Banco Bilbao Vizcaya Argentaria S.A.

Hello everyone and welcome to BBVA's second quarter research presentation. Joining me today are our CEO, Onur Genc, and the group CFO, Luisa Gomez Bravo. As in previous quarters, Onur and Luisa will begin by reviewing the quarterly figures, after which we will open the line for the live Q&A session. With that, I turn it over to Onur.

Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining BBVA's second quarter 2026 earnings webcast. Before we begin, I would like to say a few words about Luisa, as this is her last results presentation as the CFO of BBVA. and in very short few sentences. We are a 169 year old bank. 169 year old bank built by generations of exceptional professionals in my view. Exceptional professionals like you, Luisa. And over the past few years, We have delivered some of the best results in our history and I would like to recognize the fact that you have been one of the architects of that success. So I'm very pleased that you will continue to be connected to the bank as a board member of some of our most important subsidiaries so that we can continue to benefit from your experience and judgment. So, in short, Luisa, thank you for your leadership, your professionalism, everything you have done for this institution. It has been a true, true privilege to work with you. Now let me start with the quarterly results. In short, once again, we have demonstrated, in my view, the strength of BBVA's business model. We have delivered record earnings, industry-leading profitability, strong activity growth, exceptional activity growth, and capital generation, while reinforcing our competitive position across different geographies. So let me start with slide number three. One of the most important messages for the quarter, as always, we continue to deliver outstanding value creation for our shareholders. On the left-hand side of the page, you can see the strong evolution of tangible book value per share plus dividends, which increased by 17.3% year-over-year and 5.4% in the quarter. Very strong figures, which are even better if you exclude the impact of the share buybacks, then the growth goes up to 21.8% year-over-year, an outstanding figure. This strong value creation was mainly supported by the record earnings, obviously, together with a positive contribution from the exchange rates in the quarter, particularly the appreciation of the Mexican peso. On the right-hand side of the page are profitability ratios. They have further improved. Reaching a return on tangible equity of 22.2% and a return on equity of 21.1% for the first half of the year, placing BBVA as one of the most profitable large banks in Europe. On page number four, on the left-hand side, another record quarter, as we discussed, in net attributable profit, reaching €3.062 billion. Thank you very much. In cumulative terms, net attributable profit in the bubble, it reached 6 billion 51 million euros in the first half of the year. On the right-hand side, our CET1 capital ratio, it improved seven basis points during the quarter to 1290. Strong results and also SRT transactions more than compensate for the impact of exceptional loan growth and shareholder distributions. Moving to slide number five, this slide illustrates what I believe is BBVA's truly unique profile that we talk about from time to time, but our ability to combine strong growth with best-in-class profitability consistently along the years. On the left-hand side, since December 2020, our loan book, it has grown by 62% in current euros, compared with 10% for our European peers. Thank you very much. And importantly, this growth, we always pay attention to this and we always talk about this, but this growth has not come at the expense of returns. As shown on the right-hand side of the slide, starting at more or less the same initial point with the peers, we have widened the profitability gap versus our peers over the same period. As mentioned before, today our return on tangible equity stands at 22.2%, well above the 15.1% of the peers. Profitable growth is the best predictor of future value creation, and this is precisely what BBVA continues to deliver. Moving to page number six, this page summarizes the key financial messages of the quarter, which I will cover in more detail in the following slides, so let me move directly to the next page. Slide number seven, as usual, the summarized P&L for the quarter. If there is one thing to highlight, I would highlight the excellent performance of the core revenues in both annual and quarterly comparisons, serving as the main drivers behind our net attributable profit growth. Slide number 8, the summarized P&L for the first half of the year. Similar to quarterly evolution, as you can see, our solid revenue and core revenue growth, once again, are the main drivers behind the outstanding 6 billion 51 million euros of net attributable profit, double-digit growth, both in constant and current euros. As usual, some more light into the revenue breakdown on slide number nine. Both components, as I mentioned, the core revenues continue to contribute very positively to our results and in a very consistent manner. We call this chimenea in Spanish, the chimis. So they have been growing very nicely again in a very consistent fashion. So as you can see, net interest income growth remains very strong, increasing by 17.8% year over year, and 2.1% quarter over quarter, supported by very robust activity growth. Net fees and commissions continued their excellent trajectory, up by 16.2% versus the same quarter last year, driven by payments, asset management, and the higher contribution from CIB. Net trading income increased by 13% year over year, yet, as you can see in the page, declined quarter over quarter due to a more normalized contribution from the global markets following the exceptionally strong performance in the first quarter. And also, as you can imagine, we are benefiting in general in a major way from the currencies, but then you get a small hit out of this in the net trading income, so there were some losses from the FX hedges, especially related to the Mexican peso appreciation. All in, gross income is increasing by 15.7% year over year and broadly stable versus the previous quarter. Moving to slide number 10, I like these pages because they give signals about the future as well. So let me focus on activity and long growth, which remain as the key drivers of NAI. Thank you very much. Talking about growth, it's worth mentioning once again that from time to time we highlight this, but we have deployed micro capital planning tools to all of our geographies in the past few years. Using these tools, we maintain, as we grow, a strict profitability discipline around growth by measuring, I'm not sure whether there's any global bank to do it at this level of detail, but we are measuring the return on capital metric on a loan-by-loan basis in any part of the world. So when Peru originates a loan, immediately we see what the return on capital metric on that one is, and we have clear mechanisms to manage that process. But going back to the slide, In Spain, loan growth accelerated to 7.4% year-over-year, while in Mexico it remained close to 10%. In both markets, growth is being driven by the key profitable segments, consumer and credit cards on the retail side. and private enterprises on the wholesale segment. And as shown in the center of the page, the growth for these profitable segments is clearly above the total loan growth. As a result of all of this, net interest income growth in Spain is at 4.5% year-over-year and 8.9% in the case of Mexico at constant euros. Moving to slide number 11. In continuing with the deep dive in Spain and Mexico, this page shows how our growth goes beyond the overall industry growth in a consistent manner once again and gives positive signals for the future. On the left-hand side of the slide, in Spain, we have increased our total loan market share by 84 basis points since the end of 2020. and the improvement as you can see on the page has been even stronger in those key segments that I mentioned with gains of 276 basis points in consumer, 249 basis points in enterprises. And on the right side of the page, BBVA Mexico Thank you very much. Again, this is particularly noteworthy, let me not go through the numbers, but all the key segments we are gaining basically market share. And this is even more important in the context of fintech players in the market. Despite newcomers, despite very aggressive competition, we have continued to improve our market position. Moving to slide number 12, on efficiency, on the left side of the slide, gross income grew by 16.9% year over year in the first half, while expenses increased by 17.9%. But it is important to note that growth rate for expenses, we have discussed about this in the previous quarters, but it is impacted by two non-recurring impacts. The voluntary redundancies implemented in the first quarter, especially in Spain and the holding. The effect was mainly in those two areas. And then the extraordinary VAT regularization booked last year in the second quarter and a remaining amount this quarter also. Excluding these effects, you see it in the bubble, cost growth rate would have been 14.5%. Again, maintaining our positive jobs, which is important to us. On the right side of the slide, our efficiency ratio stood at 37.8%, clearly better than our guidance for the year. And excluding the mentioned non-recurring effects, the two of them, the VAT and the redundancies, the ratio actually would have improved by 77 basis points in the first half. In short, we continue to deliver industry-leading efficiency ratio while investing on growth and transformation. Turning to slide number 13, asset quality. Asset quality metrics, they remain very sound during the quarter, despite the context of macro uncertainty, strong activity growth, especially, as I mentioned, in the most profitable segments. Despite all that, very sound asset quality metrics. Starting with the cost of risk on the bottom left, it stood at 143 basis points for the first half of the year, improving from 154 basis points in the last quarter. This improvement was supported partially by a portfolio sale that we did in Spain, but overall underlying provisioning requirements remained broadly stable, even better than expectations in most geographies, except for retail portfolios in Turkey and in Argentina. And even in those situations, we see some elevated levels, but some contained stable levels. Looking ahead, based on the underlying trends, we expect cost of risk to remain around current levels at the end of the year. And on the bottom right, very quickly, our MPL ratio and the coverage ratio, they remained broadly stable year to date. Slide 14, the next page, on capital, we have generated seven basis points of CET1 during the quarter, driving the ratio to 1290, increasing the room for further capital remuneration. First on the left side, following the waterfall, main impacts of the quarter, strong results, 75 basis points. Dividend accrual and AT1 coupons minus 40 basis points, then minus 41 basis points due to the RWA's growth. This figure also includes the result of the several risk transfer transactions, SRTs, which positively contributed six basis points to the ratio in the quarter. Then we have a bucket of others on the page in the waterfall of 13 basis points, which comprises, among others, the market-related impacts and the credit in OC for the hyperinflationary countries. On shareholder remuneration, on the right-hand side, I want to highlight that we will be completing the 4 billion euro share buyback program approved at the end of last year in December in the next few days. We'll be finalizing the whole program in the next few days. August 3rd is the final date. and thanks to the strong results that we are presenting today and our solid capital position, we are announcing today the launch of a new 2 billion euro extraordinary share buyback program with the first tranche amounting to 1 billion euros which will begin on the 5th of August. Page 15, let me update you on the advances in the execution of our AI transformation strategy. Again, at BBVA, our DNA, it has innovation and transformation written all over it, and we are determined to lead the AI transformation in banking as we did in our view in digital transformation. On that path, the first step was to promote the adoption of artificial intelligence tools across the organization. Today, these tools are part of our team's daily work with more than 100,000 teammates already actively using AI within the guidelines obviously established by the bank. Then at the end of last year, you might remember, we introduced the eight, our top-down and bank-wide strategic roadmap on very specific initiatives. to embed artificial intelligence across the group's key areas and functions. And now we are taking the next step with the frame to create, deploy, and manage AI agents at scale. In our view, this is important. This is a key milestone in the industrialization of AI agents across BBVA. It will provide a common framework for governance, architecture, security, and performance measurement of agents, allowing us to accelerate implementation while maintaining rigorous control over risks, over costs and outcomes. We have also reinforced our organizational setup for AI. As you might have seen in the last few weeks, we have brought together the relevant capabilities together under an AI transformation unit represented at the highest level. And we will further provide details on all of this, on our AI strategy and progress, at the next BVA strategic talks, which is scheduled for October the 6th. Finally, moving to page number 16, regarding the evolution of our financial goals for the 2025-2028 period that we shared with you last year. I will not go through each one of them for time, but what I can say is that after 18 months of execution of the strategic plan which we launched in January 2025, in general, we are performing ahead of our original expectations in the key metrics. And now, for the business areas update, I turn it to Luisa.

Thank you, Onur, and thank you very much for your very kind words at the beginning of this presentation. Looking back at over 25 years with the ADA, I am profoundly grateful for the continued learning opportunities and the great people I have worked with. While I didn't anticipate stepping off the train at this particular station, I find myself looking forward with optimism toward the new journeys that lie ahead, including staying connected to the bank, as mentioned by you. Onur, the privilege has been mine. A word I use in its fullest sense to describe the profound respect and admiration I have for you as an exceptional leader, but more so as an amazing person, a unique combination. I also want to extend my heartfelt thanks to everyone on this call, sell-side and buy-side analysts, PMs, rating agencies. Your challenge has been a continuous source of self-improvement, never a dull moment. And before I get too emotional, the show must go on. So let me start with Spain on slide 18, where we delivered another strong quarter. Net profit reached 1.1 billion euros in the second quarter, bringing first half earnings to 2.2 billion, up 2.3% year on year. This performance was underpinned by another solid increase in net interest income, up 4.1% year on year, supported by strong commercial momentum and effective pricing. Thank you very much. Customer spread improved also in the quarter by three basis points, reflecting effective price management in a context of higher rates while maintaining the cost of deposits contained. Turning to fees, commissions increased by 2.2% year-on-year. The decrease you see in the quarter mainly reflected lower CIB-related fees after an exceptional strong first quarter. This was partly offset by continued growth in asset management and a solid contribution from card fees this quarter. Costs remain well under control. Operating expenses increased by 10.3% in the first half of the year, mainly reflecting the one-off items already mentioned by Onur. Excluding the impact of the one-offs, underlying costs increased by 5% year-on-year and 3.8% quarter-on-quarter. Our efficiency ratio remains best-in-class at 33.6%. Asset quality also continued to improve. This quarter, supported by the sale of a mortgage portfolio, the NPL ratio declined further to a new historical low of 2.86%, while coverage increased to 71%. Cost of risk stood at 31 basis points in the first half of the year, fully in line with our low 30s basis points guidance. Overall, Spain delivered another very strong quarter with strong commercial momentum, continued revenue growth, disciplined cost management, and very solid asset quality metrics. Turning to Mexico on slide 19. Once again, BBVA Mexico delivered an excellent quarter. Net attributable profit reached 3 billion in the first half of the year, increasing 8.2% year-on-year and 3.4% quarter-on-quarter in constant euros. Net interest income increased by 2.7% quarter-on-quarter, supported by solid loan growth across both retail and wholesale businesses, and a higher contribution from the ALCA portfolio, which largely offset the customer spread compression in the current easing rate cycle. NIM remains broadly stable both quarter-on-quarter and year-on-year. Fee income continued to perform well, supported by higher activity in asset management, as well as solid performance in credit card and CIB-related fees. Overall, strong gross revenues performance supports an outstanding efficiency ratio of 30.8% while we continue to invest in future growth. As equality remained also very sound, impairments declined during the quarter supported by solid underlying credit trends along with a small positive one-off impact. As a result, cost of risk improved to 326 basis points. Based on this performance, we now expect the cost of risk to the end of the year below 335 basis points ahead of our initial expectations. Overall, Mexico continues to deliver a very strong performance. Based on this performance, we are upgrading our full-year guidance. We now expect loan growth of around 10%, net interest income growth at high single-digit, and cost of risk, as I mentioned before, to end below 335 basis points. Moving now to Turkey on slide 20. BBVA Turkey delivered resilient results in the second quarter, supported by strong fees and lower impairments. Net profit reached €269 million. First half earnings reached €532 million. Looking first at revenues, net interest income declined on a quarterly basis, mainly reflecting a significantly tighter TL customer spread as funding costs remained elevated. This was partly offset by strong growth in fees and commissions supported by continued business activity, particularly in payment systems. The other income line benefited from a stronger contribution from the insurance business, while the hyperinflation adjustment remained broadly stable quarter on quarter. Turning to asset quality, cost of risk stood at 236 basis points year-to-date, reflecting still elevated provisioning needs in the retail portfolio, as Onur mentioned, in a higher-for-longer interest rate environment. Underlying asset quality trends remain broadly in line with our expectations. However, the normalization of the retail portfolio is taking longer than previously expected due to the current macro environment. As a result, we are updating our full year cost of risk guidance to around 220 basis points with an expected better second half of the year, but still above our previous guidance of 200 basis points. Let's turn now to South America on slide 21. The region delivered another very strong quarter. Net attributable profit reached 308 million in current euros. First half earnings totaled 556 million euros, up 33.6% year-on-year in current euros. Thank you very much. Strong revenue growth of 21.6% year-on-year continued to translate into solid positive jobs, driving the efficiency ratio down to 41.5% in the first half of the year. Thank you very much. Overall, the region is performing ahead of our expectations. As a result, we are upgrading our four-year guidance for gross revenues to grow at high teens. And finally, let me turn to the rest of business on slide 22. The rest of business delivered another strong quarter, with net attributable profit reaching 271 million, increasing by 14.5% quarter over quarter. First half earnings amounted to 508 million euros. Thank you very much. On costs, operating expenses continue to reflect ongoing investment to support future growth. At the same time, we continue to deliver positive jobs on a year on year basis. Asset quality remained very strong. The NPL ratio increased, driven by some specific clients migrating to Stage 3, which had already been largely provisioned in the first quarter. Costs of risk declined to 14 basis points in the first half. Overall, the rest of business continues to deliver strong profitable growth, supported by strong commercial momentum. Taken together, our business units delivered another excellent set of results, a reflection of the strength and resilience of our franchises across all our core markets. And now, back to Onur for the final remarks on the quarter.

Thank you, Luisa. And lastly, for the main takeaways on page 23, let me not take time as always by repeating all the key messages. You are already seeing them on the page written all over it. But in short, excellent results in my view in the quarter, driven by the strength in activity and core revenues, which is very important to us, obviously, and further improving our industry-leading growth, Profitability and efficiency ratios while executing our AI transformation plan on different fronts. Given our positive momentum at the bottom of the page, you can also see that we are upgrading our 2026 outlook for group return on tangible equity to around 21%, as well as improved our guidance for key metrics in Mexico and South America. As Luisa mentioned, we have also slightly downgraded our cost of risk guidance for Turkey, again as you can see at the bottom of the page. And now back to Patricia for the questions. And as I mentioned, this is the last presentation of Luisa, so be nice and don't ask very challenging questions.

I just put the questions to you.

Perfect.

Patricia.

Thank you very much, Onur and Luisa. So we are ready now to move on to the Q&A session. Operator, the first question, please.

Thank you. If you'd like to ask a question today, please press star followed by one on your telephone keypad to join the queue. We're preparing to ask you a question. Please ensure you are unmuted locally. Our first question today comes from Max Mission from JB Capital. Max, please go ahead. Your line is open.

Good morning. Thank you very much for the presentation and taking our questions. All the best to Luisa with new challenges. Two questions from me, please. The first one is on Spain. Cost of deposits was flat quarter on quarter despite the faster growth in term accounts. What are you doing to manage the cost of deposits and what should we expect? And the second question is on the rest of the business. Even though NPLs increased, cost of risk has been virtually zero. I was wondering if you could share some more color on this, please. Thank you.

Very good. Thank you, Max, for the questions. On Spain, what are we doing to keep the cost of deposits? Thank you very much. Thank you very much. Thank you very much. With their products and transactionality, it's an amazing figure actually. 70% of these customers, after six months of acquisition, they become, obviously we manage this, we track this very, very, very closely, but they become what we call target customers. So they become much more engaged with the bank. 70%. One third of them After acquisition, they become a payroll customer for us. So the focus on new customers and making sure that those customers become target primary customers in due time is one of the reasons that I would highlight. The second topic that I would highlight is our continuous, it's not only true for Spain, for every single geography, but in Spain for sure also, our focus on transactionality. The fact that we are focusing a lot on all transactional products, cash management for companies, payrolls in retail, acquiring for SMEs and companies as well, we have basically higher market share in all of those products versus our base. So we have 14.2% market share in Spain in lending, as you know, 14.2%. In payroll, we have 16.6% market share. In acquiring, similar. In cash management, we are upgrading all of our systems in the last year to be able to provide the best cash management systems to enterprises. Thank you very much. is basically creating a lot of difference, but it's a small number in any case, no? So it's the fluctuation of very few anecdotal things that is creating the risk. As you might remember, in the strategic plan when we announced our targets in 2020, last year, June, basically, Thank you very much, Maxime. Next question, please.

The next question comes from Martha Sanchez Romero from J.P. Morgan. Martha, please go ahead. Your line is open.

Hi. Good morning. Thank you for taking my question. My first question is on the management changes. Should we infer any change in financial strategy, capital return priorities, or on guidance philosophy from the CFO transition, or is the handover to Gonzalo Rodriguez purely organisational? And then my second question turns to the rest of business, and I'll take it in two parts, earnings and then risk. On earnings, the pace has caught us all off guard. You are now running above €1 billion on an annualized basis, so expanding far faster than anyone had penned in. I take the point about negative staff cost seasonality in the fourth quarter, but even allowing for that, you are close to €200 million ahead of consensus. So how should we think about the run rate from here? And then on risk, look, you just keep growing like a weed. Another 11 billion of lending in the quarter. So help me out with two things. First, what's actually in there? And second, the market's getting twitchy about how AI capabilities are being underwritten. So give us some color on your exposures. How much of the book is AI related? Thank you.

Very good questions as always. Marta, very quickly on the first one, should we expect any changes in our strategic thinking or financial management principles? Obviously no. It's a natural transition, so no changes you should expect. Then on the rest of business... For popular demand, we have added a page you might see in the appendix of the documentation that we have for you on the broader CIB. But if you look into those two pages, page 22, which is rest of business, which is basically CIB, half of CIB is that. Thank you very much. But it is happening at a very profitable level as well. You might see it in the RORVA. We are providing RORVA now as you can see on this page and for CIB. The RORVA for the rest of business is 2.1 and as you can see in the CIB appendix page, if you exclude Argentina and Turkey because they give too much of a positive boost to the number, it's going to be around 3% the RORVA for the overall CIB business. And then in that appendix page, Marta, you would also see Thank you very much. Thank you very much. It's practically client revenues. The non-client revenues or prop trading revenues and so on, they are very small compared to many other corporate investment banks that you would see out there. What I'm saying all of this, why I'm saying all of this is very simple. Our CIB business is cross-border focused. Mainly corporate banking focused business, focusing on our existing lines and taking their relationship to other geographies. Given that, the growth rates that you see, because you are pointing out to the fact that the growth rates are quite healthy and there are some jitters in the market and so on. Our focus is on our existing clients mainly, and the growth rates that you see are sustainable, and the profits associated with that business is also quite sustainable, as you have seen with the ROAR was. Maybe I tell you the ROAR number, excluding Argentina and Turkey, the ROAR of the CIB business is 24%, clearly about cost of equity. So we are very happy with the returns that we are generating there and with the growth that's coming with it. On cost of risk, you asked about the specific dimension called AI. On that one, We have basically identified every single sub-chapter of the portfolio on how they might be affected. You might remember this for sustainability also. We have something called transition risk indicator. In the bank, we have developed this metric or the framework now on AI transition indicator. So we are looking into every single client of BBVA and identifying the vulnerability that they might have with the transition that's happening, with the disruption that is happening with AI. and we don't see a major risk profile for BBVA in these sub-chapters. For example, software and IT services, the direct lending that we have with them is around 700-800 million euros and they are all top quality names and so on. So we do already have the tools to manage that risk and in general, as you know, we do have a quite conservative risk profile. Do you want to add anything, Luisa?

Well, I would just like to add that perhaps you may recall from our strategic talks when we had Javier explaining the CAB area and also when we presented midterm goals that, just to highlight a little bit the outlook, Marta, of where we were thinking that the CAB business could grow as a whole, we did say that we were aiming for a 10 billion euro revenue at the end of our strategic period priorities and it is an area where strategically we want to continue to grow together with our commercial banking business. So in that sense, we do have expectations of revenue growth ahead. And also just to give a little bit more color, remember some of the numbers that we have given in the past in terms of exposures. Their exposure that we have to data centers remains very small at 0.7% of EAD. As Onur mentioned, the technology side is 0.5%. Direct exposures to financial sponsors remains also very subdued, below 0.8%. So I think everything is, as Onur mentioned, growing in a diversified manner, in an adequate manner, supporting our corporate client relationships as well.

Thank you. Maybe one final point on this one. I mean, this is a general trend in the industry, but the technology industry is triggering not only in the core industry itself, but all the adjacent industries, a demand for lending, a demand for loans. And players like us who have a lot of liquidity, and you might... Thank you very much, Marta. Next question, please. The next question comes from Francisco Raquel from Elantra.

Francisco, your line is open. Please go ahead.

Yes, hello. Thank you. So congratulations to Luisa. I will start with a final question for you, which is you can update on the alcohol strategy in Mexico. I see that you are increasing the size and duration of the alcohol bond portfolio. So I wonder if you are positioning the balance sheet to lower interest rates there or if you are just trying to support Thank you very much. 12.4 after the new shareback which I appreciate but I wonder if the commitment to distribute any excess above 12% is still valid and if we should expect more buybacks by the end of the year or the 12% is a target for 28 and if we should be done with the 6 billion for 26. Thank you.

Very good. Maybe I take the second question, and Luisa, if you want to talk about it with alcohol and so on. So we said it many times, multiple times before. Some of you were not expecting the share buyback announcement that we have done today, but it was very clear, and we have been very consistent in our communication all along. We don't like to work with excess capital. Our target is our target, 11.5 to 12. We take the upper end of that range as the key target, 12. So we have excess capital. When we have excess capital above 12... We will distribute it back to our shareholders. So as you say, it's going to be 1241 pro forma after the 2 billion that we are announcing today. And we are starting it right after because we are running as fast as we can. But we are also generating capital in the process. Despite the fact that we are growing very nicely, we are generating excess capital. And as a result, it's taking time. So the one that we started, the 2 billion that we are going to be starting on August the 5th, Thank you very much.

On the alcohol strategies, I think both in Mexico and Spain, the strategy has been defined already for quite a while, specifically in ensuring that we can anticipate upcoming maturities, taking advantage of the rates at the point in time, particularly in Mexico. The growth in the portfolio book, the Mexican ALCO book, stands at 19.1 billion euros. It's grown 4.1 billion euros year on year. Part of this is obviously due to the Mexican euro, the peso appreciation that you have to take into account. But I would say that most of the acquisitions that we've done reflect continuous purchases in anticipation of upcoming maturities and trying to lock in our rate sensitivity. Also to remind you, our rate sensitivity is still at 2.4%, 1.6% to the Mexican peso. And in this regard, I think this is a strategy that we have been trying to pursue, that locking that rate sensitivity. Just to also finally give you some details on the book, the duration is now 3.2. We have been extending durations as well. Remember that this, you know, a year ago was 2.6. So that has also... Thank you very much. Thank you very much. I think it's been also a strategy of trying to manage our interest rate sensitivity adequately. In this regard, maybe giving you a little bit more color on the sensitivity, we have around a 4% NII sensitivity. And I think I also want to add here that even though we state sensitivities as parallel movements to 100 basis points move of the yield curve, Thank you very much. So we have a sensitivity that is more exposed or more open in the short term, but we have those longer term bonds that allow us to hedge the overall sensitivity to that circa 4% number. And to finalize with the details on the ALCO book in Spain, you have the details I think also on the annex, but currently we've also been extending durations. Our duration stands at 3.5 with a yield of 3%.

Very good. Maybe I add a few quick things on top of this. So Paco, we don't Use ALCO as the alternative to what we do. We take our business as serving clients, okay? ALCO is not like an alternative, okay, so I now reduce my lending and I do that. No, you do as much as possible with clients, and then if you have additional excess liquidity for different reasons of managing and AI sensitivity, we use ALCO. But ALCO is not like a competing client for the thing. As we look into ALCO today, we like the slope that we see of the curve. We like the slope. But it's also a fallacy. And you might remember, we have been in this for so long, you might remember certain banks that have thought that slope was an amazing slope and they have bought so much paper with very long duration, which then hurt those businesses. You have seen examples of this in the U.S., in Europe, in many geographies. So although we like to slope, as Luisa mentioned, our effective duration is around three years, three and a half years, because we want to maintain that risk perspective even on the ALCO book. But in short, I want to give you two messages. Number one, we are focused on the client business. ALCO business is a separate business or a separate thing that we do for other purposes, but not as an alternative to our client business. Number two, we can increase the ALCO very quickly now because we like the slope, but we have to be also careful on the risk profile of those decisions which might come and hurt us. You never know what happens in the world. In three years, the inflation and the interest rate profile might be a very different one. So you have to be careful with those kind of decisions. And finally, on the topic of Mexico, because you said your cost of deposits is not coming down and as a result you are doing ALCO, again, they are not related at all. As much as possible, Thank you. Thank you very much. But you might have seen this. There were 38 licitaciones, the tenders, for renewable energy that were done in the second quarter. 38. The lending needs of these projects is basically going to come towards the end of this year or more likely 2027. But these projects, they are projects worth of 9.3 billion euros. It's a huge set of investments coming into the country finally, again triggered by the public dimension. The Plan Mexico, as the government calls it, has a lot of investment dimensions underneath, which gives us hope. And we are already seeing it. These 38 projects, for each one of them, We are engaging with the winners to help them in the financing because they are good projects powered by the PPAs, Power Purchase Agreements of the State Utility. So you will see better activity in the short to mid-term even, which is making us relatively positive. But more importantly, as we said before, the spread situation in our view is now going to be we have reached the bottom. In the sense of the interest rates, 650, 6.5. We do think it's not going to go down any further. Maybe some more, but we are at the bottom of the curve because inflation in Mexico is 4%. As a result, we are very rate sensitive, as you know, in Mexico. If rates do not come down, you would also see spreads picking up, which was the key driver of our strategic plan numbers in any case. So that's also positive. Activity positive. Spread positive. We are quite positive on Mexico in general. ALCO, when we have more liquidity to manage the NIA sensitivity as well, we use as an alternative mechanism, not as a replacement of the client business.

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

The next question comes from Ignacio Ulagui from BNP Paribas. Ignacio, your line is open. Please go ahead.

Thanks very much for the presentation and for taking my question and wishing all the best to Luisa and her new roles and challenges. I have two questions on my side. One is on capital. If you could help us to see a bit what should we expect in terms of organic capital generation in the second half and how SRT usage will perform in the second half to support that lending growth and activity growth that you were talking on? The second one is on Turkey, just trying to get a bit of a sense on how should we think about the Turkish leader spread and the evolution of an AI in the coming quarters after a bit of a bumpy first half. Thank you.

Thank you very much.

For the year, as you know, our guidance in the midterm plan is to do between 30 and 40 basis points a year. I think that with the plan that we have, we're going to be at the higher end of that range and above what we did last year, which was 35 basis points. So I think we're on track to deliver on that side as well.

And on the organic level, after the growth, after everything else, after SRTs, we guided or we told that we are aiming 30 to 40 basis points a year, creation of capital on top. Quarterly changes because the growth profile changes and so on, but that 30 to 40 is a very fair assumption to have going forward as well. Thank you very much. Thank you very much. Third quarter in July actually we executed one of them, is that that arbitrage that I talked to you about is even larger in the geographies of Mexico and Turkey and so on. The RWA densities that we have for geographies beyond Spain, beyond the rest of business. It is basically that arbitrage is a much larger opportunity. And in July, we finally executed the first Mexican transaction on the SME portfolio, which is going to help us even more, because the RW densities for those portfolios versus the amount, the value that we create from those transactions is going to be better. Then the Turkish lira spread, not sure, it depends on how the situation evolves. Thank you very much. Thank you very much. Thank you very much. But in the very short term, it's going to be very scarce, the number.

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

The next question comes from Sophie Petersens from Goldman Sachs. Sophie, please go ahead. Your line is open.

Yeah, hi. Here is Sophie from Goldman Sachs. Thanks a lot for taking my question. So my first question is on your medium-term target, the 48 billion. If I kind of take your 25 net income and the first half net income and then just assume the second quarter run rate going forward, I get slightly below 48 billion, so not far from your target. Could you maybe just discuss how we should think about the upside risk to your 48 billion target because that seems very, very easy for you to reach? So that would be my first question. And then my second question would be on M&A. You announced that you didn't share buyback, which was very good news today. But how do you think about M&A opportunities or is the focus purely on organic growth here? Thank you.

Thank you, Sophie. I'm being told that I'm being too slow or talking too much, so I'm going to speed up. So on the first one, the upside risk or the 48, the only thing I can tell you, because we are not revising that plan at the moment, the only thing I can tell you is for the first two years that we had in the plan, versus what we have already realized in the 18 months, we are doing better than, in the 48 number, we are doing better than what we originally planned. And on the second question, M&A topic, we are completely organic focused. You have followed the history, and so we are focused on organic growth, in short.

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

The next question comes from Cecilia Romero from Barclays. Cecilia, your line is open. Please go ahead.

Thank you very much for taking my questions. My first one is on Spain and my second one is in Mexico. Spain has continued to grow off the market in SMEs and mid-size corporates. What's driving those share gains and are those within any particular region in Spain? Is it primarily customer acquisition, deeper penetration of existing relationships, or a change in the competitive landscape? If this level of commercial momentum persists through the second half, do you see any upside risk to your long growth and Spain NII guidance of low to mid-single-digit growth this year? and also follow up to what was said before in regards to rate sensitivity. Obviously, customer spread was up quarter on quarter. Should we continue to see an improvement throughout the rest of the year on customer spread in Spain? And then my second question in Mexico, Nubank has recently received authorization to operate as a full bank in Mexico. Does that change anything on your assessment of the competitive landscape? Thank you.

Thank you, Cecilia. As always, very good questions. On Spain, it's mainly driven by two things. As I mentioned also before for other segments, new customers, customer franchise growth. In SMEs, we have been in the last two years the number one new account opener for that segment. We obviously measure this only through surveys and so on, but customer acquisition is Market share that we have is around 20%, much higher than anyone else. So we are number one in new customer acquisition in SMEs. And the same for enterprises. We are after new customer acquisition, and we are growing our customer franchise in a very nice way. And the second thing on this is the transactionality topic. Again, I mentioned it before, acquiring the POS terminals that we have and so on, cash management platforms. We are investing so much in all of them. Thank you very much. for that trend to continue and we maintain our strength in terms of growth in those segments. Customer spread, how is it going to evolve? It's going to be improving in the coming quarters. We do think we have reached the bottom. If the interest rate situation develops as we expect, we are going to be improving every single quarter from now on on the customer spread in Spain. In Mexico, there are newcomers, there have been newcomers, there are Like really relatively sizable fintechs and so on. There are more than 60 of them now. So the newcomers, we respect them all. They're amazing competitors, really. And we watch them very closely. But no, we are not particularly worried. I showed you in the presentation today, and there's a footnote on that market share presentation, that, for example, in credit cards, which the fintechs are very active in Mexico, Despite the fact that they are very active, and some of them, one of them now has 3.6% market share, despite very heavy market share gains, relatively large market share gains for some of them, we have increased our market share in that same period. So we will compete. We will compete really nice.

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

The next question comes from Marina Kira from Jefferies. Marina, your line is open. Please go ahead.

Good morning, thank you very much for taking my questions and all the best to you Luisa in the future. I just had one on Mexico loan growth and we've noted your upgraded guidance but I was wondering if you could give us a bit of a color in terms of your expectations by segment. I guess based on your previous comments you would expect corporate loans to accelerate in the second half of the year but what is the dynamics that you see for retail loans? And then secondly a clarification on Turkey. I was wondering if you could formalize a bit your expectations for net income in Turkey this year. Previously, we were talking about the downward bias to the 1 billion euros. And then also, is it still the case that you expect to exit hyperinflation accounting by 2028 or is that more of a 2029 story now? Thank you.

Luisa, do you want to take Mexico? Long growth?

Yes, well I think here what we expect first of all is for the system to maintain a growth for the year that's similar to the one that we've seen in the first half. It's true that we expect the system a slight deceleration on the retail portfolios and the consumer lending, but we do expect in the system a higher growth in terms of activity on the wholesale side. In our case, I think that we've mentioned also, and Onur has mentioned it in this call, that we maintain focus in the areas of opportunity and where we see more value. We have been actually growing market share in most of the customer segments, but as you know, our specific focus is in SMEs and we will continue to build our franchise there and also in the credit card and consumer loan portfolios where we do see the potential for continued positive growth. In general, I think also we are expecting to see the impact in the second half of the year of the Plan Mexico. It's unclear whether the dynamics will be accelerating towards the third or fourth quarter, but definitely we have strong corporate pipelines that we expect to be delivered also as well. So I think the dynamics are very supportive to that guidance upgrade that we gave in the call today.

And Miruna, on Turkey, first of all, on the topic of the guidance and so on, we don't have an NII guidance that we provide to the market because it's very tough to forecast, as we just discussed. Depends a lot on the rates and the macro situation. But as you know, last quarter, we have given the guidance of around 1 billion with a downward bias. In the first six months of the year, as you see in the presentation, we have done 532. So this implies that in the second half it might be lower than what we have delivered in the first half. But again, it depends a bit on the rate situation and whether the central bank takes down rates and how it evolves and so on. But so far, in the first six months, we are doing better than what we thought we would do. Thank you very much. Thank you very much. Thank you very much. and you do see it in the numbers that we provide in the presentation also in the appendix the hyperinflationary accounting basically is inflation times net monetary position which is a negative number directly correlated to inflation but you are compensating this with the inflation linked bonds that you have which is again a direct multiplication of the inflation rate what does that by the way the CPI linker revenue is taxed But the cost of net monetary position is not taxed. You cannot deduct it from tax, basically. So there is a tax component on those two items. But why I told you this? Because the numbers of the hyperinflationary accounting is a direct multiplication of inflation. So independent of the fact that Turkey gets out or not of hyperinflationary accounting, if Turkey reduces inflation to a lower level, Thank you very much. We are committed with the 48 billion that Sophie was asking, independent of whether there is hyperinflation or not.

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

The next question comes from Hugo Cruz from KBW. Hugo, your line is open. Please go ahead.

Hi, thank you. I just have one more question, and it's high level. So you're launching agents at scale. Thank you, Hugo, for the question.

The answer is we don't know. It's a new, still new, still new development. We will give some more update on this in October when we have the strategic talks, but the real impact, quantitative impact, it's too early to put on the table.

Thank you, Hugo. Next question, please.

The next question comes from Carlos Peixoto from CaixaBank. Carlos, your line is open. Please go ahead.

Yes. Hi. Good morning. Just a quick one from my side on the Spanish NII. So we're seeing NII up for 4%. Thank you very much. to catch up with volumes growth in looking into 2027. Should we expect an AI evolution more aligned with that of loan growth? Thank you very much.

Carlos, you made that comparison, so let me do it very quickly. So 4.1 is the growth in net interest income when the loan balances, they have grown 7.4. So why is it not at the same level as the activity growth? It goes back to the average spreads. So last year, first half, This year, first half, when you look into the average spread, obviously it's much lower in this first half. That thing will disappear over time, but still the average spread is what we need to look into. The second half obviously would be much better. It might be even better in the average spread for the second half only. But year over year, still it's going to be lower. So when next year we start, that average spread notion will disappear if rates develop as we forecast at the moment.

Thank you, Carlos. Next question, please.

Next question comes from Andrea Filtri from Mediabanker. Andrea, your line is open. Please go ahead.

Starting from thank you to Luisa for the work done together and good luck. I've got two questions. The first is in regulation. It looks like something is moving in Brussels on the regulatory framework after the recent publication from the European Commission. Are you seeing that and are you hopeful of any improvement coming up for you? The second is on your share buyback. It is a welcome news at the same time it is dilutive to group ROT which is very high. Do you consider the hurdle for external growth very high at this stage? Thank you.

Thank you, Andrea, for the questions. Are we hopeful on the improvements on the regulatory side? We are. This latest competitiveness report also is a step in the right direction, talking about simplification in terms of reporting requirements or the additional workload that we all have, the need for the simplification on that one, talking about single market and the fact that the consumer compliance standards Thank you very much. In action and in reality, that's the only thing I can tell you. But intentions are clearly being raised and we are quite happy about those positive intentions. About the hurdle rate for growth and also share buyback and so on. The hurdle rate for growth is cost of equity. Because we are in very different geographies, in very different segments, we want to make sure that we use the cost of equity as the benchmark. And as long as, and we call it EVA in bank, economic value added, as long as you are delivering value above your cost of equity in that respective business that you are doing, you are free to do that business, obviously. And to be able to get a better return, a positive EVA, again, the focus on scale and the focus on transactionality. If you have those, you get that return.

Thank you, Onur and Andrea. Next question, please.

The next question comes from Boyar Ramirez from Citi. Boyar, your line is open. Please go ahead.

Hello. Good morning. Thank you very much for taking my questions. I have one on the digital banks. So I can see you have a strong growth in the deposit volumes year over year. So I think, I guess that's... A cheap funding source for the groups. I would like to ask what are your plans for deposit growth in this area, please?

Thank you. Thank you, Borja. The digital banks, again, you see it in the rest of business chart. We are 11.9 billion euros deposits in two franchises that we have, which is Italy and Germany. You asked about the growth. The growth is there also because of the fact that we started in Germany exactly June last year. So it's a new franchise, and in the first year, you get a lot of deposits. and then you lose some of them because they are typically promotional deposits and some of them disappears after the period of 9 months, 1 year, 15 months and so on because we reduce the rates on those deposit areas. But what are our plans you are saying? I don't know in which dimension you are asking but if you are asking from a strategic dimension Thank you very much. Game plan, our strategy in digital banks is to be a universal bank in wherever we are. If you look into Italy, for example, if you want to buy your mortgage, you can get it from us. If you want to get a consumer loan, you can get it from us. Insurance, from us. We are not focused only on deposits, but given the fact that deposits are the first entry to customer franchise, you see that the number for the deposits to be that high, 12 billion for the two franchises that we have.

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

The next question comes from Britta Schmidt from Autonomous Research. Britta, your line is open. Please go ahead.

Yeah, good morning. Thank you for taking my questions. Firstly, I'm sad to see Luis early for all, but I wish you all the best. A question on Spanish costs, please. The underlying cost goes, it's not 5% slightly up versus the 4.8%. In Q1 year-on-year, is that also the year-on-year growth rate underlying that we should expect for 2026? And are there any more tax rebates to be expected either in 2026 or 2027? And then please correct me if I'm wrong, but if I take the VOTI 12-month trailing, which was 22% in the first half, the 21% guidance implies around 5.5 billion of profit in the second half, slightly down on the first half. If that is correct, could you just comment briefly on some of the main drivers here? I think you mentioned Turkey. Should we expect some cross-seasonality? So any comment appreciated. Thank you.

Very good. Maybe I start with the second one and on the first one on the costs. Luisa, you helped me out. On the return on tangible equity, Brita, we say around 21%. It depends on your imagination of what that means. So we are expecting slightly lower in the second half profits maybe, but it's going to be, again, 21%, around 21%. Also because of the fact that it depends a bit also on the denominator and equity and how fast we do the share buybacks and so on. But it's around 21. It doesn't imply that the second half would be much lower than the first. It might be slightly lower because of Turkey mainly, but overall we expect still a very good second half. On the costs...

Yes. On the cost side, as you mentioned, that 5.3% year-on-year growth rate, excluding extraordinary items in the first half, is aligned with our guidance for the year, which we maintain, which is mid-to-high single-digit growth in expenses. We maintain our guidance of an efficiency that is below 35% with the current rate being at 33.6%. So I think very much in line with our expectations here. Just to mention and also clarify that as with the rest of the group we are and continue to invest in Spain as well. Thank you very much.

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

Next question comes from Ignacio Cerezo from UBS. Ignacio, your line is open. Please go ahead.

Yeah, hi, good morning, and thank you for taking my questions. The first one is on Colombia and Peru. I mean, pretty strong results, actually, in the second quarter again. So just basically some color on whether you think the contribution in the first half is sustainable for the second half and what is driving, basically, the improvement in both countries. And then the second one, sorry for the small detail on the CIB business. Can I ask if you're seeing differences in terms of the growth within the three main regions, Europe, U.S., or Asia, or the three of them are growing more or less at the same pace? Thank you.

On Colombia and Peru, Nacho, thank you for the questions. On Colombia and Peru, you see it on the South America chapter, basically. There are two factors, I would say. Number one is the currency. By the way, in current euros, it helps us, especially in the Colombian case. We have seen 12%, 13% appreciation of Colombian peso in the last decade. Thanks for watching! You would see that Colombia long growth is around 8.3%. Peru long growth is around 9.7%. So there's, again, very nice activity also in those geographies, which then translates into... And in the case of Peru, we are rate sensitive. Thank you very much. CIV, the three regions, the three you are asking, I guess, the non-footprint regions of U.S., Asia, and Europe. As you can see, again, on the page of Resto Business, U.S. and Asia, they are growing higher than Europe. Mainly for the fact of the base, because in Europe we are much more penetrated. That was the first area that we have extended to in the past. And U.S. and Asia is relatively, I would say we have been there for decades now, for more than many years also. But the penetration to clients and the size of the markets, it's a bit different. So because of the base effect, you see a bit more higher growth, but not because of the market, more because of our own franchise.

I would also like to add on the question of Colombia and Argentina to the two elements that Onur mentioned I would also add to that the asset quality trends that we're seeing which have improved significantly as you know we saw these trends peak already over a year ago and I think these quality trends continue to improve the underlying asset quality is supportive as well so I think that also embeds the positivity into the guidance

and the CAB Business Breakdown Group.

I mentioned that now there are three of them.

So thank you very much, Onur. Thank you, Luisa. It's been a real pleasure for me working close to you over the last year. Thank you, all of you, for joining today's call. And as always, the IR team is at your disposal for any further questions or clarifications. Thank you again and have a wonderful summer break.