If you isolate for that, 3.27 becomes 3.11, and that 3.11 versus 296 basis points that we had in the previous year is basically the mixed effect. If you look into the growth of the different Carteras, different loan buckets, it’s mainly driven by the mix and the fact that we are growing much more in the high RORC, high capital return, but high cost of risk lending buckets. So, we are actually quite happy with what we are seeing in the cost of risk situation in Mexico. Then you ask about the coverage of the P&L. 60% of the P&L, 60% is already covered for this year.
Patricia Bueno Olalla : Thank you, Marta. Next question, please.
Operator: Thank you. The next question goes to Antonio Reale of Bank of America. Antonio, please go ahead. Your line is open.
Antonio Reale : Good morning. It’s Antonio from Bank of America. I have two questions, please. The first one is a follow-up on your outlook for NII growth in Spain. You guided to double-digit growth in NII this year, which is remarkable. You’ve talked about better 2025 trends for the group. Can you maybe just directionally tell us how you would expect NII in Spain to perform in 2025? That’s my first question. My second question is about efficiency, and of course, partly related to the first. Efficiency ratio remains within your guided range for the year, below 42%. You’ve a strong track record in maintaining positive jaws, while you continue to invest in your IT digital infrastructure. Now, the market, at least when I look at consensus numbers, doesn’t believe you can sustain this also in 2025. Can you talk about your expectations for operating jaws next year, and maybe remind us of the mitigates you have. Should growth be slower than you expect? Thank you.
Onur Genç: Thank you, Antonio, for the question. I said something about 2025, and now you are trying to get the jaws, guidance, and this and that for all the. Let me start for the first one, 2025, really in our planning, when we look into it, and we are not providing guidance today, obviously it’s too early. But when we look into our planning, given the huge gap, relatively large gap, let’s not say huge, but relatively large gap, as I am telling you, we are expecting double-digit growth for the group in 2024 for net attributable profit. That’s our guidance, that’s our outlook, because we never provide guidance in that detail, but that’s our outlook for 2024. We are also telling you that in 2025, our planning tells us that we will have even a better year in terms of net attributable profit.
In terms of the breakdown of this by countries, we see relatively flat, slight decline or relatively flat in Spain at the bottom line level. Obviously we will be hurt from the rate declines that will be coming along, but we do think that given the strength that we also see in the underlying loan production dynamics, the loan growth might be coming in a bit, and the asset quality has been relatively high for Spain, for our business in Spain in the last year or two, and there might be some positive dynamics coming along there. I would also highlight that our fee income, quarter after quarter, at least, both in asset management, which is very core for us, in insurance and in the payments businesses has been positively surprising us. All combined, at the moment perspective for Spain would be relatively flattish, slight decline or relatively flattish bottom line.
Then in all the other geographies, it’s very tough to judge, obviously, Turkey and South America this early. We do see some positive dynamics, so 2025 will be better in our view in those geographies, and more importantly, and in our view most importantly, in Mexico, mainly driven by the loan growth, and we did share some ideas on why we think Mexico loan book will continue to grow in a healthy way. Mexico will do even better in 2005 versus 2004. So when you sum up all the components, it tells us that the bottom line for the group will be better in 2025 versus 2024. Regarding the jaws, let’s not get into it, again, this early in the cycle, but to be able to deliver what I just said, the jaws situation would not be as bad as you see in the consensus.
Patricia Bueno Olalla : Thank you, Antonio. Next question, please.
Operator: Thank you. The next question goes to Sofie Peterzens of J.P. Morgan. Sofie, please go ahead. Your line is open.
Sofie Peterzens : Yes, hi. Here is Sofie from J.P. Morgan. Thanks for taking my question. So you are guiding for double-digit net interest income growth in Spain. Could you just elaborate what your underlying assumptions are, kind of in terms of what rates that you have assumed, what deposit beta you’re expecting, where the deposit beta currently is, and I guess the volume of the remains unchanged flat, but if you could elaborate on this. Then a very short second question, kind of the countercyclical buffer in Spain, what are your thoughts here? Thank you.
Onur Genç: Double-digit NII growth for Spain. Luisa, do you want to take it?
Luisa Gómez Bravo: Yes. Well, as we mentioned during the presentation, the activity dynamics are quite positive. We have a guidance, maintained the guidance of flattish growth for the year, but as Onur mentioned before, we do have a positive bias. We’re seeing, as we mentioned, mortgages pretty stable already in the third quarter in a row. Pre-payments are coming down around 23% year-on-year, 11% quarter-on-quarter, and we’re making a lot of effort in the new loan origination, which is growing year-on-year, 4%, very solid dynamics, I would say across all the different segments, especially in those that interest us more from a profitability outlook. But, I would say that the main driver of the increase in the guidance has been really the price management, especially on the deposit side.
We are expecting now a lower migration of sight deposits to term deposits. Term deposits increased their weight from 13% to 15% in the quarter. This is a slower trend than the one that we had forecasted, and the cost of deposits have also been quite contained at 91 basis points in the quarter. We think probably going forward, cost of deposits are going to be at around these levels. We’re seeing new term deposits coming down at lower prices than we had at the beginning of the year. Overall, we are now looking at a beta that instead of being around between 25% and 30%, which is what we mentioned in our results presentation back in February, we’re seeing those betas now at below 25% as the first quarter beta has ended up being around 20%, very similar to the one that we had in the end of last year.
These are primarily the dynamics. Also, I would add that when we had given our guidance of mid-single digit growth this year, we were expecting Euribor 12-month average numbers at 3%. We are seeing now implicit in this guidance, Euribor 12-month average rates at around 3.35%. So that is also supporting the double-digit NII growth for the year.
Onur Genç: I mean, the BBVA Research still estimates the average Euribor 12-months to be 3.55%, but in the numbers that we are giving you today, the double-digit growth NII in Spain, it assumes as Luisa says 3.35%. Let’s see where we end up. Then the second question on countercyclical buffer. Sofie, technically speaking, technically speaking there should not be a countercyclical buffer in Spain. Everyone says, well, all the other geographies has it and so on. No, no, technically speaking, it’s about credit to GDP gap and whether credit is growing and so on. Given the fact that Spain has been deleveraging for so many years and still, I mean, we are showing a positive growth ourselves in the quarter, but the system is still deleveraging.
So we are gaining market share. That’s why we are positive. In this context, again, technically speaking, there should not be an increase in countercyclical buffer, but we are dependent on others and we respect, obviously, the decisions of our others, especially our supervisors and so on. If it happens, 100 basis points increase in the countercyclical buffer has a 32 basis points implication in the group CET1 requirement, 32. But given the fact that we do have this extensive buffer versus our requirement, we do not plan to increase our management reference if such a situation realizes.
Patricia Bueno Olalla : Thank you, Sofie. Next question, please.
Operator: Thank you. The next question goes to Alvaro Serrano of Morgan Stanley. Alvaro, please go ahead. Your line is open.
Alvaro Serrano : Good morning. I’ve got a couple of follow-up questions on NII. In Mexico, first, your guidance, if I remember correctly, was high single digit NII growth, which given the growth in Mexican pesos that I can see, implies a significant acceleration in the next few quarters. Is that correct? Could you maybe elaborate on what you expect on the next few quarters that’s different from Q1? In Spain, just to follow up, Luisa, from the detail you’ve given, on the loan yields, they’re up 7 basis points in the quarter. How much more sort of repricing from the mortgage book is left, or is that increase more driven by business mix? Just maybe a bit of color on that. Thank you.
Onur Genç: Let me take Mexico and then you follow up on Spain, Luisa. On Mexico, our guidance at the loan growth was double digit. We still maintain that. NII, to grow at high single digit, slightly below activity growth. That was the guidance that we have given to you at the end of the year, at the end of 2023, and we still maintain that. But what is the catch, or what do we see? Once again, we do think that the loan growth will be happening at double digit in Mexico. In the first quarter, quarter-over-quarter numbers are not leading into that. Year-over-year number is again 8.8, and the year-over-year number, when you adjust for Mexican peso appreciation, when you adjust for the divisa, the currency, it’s again 8.8 becomes 10.
So year-over-year we are there, but quarterly, quarter-over-quarter figure is not that strong to take us to that double digit. Once again, I highlight a few things. First quarter is traditionally seasonal. In this first quarter, the Easter was in March, unlike before, which it was in April and so on. It did have an impact. When we look in — and then there are elections, which is not creating a major dent, but there is that topic in June the 2nd, there are elections, as you know, in Mexico. The level of rates, we see very strong pipelines, actually in Mexico, very strong pipelines. But it did take some of that pipeline to be realized. Given the strength of the pipelines, given again, what we have seen in the past and the seasonality of the first quarter, we still maintain loan growth at double digit.
Then how come the NII still, we keep the guidance at high single digit growth in the NII for Mexico. Then we look into the spreads. Then we look into the NIMs, actually. NIM is even more important because we have been investing in making sure that we lock in the high rates. So, if you look into the NIM, the margin NIM we see basically flat, five to 10 basis points, a slight decline or flat in the NIM. As a result, NIM margin, the NIMS spread, as a result, that guidance still maintained. On Spain?
Luisa Gómez Bravo: Yes, well, in terms of the loan yields, actually, we don’t expect further major repricing of the loan books as rates will start to come down. So, we probably have seen the peak in that regard. In that sense, we probably have seen also the peak in terms of — in the customer spread. There could be, as a matter of fact, a certain mix effect as we grow more in the higher yielding loan books. But obviously, the weight of our book in terms of mortgages, etc., means that I think that that mix effect, is not going to be very, very material going forward.
Onur Genç: And I would focus once again on the NIM. The decline that we expect from here to the end of the year is less than 10 basis points. Given the fact that we have been locking in the sensitivity, the high rates, the NIM impact would be much lower. So, double digit, because the activity growth is relatively good, and then the spreads and the impact on the NIM is relatively capped.
Luisa Gómez Bravo: I would also add, because nobody is asking, but on the ALCO, we have, as you know, been locking in our rate sensitivity, and right now our sensitivity is still at around 5%. It’s true that we manage this in a quite dynamic basis based on the rate outlook that we may have. But we see obviously the ALCO contributing, just like as we said earlier, in a positive fashion to supporting the NII this year. We do see with the current rate situation that there could be opportunities to increasing the size of the ALCO going forward if we see attractive rate levels. Therefore we will also try and maintain the rate sensitivity at these levels, considering the higher for longer rate environment and the rate environment coming down towards the second half of the year.
Patricia Bueno Olalla : Thank you, Alvaro. Next question, please.
Operator: Thank you. The next question goes to Ignacio Ulargui of BNP Paribas Exane. Ignacio, please go ahead. Your line is open.
Ignacio Ulargui : Thanks very much. Thanks for taking my questions. I just have one question. Looking to Turkey, if you could provide a bit of color on the evolution of the Turkey’s NII, and how do we expect the customer spread evolving from here? And also if you could also help us to understand a bit better on the evolution of fees going forward, given the strong performance we have seen in the past quarters. Thank you.
Onur Genç: Thank you, Ignacio. We still expect spreads to be negative in the second quarter, but we do clearly expect that in the second half of the year, third and fourth quarter, that spread will be coming back to positive, as long as, again, the country continues on its path. We are actually quite positive on what we are seeing in Turkey for the coming quarters, and especially for the second half. You have highlighted it, fee income is coming very strong, and the trading income. The trading income here is not, it’s really the customer franchise business. The trading income that you see for Turkey is basically buy and sell of dollar and euro, which is a main activity of the, especially the retail franchise, retail banking franchise, which is very consistent and very stable.
Those two line items will be very strong, and NII will come back up, in our view, in the second half. As a result, again, we do have a positive bias also on what we have guided you for Turkish bottom line, which is going to be repeating 2023. But after hyperinflationary account, after accounting for everything, we do have a positive bias on that number as well.
Patricia Bueno Olalla : Thank you, Ignacio. Next question, please.
Operator: Thank you. The next question goes to Britta Schmidt of Autonomous Research. Britta, please go ahead. Your line is open.
Britta Schmidt : Yeah, thanks for taking my question. Two fairly quick ones. Could you perhaps comment on the Mexican rate outlook? What have you included for 2024 in your guidance? And what do you expect for 2025, given forwards have moved? And then secondly, just briefly on the profit guidance, double digit growth year-on-year after what would have been EUR 2.5 billion Q1 and the banking tax with the run rate then falling to, let’s say, EUR 2.2 billion, while you’re guiding to a better second half in many geographies. What are the main drivers that you see for that quarterly run rate to change in the second half? Thank you.
Onur Genç: On the 2024, the underlying assumption for the NII in Mexico is the TA, which is the core rate, as you know, in Mexico. We are assuming an average 10% rate for that one. But in terms of the Central Bank rate, the BBVA Research at the moment is assuming 9.25% at the end of the year and 7.25% at the end of 2025. They do have this, again, higher bias on these numbers. Probably it will be higher than these. But at the moment, BBVA Research estimates these figures. Beyond that, though, in our own NII calculation for this year, we are assuming, again, 10% average, 10% average TA. Regarding your second question, are we assuming a decline in the quarterly run rate of the profits, as I understand is the question, the answer is no, we are not assuming that.
We are guiding double-digit growth in total net attributable profit for the year. If you remember, last year was 8 billion. At least 10% means 8.8 billion. We are saying double-digit. We are not precising what that perspective, what that number is. But we are quite positive on the coming quarters. So double-digit is double-digit, Britta. We are not precising what exactly is double-digit.
Patricia Bueno Olalla : Thank you, Britta. Next question, please.
Operator: The next question goes to Andrea Filtri of Mediobanca. Andrea, please go ahead, your line is open.
Andrea Filtri : Thank you. First question on trading results in Q1. If you could specify how much is from the FX hedges contribution. Second question is on your expectations on risk-weighted asset growth going forward, given the high print this quarter and your increased loan growth guidance. Finally, if you could just elaborate on your expectations and on your assumptions on the NII trajectory in Spain in 2025, given that you have given so much indications on the net profit. Thank you.
Onur Genç: Again, we don’t provide detailed guidance for 2025, but maybe you take, Luisa, the NII trajectory in Spain for 2025. On the first two, the trading results, we actually have in the holding, in the holding, minus EUR 265 million of negative results in NTI. Why is that? Because it’s Mexican peso appreciation. Given the fact that Mexican peso is appreciated, the hedges deliver negative results. Also, we do have other currencies there as well, but it’s mainly Mexican peso. The total is minus EUR 265 million recorded under holding in NTI. Risk-weighted assets, the question on this one, I couldn’t get the full question, but are we expecting risk-weighted assets to grow or?
Luisa Gómez Bravo: Or is it aligned with loan growth?
Onur Genç: In terms of the capital consumption. The 43 basis points that you see in terms of the capital consumption for RWA growth, it’s relatively on the high side, but it’s good that we have that. Because if we have that, as long as it’s profitable, and we clearly make sure that it is profitable, we do deliver better returns in the coming quarters. That 43 basis points was relatively high. If you look into the previous quarters, it’s around 35, 30, 35, 35 to 40, but not passing 40. So maybe there’s some slight decline in that in the coming quarters, but RWA growth will continue. There is an appendix page in the presentation that we share with all of you when you look into where the RWA growth is coming along. It’s page 50, you do see that year over year, the RWA growth is coming from Mexico, 25% increase in RWAs. We love it, we do have 27% return on equity in Mexico.
If you put more capital into a geography where you are delivering that return, again, it’s going to ensure that you’ll continue to deliver great results going forward. Then NII trajectory in 2025 for Spain? We don’t do details.
Luisa Gómez Bravo: Well we don’t give guidance in Spain, but we’ll see. I mean, it depends obviously on the rate environment. If the rates come down as we are expecting them to come down, I think we’re managing, we’re incorporating 75 basis points or three — decreases in the ECB rates this year. We’ll see what the outlook is on activity. Maybe, it will start to be better next year. I would say that, again, depending on how we see the rates and the sensitivity that we have, if we maintain it at around 5%, that will have a negative or a slightly negative impact in NII. But, I think we have management levers as well. We’ve seen those management levers in action this quarter in terms of how we manage pricing, especially on the deposit side. And we’ll see how those dynamics play out going forward into next year. But I think we have levers to compensate, just the pure sensitivity that we have to interest rates in our P&L.
Onur Genç: The baseline scenario that BBVA Research has, known Luisa, is three cuts this year, 25 basis points each, and four in 2025. We have been sharing this very openly with you for many quarters, but especially we have been talking about it in the last maybe three, four quarters. The NII sensitivity of Spain is 5%. So 100 basis points, step function decline, step function decline, 100 basis points, implies a 5% decline in NII. And as Luisa mentioned, we might be doing in the second quarter a bit more actions to manage that a bit lower, given where the rates are. But let’s assume the 5% is the number. If that 5% is the number, we have EUR 6 billion of NII in Spain, roughly speaking, know? EUR 6 billion. 5% or EUR 6 billion, this is again 100 basis points, step function, but let’s go with that number.
It’s EUR 300 million impact just because of the spread. EUR 300 million, we do believe, we do have the levers to compensate for this in the revenue line. That’s why we are saying that relatively flat or slight decline for Spain in the coming year. But we will talk more about that in the coming quarters. Don’t push us into 2025 this early. The only reason that we have given 2025 to you is that we are seeing, again, relatively large gap between what we see and what we are expecting for the coming year versus what the consensus is. We are struggling to understand the difference. That’s why we have given you the overall guidance, but that’s not – let’s go quarter-by-quarter. We will be updating you along the quarters.
Luisa Gómez Bravo: It’s outlook, not guidance.
Onur Genç: It’s outlook, not guidance. Very good.
Patricia Bueno Olalla : Thank you, Andrea. Next question, please.
Operator: Thank you. The next question goes to Carlos Peixoto of CaixaBank. Carlos, please go ahead. Your line is open.
Carlos Peixoto : Hi, good morning. Thank you for taking my call, my question, sorry. So actually, most of them have already been answered, but I wanted to discuss a bit on the fee income outlook, particularly in Spain, but also in Mexico. In Spain, you had guidance towards slight growth in 2024, looking at the first Q, you actually are up 6% year-on-year, and so basically, I wanted to understand here whether do you see this level as being a sort of a one-off and expect it to come down throughout the year, or should this actually be recurrent going forward? And therefore, you expect to beat the fee income guidance that you’re providing. And also in Mexico, if you could give us some color as well on how do you see fees evolving throughout the year? That would be great. Thank you.
