate was significant, the gap was above 30%. 150% back in September, we didn't take the opportunity of applying IAS 21 because we did firmly believe that if the Malay government won the elections, which is what happened, there would be a strong depreciation of the peso, which is what happened. And therefore, the gap between The official exchange rate and the parallel ones, or the CCL one, was narrowed. This year, what has happened this year? This gap has been fairly stable, I would say, during the first quarter, but it has started to increase as of April. It was around 24% of April. Right now, I think in July, last time I checked, it was around 50%, 52%. And why is this the case? Because I think that there is a demand from the market to have clarification on the Argentinian government regarding to the crawling peg and obviously the exchange rate mechanisms going forward. In this regard, in the context that we have today, we are monitoring the situation. We do expect a strong devaluation of the peso in the second half of the year. The estimates that we have from our research teams are that the currency could go to 1,200 pesos per dollar. Under that consideration, the gap, again, will narrow and we'll be feeling more comfortable than today. So, therefore, we are not going to be making any adjustments now. We will continue to monitor the situation. What I can say is that with that currency rate, we would have an impact of around six basis points in CT1. And if we were applying today the CCL exchange rate, which is at... 13.50 to the dollar, peso to the dollar, the impact on CET1 would be around eight basis points, and the impact to our net integral income in the first half of the year would be around 30 million euros lower. So I think it's very manageable, and as I was saying, we will wait and see, and to the news that we expect in the third quarter with regards to the exchange rate mechanisms in

Very good. Maybe let's provide the sensitivity and that will also help you for the future, Sophie. 10% depreciation in Argentina implies 2.5 basis points in capital. 10% depreciation, 2.5 basis points. Digital banks, Italy and Germany, given the fact that we are so happy with what has been happening in Italy, and I don't think we have provided that number, but we can provide it. We just passed 500,000 customers in Italy and we just passed, or we are getting very close actually, it was yesterday, basically a few millions less, but 5 billion euros in deposits and I do think it's moving really nicely. As a result, we said we will take it to another country, which is Germany, we have taken that decision and the expectation is that in june july period so mid next year 2025 we will launch in germany as well thank you sophie next question please thank you the next question is from pablo de la torre from rbc please go ahead if i may i want distributions and on guidance firstly

You have reiterated your intention to distribute excess capital above 12%. Could you please elaborate on the specific timing of that ambition, both if the takeover of Sabadell is successful, but also if the takeover does not materialize? And then the second question was on next year's ROT guidance. That might be here a bit early, but you have reported 20% ROT in the first half. You've guided to a higher than 17% in 2024. uh consensus has rot falling to around 16 in 2025. could you just provide us with any indication of where you see the biggest upside to consensus here i know it's early again but how do you expect revenue to grow in constant currency more or less into next year thank you

Pablo, you say it's too early and then you are asking for the numbers. So the only thing I can tell you is that it's too early, really. The only thing is we are very positive, we said it in the last call, looking into the fundamentals of the business, the activity growth that we see in Mexico. And we are very positive of Mexico, as always, but we are very positive because we have an amazing franchise. and also the new administration that we are seeing in Mexico. We have seen the new president talk about Mexico and the things that she highlighted and I looked into everything that she has been saying and the key things that come out is investments, private investments, nearshoring, growth, Energy and infrastructure policy we have to grow Mexico much more It's amazing and even the track record that she has in the as the governor of Mexico City We are very positive on Mexico Spain and As I told you, the spreads might come down, 4% is now the new reduced sensitivity to the interest rates, but we are seeing some clear pickup in activity and we are still quite positive on the growth of Spain in general in GDP in the next year. So, Spain should be relatively well situated. Then, as you have seen today in the presentation, both Turkey and South America they are coming back up especially Turkey if Inflation continues on this path you might remember this last year this month We had nine percent monthly inflation in Turkey last month in in June. We had 1.6 percent if this inflation trend is maintained and We have a huge option value, huge upside, big upside, let's not say huge, but big upside in Turkey. It's a process still. They still need to continue on this path for the next two, three years. But we are quite positive on Turkey and South America. If you put the two pieces together, we are positive. But exact number, and you're asking constant revenue, let's do that as we always do at the beginning of next year with full details of every single country. Then regarding the distributions, Some of you give me very nice and relatively direct feedback, which I fully take, that I should not complain about the market and so on. But today, we are posting 5 billion euros in profit for the six months. We are posting 20% return on tangible equity. We are posting 20% tangible book value per share plus dividends growth, which is the most important number in everything, in my view. And despite this, Today we are trading at 5.7 priced earnings. We are trading around book and 20% return on tangible equity in the U.S. You know what the multiple, I'm sure you know, but we do think that we are still not able to convince the market on how great our bank BBVA is. As such, we talked about the distribution policy. Because of the OPA, we are restricted to continue with the share buybacks, and obviously it's the board's decision. But I can clearly tell you that the day that the OPA finishes, if we are where we are, depends obviously on the market, how it evolves and so on, but you will see us immediately starting the share buyback programs. I can tell you clearly. It just doesn't make sense. 20% angel book value per share growth year over year and we are trading at 5.5, 5.7 price earnings around book. In any case, I got enough feedback from you on this, so let me not continue on this. We are very committed to 40% to 50% payout and we will immediately start the share buybacks after the OPA process is ended.

Thank you, Paolo. Next question, please.

Thank you. The next question is from Cecilia Romero Reyes from Barclays. Please go ahead.

hi thank you so much for taking my question um you have just commented on it briefly but i i will be interested to hear your views on whether you see any catalyst that could improve sentiment on mexico or whether you've seen the results of that action could have any impact on your operational performance in the country um beyond obviously fx um and then i i have another another question most related to mexico in terms of what are the rate assumptions that you have on the guidance that you just rated it Obviously, because of the political outcome, some economists have been delaying rate cuts. So what is the impact that you've seen higher for longer in Mexico who have involved volumes and cost of risk? And finally, one clarification on the comment that you just made about the antitrust process on the Salvador situation. You mentioned that a combined market share of around 25%, and I believe, and I just wanted to clarify, you mean total loans? will mean a higher scrutiny. If you look at it per segment and SMAs and corporates per what you publish on your analyst presentation, you get to that 25% of loans combined. So I just wanted to make sure that you mean the additional scrutiny is a total loan level and not per segment. Thank you.

Very good. The first one I couldn't get. Did you get it, Luisa?

I think the question was something on the sentiment of Mexico.

I was just wondering whether there is any catalyst that you see where the rhetoric will improve on Mexico, where you think the risk perception on the country may improve, maybe perhaps after September.

Very good, Cecilia. Now I understand. Thank you so much for the clarification. The rhetoric and what can happen to improve the sentiment, I do think it's partially happening and you have seen that since the elections. It's the actions and the statements of the government. I did mention it before. We are seeing very positive messaging from the government and we have a clear track record of the president in her previous role so it just needs a bit more time in our view a bit more time then on the higher for longer for mexico i think you were asking but we do have the sensitivities also in the appendix it's relatively symmetric changes slightly but not that much you do see that every hundred basis points plus minus 100 basis points has a 2.3 percent plus minus improvement or deterioration in an AI. So if it's higher rate for longer, it's good for us, because we are asset sensitive. If rates are high, in Mexico, in Spain, in Peru, we take benefit out of it. In the case of Mexico, there is the clear that asset sensitivity. So if it's higher rate for longer, good for us in Mexico. Then on the third one, the antitrust and the 25. It is basically based on, if you take lending, branches, people, in any metric, we don't reach the 25. We don't. In the lending, 13.8, 22%. And I would repeat once again, you would not be the largest player in Spain, which was recently approved to become the largest one. But we don't trigger the 25 in any sense. You are asking about a certain segment in a certain region you might be passing 25. I can give you today, I have it in front of me, in Balearic Islands, in Galicia, in Pais Vasco, in Basque region, there are players... who are above what you might be quoting or thinking about BBVA in a certain region in this transaction. The market is a national market. We compete in the national market. In that sense, we don't pass the 25. In short, and the regional perspective on this, there are many precedents out there which are even higher than the numbers that you might be quoting. Did I miss anything on Mexico?

No, the only thing I think that I would add is that in terms of the expectations on monetary policy, what does higher for longer mean for us? We were expecting the rates to come down at the beginning of the year at 9%. Then the first quarter, we're expecting them to come down to 9.25%. Today, we're expecting rates to come down to 10.5%. And that is the main assumption that drives also the view that we have on the NII.

And that's good for us. And that's good for us.

Exactly. And that's also on the back of, you know, the cost of risk analysis. And that's also the main assumption.

In Mexico, I mean, Luis always warns me on this one, which is true. There will be volatility in Mexico because there will be September, the period of the new government taking, there is going to be, there are going to be U.S. elections in November. There will be volatility in But the fundamentals of Mexico and our strength in Mexico as a bank, the fundamentals of Mexico, I will only give you one number. We sometimes quote this, but I think it's super important. The labor costs in Mexico versus U.S. It depends from sector to sector. But it is one-fifth or one-tenth of the U.S. And it is now better than China. Cost of manufacturing in Mexico Mexico is better than China, is 1 to 5th, 1 to 10th of US. You cannot stop this trend in our view. So we are positive on Mexico for the future.

Thank you, Cecilia. Next question, please.

Thank you. The next question is from Marta Sanchez Maramero from Citi. Please go ahead.

Thank you very much. Good morning. So thank you for providing the breakdown of your cost synergies. but it seems that you are only closing just about a third of the overlapped branch network, so those 300 branches. Why are you not being more ambitious? We've seen the CaixaBanker transaction ended up with Bankia being completely shut down or the equivalent of Bankia being shut down, so I wanted to hear your thoughts there. And just, sorry if I sneak in one quick one, are you reiterating your high single-digit NII strategy growth guidance for Mexico. Thank you.

Very quick answers to two quick questions. Thank you, Marta. 300 overlapping branches, why lower than other transactions like Caixa? Because the two entities, both us and Sabadell, we have done very recent restructurings of our networks, and as a result, the potential to do more is lower. Then on the reiterating the high single-digit guidance, yes.

Thank you. Thank you, Marta. Next question, please.

Thank you. The next question is from Britta Schmidt from Autonomous Research. Please go ahead.

Yeah, hi there. Thank you for taking my question. I would like to challenge you a bit on Mexico. GDP growth disappointed in the last quarter. We're seeing higher rates and there's also a bit of a shift on the retail lending side to more unsecured personal loans versus payable loans. Could you give us your opinion on what impact you think this will have on loan growth, as well as on the cost of risk going forward? And maybe related to that, also with regards to the Mexican peso devaluation, do you still think that if you were to print double digit earnings growth this year, that it is possible to grow on this number in 2025, as you indicated earlier? Thank you.

Thank you, Britta. Britta, I have the quarterly forecasts for Mexico and the 2025 forecast, but as we mentioned, we cannot share this early those numbers with you. And as I mentioned, we are positive. We are positive on the first topic you are challenging a bit, the long growth. On that one, we feel very comfortable that long growth is going to be there. Why? Just look at the history. The history is the average last 15 years, average GDP growth of Mexico is 2.1%. Okay? In that context of 2.1% GDP growth, Mexican banking sector, our numbers, let me give you our numbers, we always grew every year, but on average, double digit. Double digit. How come in an environment of 2% GDP growth, we are growing double digit? It goes back the number that we have been quoting to you many times, but it is important. The banking debt over GDP in Mexico is one of the lowest in emerging markets landscape. It's 33% now, the latest number, which is half of Brazil, one third of Chile. So there's leverage. Given all these tequila crisis that we had in Mexico many years ago, the country is still not having the leverage. So we are able to grow double-digit without creating too much cost of risk in a profitable way because there is room for leverage. And if you look into the underlying details of this, you also do see that in Mexico, you do have a very vibrant, because of the remittances, because of the linkage with the U.S., you do see very vibrant consumer sector and PMS and Empresas, the company segment. We are quite confident on the fact that that double-digit lending growth will come, as it has come every year in the past 10-15 years. Then the devaluation topic, that one we cannot control, obviously. Our confidence on the currency is obviously lower. But what I can tell you on that one also is if inflation in Mexico is 4.6% now and interest rate at the moment is 11%, the carry in Mexican peso has been one of the supporting factors of the currency in the past few quarters, years actually, if The inflation fixation of the Banco, Banxico, the central bank of Mexico is there. If the government, if the society cares a lot about what is the currency exchange, we do feel that even on that one, the risks are relatively muted. But we have to see. It depends on many other things in the macro, in the elections, in the U.S. and so, but we feel quite confident. The other thing I would reiterate and then I would finish. The thing that I said, please look into the fundamentals. This is economy. The value flows to the core, to the fountain, to the source. If you have manufacturing costs, one-fifth to one-tenth of U.S., this nearshoring trend with the policies that the new government, the new president is explaining, is going to help Mexico big time.

Thank you very much, Frida. Next question, please.

Thank you. The next question is from Ignacio Cerezo from UBS. Please go ahead.

Yeah, hi, good morning, and thank you for taking my questions. I've got two as well. The first one is on Turkey, which feels to me is a place where there might be a bigger amount of upside versus straight expectations. So excluding any hyperinflation and currency discussions, which are slightly outside your control, on the local P&L and the underlying P&L, I mean, feels like NII margins are probably depressed, feels like fees actually and costs will probably be linked to inflation. So I'm trying to understand if there is a negative offsetting factor against the margin expansion trend that we should be expecting things like trading income, for example, being too high or cost of risk being too low. So framing the discussion a little bit on Turkey. And then the second one, and sorry if I missed the explanation, the decline of Basel IV impact from 40 to 15 basis points. What drives that? And if the 15 basis points is the new fully loaded number that we need to take into consideration or there's some phase-out basically impacting 25, 26. Thank you.

Nacho, thank you for the questions on Turkey. Well, the upside will come from net interest income. The rest, net fees and commissions, net trading income, they will continue to behave as they have been behaving. So we don't see something really negative that might be coming along those lines. The negative might come from cost of risk. We guided you 110 basis points, if you remember, for this year. We are still at 85 or 84 to be specific. So 110 was our expectation. It's coming a bit better, but in an environment of interest rates being at 50%, which it has to be, otherwise the economic correction might not happen, that might have an implication of cost of risk. So if you are asking me what can be the negative in Turkey, maybe in the future cost of risk. We don't know if the rates stay too high. But the upside is clearly there. Upside is clearly there for two reasons. NII will improve. the spread that you see which is slightly negative, we are seeing it even in July that it is picking up and if rates come down, we are very sensitive to rates but if rates coming down, we have a huge potential upside there as well. So in our view, NII will be improving in the coming quarters. And the second thing is we do hyperinflationary accounting as you know in Turkey. If inflation comes down, you do have a major upside also. And inflation, as I said, the June number was 1.6% monthly inflation. It used to be 9% last summer. Then it came down 6%, 3%, 1.6%. In July and August, it might be slightly higher because of the seasonality. But if Turkey maintains this monthly inflation pace of 1%, 2%, oof. First of all, the environment will improve and it will help in every single line item and especially in AI. But then it will help us also in the hyperinflationary impact. On that one, maybe I give you just one number on the sensitivity. 10% inflation with 10% devaluation has a bottom line, including CPIs and everything, has a bottom line profit implication of around 150 million euros. So, if rather than 45%, it's 25%, 20% decline in inflation, just the pure hyperinflation impact would be 300 million euros, bottom line. So, We have a clear upside in Turkey, in my view. Regarding the Basel?

Well, as you mentioned during the presentation, these numbers are still very preliminary, obviously, because you know that there are still RTSs that are expected by the end of the year and going into next year. And I think that there are still uncertainties around the final calculations of the impact Basel IV. I think the main aspect in the reduced guidance, which again is still preliminary versus the previous one, is due to the review of some criteria, particularly under the new regulation affecting trade finance guarantees, some operational risk. So overall, I think we can expect a lower impact, a much lower impact than the industry average, mainly as well, as you know, because we expect no impact from the output floor.

Thank you. Thank you very much. Next question, please.

Thank you. The next question is from Andreas Viltri from Mediabanker. Please go ahead.

Hi. Two clarifications for me, please. First, if you could elaborate a bit more and give some color on the positives. In the other component of slide 14, what is compensating the large negative market impact? And second, a follow-up from Nacho's question on Basel IV, is the below 15 basis points new guidance a day one impact or fully loaded? Can you provide both, please? And what is the FRTB component you put in that? Thank you.

What is the what component, Andrea? FRTB. FRTB. FRTB. FRTB trading. Okay. On the first question, page number 14, what is in other? The positive ones, hyperinflationary impact. You do know that in hyperinflationary accounting, you deduct the hyperinflation impact from the P&L, but it's not a capital item. So you add it back to capital, number one. And then minority interests. And the other category, which is around plus eight, plus nine basis points. So those are the three things. Minorities, others, which is deductions basically, and then the hyperinflationary impact. On Basel, Luisa?

Well, no, what we have is an estimate, and again, preliminary estimate, because there are still high uncertainties around these numbers on a fully loaded basis. So we're giving the fully loaded number. We can't give any more details, really, until we have clarity on the RTSs to come. Again, there are some expected by the end of the year, and then we will have a better outlook of what the impact will be going into 2025. On FRTB, what I can say is that the impact is very limited.

So thank you very much, Andrea. This was the last question. Thank you very much for all of you for participating in this call. Let me remind that the IR team will be available to answer any questions you might have. And I hope you have a very nice summer. Thank you.