Onur Genç: Carlos, thank you for the question. I don’t know what I was going to ask it, and I thought it would have been a waste, but fee income is really one of the, in our view, strong points of this quarter. We do think that the best thing about the fee income, in our view, it’s more stable and consistent and so on. I’m looking into the key line items of the fee income. In Spain, asset management, year-over-year, is up 10%, 10%. Insurance, which we are pushing really hard, is up 18%, actually, no, 17.4% to be specific. So, we are seeing some clear push in Spain on the fee income. Mexico, asset management, and we have been discussing about the movement of deposits and so on. But we like this, we want this, we want to make sure that especially high income, private banking, affluent customers have some of their money in mutual funds that we manage for them, which is better for them, which is better for us.
Asset management in Mexico, and now its quarterly number is EUR 105 million. It’s up 30% year-over-year, 30%. Payment services, which is very important for us in Mexico, as you know. The cards and POS is up 22% year-over-year. You know the situation in Turkey. We are over proportionally better represented in the payments businesses in general, but also in Turkey, and also in Turkey, it’s up significantly, which drives the results of Turkey. To cut the long story short, in our view, these trends, and given the numbers that I quoted to you, they are very positive, and it will be making sure that the consistency of the results will be there for the coming year as well.
Patricia Bueno Olalla : Thank you, Carlos. Next question, please.
Operator: Thank you. The next question goes to Chris Hallam of Goldman Sachs. Chris, please go ahead, your line is open.
Chris Hallam : Thank you for taking my question. It’s just two on Mexico, two quick ones. So lots of color earlier on deposits. Thank you for that. But just thinking, is there a sort of a flaw in the loan to deposit ratio in terms of how far below 100% you’d be comfortable operating out in Mexico? I.e., is there any sort of risk that we’re approaching a point at which some of the opportunities you see on the asset side aren’t fully realizable due to funding constraints? And then second, on the peso, we saw a big move overnight a couple of weeks ago. I guess, first of all, does that have any distinct impact on the hedges you have in place there, when I think about net trading income for the second quarter. And then more medium term, does that general volatility change at all how you think about hedging out the FX risk? I think you’re currently around 60% hedged on Euro-Mex. So just any update there would be helpful.
Onur Genç: So, on the first one, the loan-to-deposit ratio in Mexico is at the moment 99%, and as I mentioned at the beginning of the call, it’s purely in the quarter we have chosen to fund ourselves on the wholesale side from the market rather than from the clients. If you want, we can, as we have done in the fourth quarter, when you look into the fourth quarter numbers, you would have seen that. We can do that from wholesale customers as well in terms of wholesale deposits. So we are far away from where you would feel uncomfortable with loan-to-deposit ratio. Given the strength of the franchise that we have in Mexico, we can manage this ratio basically, basically, Chris. In the second topic on the hedges, I think it was the hedges question.
The line is not so good today, but if it’s the hedges question, 60% is what we have currently at the moment. Do we have a clear strategy around this? Obviously, we do change this percentage from year-to-year a bit depending on the cost of carry. And the cost of carry would be coming down, for example, in Mexico. We do still have 60%, although it’s relatively high carry. We keep the 60% on the P&L. And by the way, we also hedge 64% of capital in Mexico because we did think that there might be some devaluation of the currency this year. That’s why we are relatively over-hedged. But independent of the levels, we do adjust some of the cost of carry. But we will maintain more or less these levels because we do think it’s not only, it’s a risk management tool for us.
We keep these hedging, we will keep these hedging levels going forward, although there might be some fine tunings around it, let me say it that way.
Patricia Bueno Olalla : Thank you, Chris. Next question, please.
Operator: Thank you. The next question goes to Ignacio Cerezo of UBS. Ignacio, please go ahead, your line is open.
Ignacio Cerezo : Hi, good morning. I’ve got two quick follow-ups. One is on the deposit competition in Mexico. If you can you give us a little bit of color on the overlap in terms of the pipeline, the Fintech’s are capturing versus your natural client base, if there is a significant degree of overlap there or not? And then on the profit outlook, as you said on 2025, I mean is it logical to expect for you basically to expect that a hyperinflation and FX headwinds in Turkey are coming down quite quickly for next year? Is that embedded basically in the guidance? Thank you.
Onur Genç: Thank you, Nacho, for the questions. We mentioned it before, but once again, we did gain market share in retail demand deposits in Mexico in the year, year-over-year, February-versus-February. The latest announced market number is February. We gained 17 basis points market share in retail demand deposits. This is the area where Fintech’s compete. Are they creating a dent? Obviously, they are. I mean, at the end of the year, they have not announced their, we don’t know their latest results, but at the end of the year, some dent has happened. But that dent is not happening on us, given the market share number. And why is that? Because we are really a great bank in Mexico. We keep saying this every quarter, and obviously, we are a bit subjective on this, but it’s a wonderful bank that we have.
We have 44% market share in payrolls. Once again, 44% of the amount of nominees, of the salaries that are paid by employers in Mexico goes through BBVA. That flow is there, and that flow protects us. We are gaining one, in the quarters, in the first quarter of 2024, we gained 1.2 million new customers in Mexico. 1.2 million, 85% of these customers we acquired through digital means. If you are looking for a Fintech in Mexico, we are, if Fintech implies better valuations and sexy names, we are one of those. 1.2 million new customers in Mexico in the first quarter. Last year, we gained more than 5 million new customers in Mexico, again, mainly through digital channels. In the context of who we are and what we do in Mexico, and in the context of market share gains in retail demand deposits, we respect them all, we respect them tremendously, but we are competing really well, in short.
Regarding Turkey, the signals are very positive, Nacho. The signals are very positive. What is the watch? What is the key metric to watch, to see that Turkey is evolving in the right direction? It’s the inflation figure. As you know, in January, it was more than 6%. In February, it was more than 4%. In March, it was 3.1%. In April, we are expecting around these levels, around 3%. Turkey seems to be doing the things that they need to do, and we passed a very important election. After the elections, the key messages of the government have been orthodoxy, our key focus, our key priority, our number one priority. This is coming from the President even himself, saying that it’s inflation. As long as the country continues on its path to reduce inflation, and on this path of orthodoxy, we are quite positive.
We are being asked this impact of hyperinflationary accounting on this. Hyperinflationary accounting will not disappear in our view, at least until 2027. Because the rule there, as you know, is the three-year cumulative inflation should be less than 100% to take you out of hyperinflation, and it probably will not happen until 2027. But, what matters is not hyperinflationary accounting, this and that. If inflation is contained, even though you apply hyperinflationary accounting, your P&L suddenly flourishes. Your P&L is not hit from the inflation impact. So, independent of the accounting standard, if the country keeps inflation under control, we will see much better figures coming from Turkey. This year, our expectation, BBVA Research expectation, is 45% inflation, which is going to be much better than the 65% of 2023.
Next year, the government says around 15%,16% our team, probably it’s going to be around 20%. And the year after, the government is putting a plan in place to say it’s going to be single-digit inflation. If that path is relatively maintained, maybe there are some changes or there’s a band around these figures and so on. But, if more or less this path is delivered, you will see very positive numbers coming from Turkey, from Guarantee BBVA to the BBVA consolidated figures.
Patricia Bueno Olalla: Thank you, Ignacio. Next question, please.
Operator: Thank you. The next question goes to Fernando Gil of Bestinver. Fernando, please go ahead, your line is open.
Fernando Gil : Hi, thank you very much for taking my question. Just two quick ones, please. One, on tax rates. I see Latin America tax rate being very low this quarter. Can you please comment on tax rate at the group divisions and units during 2024? Second is on NPL coverage. I see figures keep coming down quarter-on-quarter. Can you please comment on overlays and outlook going forward, please? Thank you very much.
Onur Genç: Let me take the NPL coverage and then you comment on the tax, Luisa, if that’s okay. On the NPL coverage, basically two impacts. Number one, we did sell, especially in Spain, a few portfolios. If you are talking about year-over-year, throughout last year and also in the first quarter, that’s number one. Number two, the main increase in NPLs in Spain has been the mortgage portfolio because unlike many of our peers, we do apply this new definition of default, which is if you restructure a client and if the NPV of that loan goes down by more than 1% and 1% is a very low figure, but that’s the rule, then we put that loan into NPLs. Given that, given the fact that the NPL growth is mainly driven by mortgages and mortgages, given also the collateral value and so on, typically comes with lower provisioning, lower coverage, there is that mixed effect arriving mainly from Spain into the figure.
If you take those two impacts aside, so the sale of the portfolios and also the mortgage impact in Spain, the number would not have been changing as you see in the figure. On the tax numbers?
Luisa Gómez Bravo: Yes, well the group effective tax rate in the quarter stands at 33%, 33.3% which is I think what we expect for the whole year, very much in line with last year. It’s true that there are certain dynamics that compare, especially with the end of last year, with our, maybe a little bit complicated to understand, primarily with state in Peru. Remember at the end of last year, we had a significant, release of a provision that we had related to tax contingency in Peru. This was a significant amount and that’s why you see a change in the quarter-on-quarter number in the tax amount in Peru. And in Colombia, the effective tax rates in the quarter is benefiting from the deductibility of the subordinated issuances that we’ve done and higher impact of tax exemptions coming from insurance business. So, I would say those are the main reasons in Latin America for the changes quarter-on-quarter or year-on-year in terms of tax rates.
Patricia Bueno Olalla : So thank you, Fernando. Thank you. This was the last question. Thank you for all your questions and for joining this first quarter results earnings call. As always, let me remind you that the entire IR team will be available to answer any questions you may have. Thank you very much.
