Banco Bilbao Vizcaya Argentaria SA (BBVA) 2023 Q1 法說會逐字稿

Good morning, and welcome, everyone, to BBVA's Conference Call to discuss the First Quarter 2023 Results. I'm joined today by Onur Genc, our CEO; and Rafael Salinas, BBVA's CFO. They will discuss quarterly figures, and then we will open the line to receive your questions. Thank you very much for your participation. Now I hand it over to Onur.

Thank you. Thank you, Patricia. Good morning to everyone. Welcome, and thank you for joining our first quarter 2023 results audio webcast. I'm going to run you through, as I always do, through the presentation by indicating the page numbers.

So let me start with Slide #3. On the left-hand side of the slide, you see our net attributable profit reaching EUR 1.846 billion. One more quarter in our view, we are posting very strong results, 39% above the results of the same quarter of last year. I should remind you that these numbers already include the EUR 225 million of extraordinary tax in Spain. If the extraordinary tax was not there, obviously, we would have passed the EUR 2 billion mark. These results bring our earnings per share at the bottom of the page on the left-hand side again, earnings per share up to EUR 0.29, 53% year-over-year growth, a higher growth rate than the net attributable profit due to the share buyback program that, as you all know, we have been executing. The graph on the right-hand side of the slide shows our capital ratio 13.13%, above our target range and well above our regulatory requirements, 52 basis points higher than our December 2022 reported capital ratio.

Moving to Slide #4. Our tangible look value per share plus dividends, continued outstanding evolution of previous quarters, 22% increase year-over-year and 7.1% in the quarter. This number obviously is a number that we treasure a lot that we pay a lot of attention to, and it's one of the most impressive figures in my view in this presentation. Regarding profitability, on the right-hand side, we continue to improve our excellent profitability metrics, reaching this quarter 16.3% in return on tangible equity and 15.5% in ROE, being the highest figures over the last 10 years, these numbers. We remain clearly one of the most profitable European banks. In fact, we were the first bank among the 15 largest European peers at the end of the fourth quarter, and we keep advancing on this. Not all the banks have announced their results yet, but our expectation is we will maintain our leading position here among the peer group of 15.

Moving to Slide #5, what stands out in terms of the key messages for the first quarter. First, outstanding, outstanding core revenues evolution, 36.7% growth year-over-year, supported by both the strong loan growth, 9.8% at the group level and obviously by the clear improvement of customer spreads in our core geographies. Second, our leading efficiency ratio, improving 43.3% in the first quarter of the year with positive jaws. Third, asset quality metrics remained stable and within guidance with cost of risk at 105 basis points year-to-date. Fourth, our capital position is comfortably above our targets, as I mentioned, and last, the continued great progress in key areas of our strategy with 2.6 million new customers acquired in the first quarter and EUR 14 billion sustainable business channels in the first quarter also.

Slide #6, focusing on the first quarter results. This is the simplified P&L and the year-over-year comparisons, the year-over-year comparisons, the second column from the left, what stands out is the impressive 38.6% year-on-year increase in operating income, driven by the strong core revenues growth and positive jaws, which explained the net attributable profit growth of 40.5% in constant euros. In terms of quarterly evolution on the rightmost columns of the table, net attributable profit increased both in constant and current terms, 4.6% and 18.1%, respectively, versus the fourth quarter despite being negatively affected again by the EUR 225 million of extraordinary banking tax in Spain.

Some light into the revenues breakdown and the evolution on Slide #7. First, our net interest income. This is left at the top. It increased strongly 43% versus last year, driven by the solid activity growth and customer spread improvements, as I mentioned. The quarter-over-quarter evolution is negatively affected by Turkey. Excluding Turkey, the group's net interest income grows 3% versus the last quarter with very strong readings, especially in Spain and Mexico, which I will delve upon a bit in a second. Second, the positive evolution of net fees and commissions right at the top, increasing 16% year-over-year and consolidating the high figures of the last quarters basically mainly because of payments and the transactional businesses.

Third, the performance of net trading income left bottom. It's driven by global markets and hedges. All in all, excellent growth in gross income. At the right at the bottom, 33% year-over-year, thanks to the outstanding growth in core revenues, while the quarterly comparison is negatively affected, especially by the extraordinary banking tax in Spain that we registered under other income and expenses, the EUR 225 million, we registered it under other income and expenses. As such, it affects the gross income figures.

On Slide #8, a deep dive on the net interest income evolution of Spain and Mexico, which shows impressive growth, in our view, in the first quarter of the year. The same page also talks to our underlying optimism regarding the following quarters to come because the spreads, especially they keep going up. This is our quarterly averages. The month-only figures obviously show even a better number in terms of customer spread. So very positive outlook also going forward. But on the left-hand side of the slide, you see the strong loan growth for the group, reaching 9.8%, nearly 10%.

In the center of the slide, you see the improvement in the customer spreads for Spain and Mexico. In the case of Spain, it has strongly increased during the first quarter to 2.75%, obviously, in the context of higher interest rates. But in Mexico, the interest rates have been higher for more quarters, lending yields and the customer spreads, they continue to increase in a very consistent manner, reaching 11.72% in the quarter. As a result of all of this, on the right-hand side of the slide, you can see the strong NII growth, both quarter-over-quarter and year-over-year in both countries, year-over-year, 38% growth in Spain and 29% growth in Mexico.

Slide #9. We wanted to give you in this page a sense of our highly diversified and transactional deposit base, very important phenomenon in these times as well as we want to show you our ample liquidity metrics, with a deep dive, especially in our 2 core geographies of Spain and Mexico. First, in the upper part of the page, regarding the evolution of our deposits in the first quarter of the year, the slight decrease quarter-over-quarter is explained by seasonality and also by a higher preference for off-balance sheet products, mutual funds in a context of higher interest rates.

Having said this, the graph show an increasing trend, both in Spain and Mexico in the last 2 years, and we have gained market share, deposit market share in both countries in the last year. Also in the middle of the page, you can see that we have a very stable funding structure. Our deposit base, it consists mostly of retail and SME deposits, 69% in Spain, 77% in Mexico and over 50% in both cases of our deposits are insured in both countries. Finally, we are very comfortable in terms of our liquidity coverage ratios and levels. LCR is 161% in Spain and 188% in Mexico.

Moving to Slide #10. We continue showing positive jaws at the group level. thanks to the good performance of gross income growing 32.7% in the first quarter. And the costs are growing 25.7%, mainly due to the impact of high inflation, hyperinflation countries. On the right side of the page, you see our efficiency ratio, the best compared with our European peers. It is further improving 43.3% from the point of 45.8% last year. Excluding the extraordinary banking tax, by the way, we highlighted in the page that if you exclude the extraordinary banking tax, the ratio would have improved to 42%.

Slide #11. In this page, you see the asset quality metrics. They remain stable and within guidance in an environment of high market volatility and in the context of sound activity growth. First, on the left-hand side of the page at the top, we see impairments decreased in the quarter and remained in line with the pre-pandemic levels. This results in a cost of risk of 105 basis points at the bottom of the page, again, in line with our expectations of cost of risk around 100 basis points as we have guided to you in the past in 2023. On the right-hand side, at the bottom, NPL ratio, it continues to decline, fueled by recoveries and repayments, especially in Turkey and some write-offs in Spain. The coverage ratio on the same chart remains high, above 80%.

Going to Slide #12. On capital, our CET1 as of March stands at an extraordinary level in our view of 13.13%, well above our SREP requirement. This figure represents an excess of capital versus the upper range of our target. As you know, our target is 11.5% to 12%. If you take the upper end of 12%, this number implies that we have an excess capital of around EUR 4 billion. First, on the left of the page, you can see the December 2022 CET1 pro forma at 12.80%, as we have anticipated too when announcing 2022 results, there is a positive one-off in January 2023 due to a release generated by the reversal of the NPL backstop deduction, and that was 19 basis points.

Now turning to the waterfall. Our results generation that contributes 54 basis points of the ratio Second, the dividend accrual and the AT1 coupon payments, which we do at 50% the dividend accrual, all-in detracting 29 basis points; third, 23 basis points from the RWAs bucket; and fourth, the market impacts they add 12 basis points to the ratio. And last, there's a bucket of others, 19 basis points, mainly due to the credit in the [OCs] that offsets the debit in the P&L bucket due to the net monetary position for hyperinflationary accounting countries, higher minority interest. All in all, more than offsetting 20 basis points negative impact due to the various and all of the regulatory impacts that we were expecting for 2023. So all of the regulatory impacts that we were expecting 20 basis points is already factored into these numbers.

Then Page #13, new customer acquisition. We remain focused on profitable growth, and as I keep telling you, the most healthy way of growing the balance sheet is through growing our franchise of clients, clients. In the first quarter of 2023, we have acquired 2.6 million customers, doubling the client acquisition that we had 5 years ago. Although you can see some flattening here, this is an impressive figure, taking into account this effort has been quite negatively impacted in Turkey due to earthquakes, which we basically paused our marketing efforts for 1.5 months and due to Peru and some of the problems, social problems that we were having there in the country. Even more impressive in my view on this page is the share of those acquired through digital channels, which increased to 64% versus the 11% in 2017.

Turning to Slide #14, our commitment to sustainability. Basically, we are accompanying our clients and supporting their sustainable transition. We have already channeled EUR 150 billion since 2018. And in this first quarter, almost EUR 14 billion, continuing the strong trend over the recent quarters. Therefore, we remain aligned with our increased target of channel in cumulative EUR 300 billion to sustainability by 2025. During the first quarter 2023, we have continued to extend the business of sustainability to all the customer segments.

On the right side of the page, you see some new functionalities in our retail banking gap in Spain, such as the financing of the acquisition of hybrid or electrical vehicles and also financing energy efficiency measures for buildings, which has grown by 26% and 50%, respectively, compared to the same quarter of the previous year. All in, we are trendsetters in sustainability. We maintained the top-ranked European bank position in the Dow Jones Sustainability Index. We see this as a business opportunity. And as you see in the numbers, we are delivering on that.

Page #15, I also would like to highlight our positive impact on society on this page. With our primary activity of lending, we continue to help our clients. We help them achieve their life and financial goals. As I mentioned before, in the first quarter, we have increased the total lending almost 10%, 9.8% compared to the same period last year. So it sounds like a very high level, one figure, but this implied that we have helped more than 34,000 families buy their homes. We have financed the growth of more than 130,000 SMEs and self-employed individuals and more than 70,000 larger corporates, thus, we are promoting employment, investment and welfare in the society with our core function. This quarter, we have also mobilized EUR 3.3 billion to finance inclusive growth initiatives, including social infrastructures or social mortgages.

And finally, Slide #16, on our long-term targets announced in the Investor Day, I will again choose to not go into each one of them for time purposes, but I can say that we are on the right path to achieve them all, as you can see on this slide. Also, very important, I would highlight on this page that given the excellent performance that we have been having, we are in the process of improving, upgrading some of our long-term goals. These goals were for a 3-year planning period of 2021 to 2024. We will be in the middle of the planning period in June, June this year. So in the coming quarters, we will be announcing some improved targets for this planning period.

And now for the business areas update, I turn it to Rafa. Rafa?

Thank you, Onur, and good morning, everyone. As Onur anticipated, we are pleased to share with you a very good start of the year with very solid operating trends across the board in activity, spreads, efficiency, results and capital. Therefore, in especially volatile quarter, we can say that the strength of our franchises and the soundness our business model have been confirmed once again.

Going to Page 18, let's start with Spain, who is presenting an outstanding quarterly set of results. In loans, the total portfolio remains flat, affected by the leverage of the mortgage book due to early repayments. However, positive growth trend continued in consumer and commercial segments despite quarter seasonality. As already mentioned by Onur, we have not seen any unusual trend in deposit behavior in the first quarter of the year. Quarterly evolution is driven by seasonality, the already mentioned debt repayments and higher demand for off-balance sheet products. No meaningful transfer from site to time deposit has taken place in the quarter.

In terms of P&L, very solid dynamics in core revenues lead to an outstanding recurrent pre-provision profit figure close to EUR 1.2 billion after excluding the new tax banking tax in Spain. NII growth accelerated in the quarter levered on a continued repricing of the loan portfolios. On the deposit side, pressure on deposit remuneration remains contained, and there is still an excess of liquidity in the market and loan growth is limited. In fact, in the retail segment, deposit beta remains very low. Given this performance, we feel confident and raise our NII growth forecast guidance for 2023 to around 30%. In fee income, also sound trends back up on positive growth across products and segments in the quarter. All-in, efficiency ratio improved to 43.6% driven by revenue growth.

On the asset quality side, underlying trends remained within our expectation. The cost of risk stands at 27 basis points in the quarter, which I would say reflects properly the underlying credit performance of our portfolios. Overall, a very strong quarter for Spain, slightly overshadowed by the reduction of the new banking tax.

Slide 19, Mexico, activity dynamics remain very solid, leading to sound loan growth biased towards segment in which we see more value, further improving our asset mix. Going forward, we expect the loan portfolio to continue growing nicely, driven by a sound labor market and a resilient manufacturing sector. Nearshoring is a phenomenon that we are following closely. And in fact, we believe it will continue being an additional source for demand for credit in the future.

Moving to the P&L. Fantastic quarter in Mexico, with net income close to EUR 1.3 billion and core revenue being the main driver of the P&L. Very solid trends on NII are maintained, driven by loan growth and successful customer spread management. In the coming quarters, in the context in which Banxico tightening cycle is about to come to an end, we should expect NII evolution to be increasingly driven by activity and effective pricing policies. Given the view, we have decided to review our NII guidance to grow at high teens.

Regarding expenses, performance is driven by activity [denomination], inflationary pressures and our commitment to continue investing in the country to take advantage of growth opportunities. In any case, here the key indicator for us is the operating jaws. We remain firmly committed to showing positive jaws as has been the case so far.

Finally, on risk metrics, a very solid evolution. NPL ratio improved to an all-time low of 2.3%, thanks to loan growth and strong recoveries. Coverage level increased to 137%, while the cost of risk stand at 288 basis points in line with the figures of the first quarter of '22 and within guidance. All in all, a fantastic result from a leading franchise operating in the market with high growth potential, where we will continue investing to further strengthen our leadership.

Regarding Turkey in Page 20, in the current macro environment and given regulation, we are pursuing a prudent approach. The balance sheet management is our main priority. We expect to better position for a shift in the monetary and financial conditions, preserving ample liquidity and capital buffers. In this regard, we have been decreasing the duration of our loan portfolio in Turkish lira and have already sustainably reduced our exposure to foreign currency loans and our wholesale funding being this foreign currency portfolio very well provisioned.

Moving to the P&L. NII evolution is affected by the above-mentioned strategy and regulation in place, while contribution from fees and net trading income remained solid. In terms of asset quality, risk metrics continued improving, significant decline in the NPL ratio, thanks to strong wholesale recoveries and low entries and the cost of risk remain well contained while we continue increasing our coverage level. Going forward, as you know, the macro outlook in Turkey remain highly uncertain, ahead of the elections in May.

And finally, moving to South America in Page 21. The region maintains a solid performance in terms of revenue, driven by the NII as the main driver of the P&L in the first quarter of '23, supported by positive activity trends, a better loan mix and a higher customer spread in all geographies, except Colombia. Sound fees, mainly related to credit cards and payment services and efficiency continues improving to 45.4%. While rest metrics remained solid, broadly stable NPL ratio year-on-year at 4.3% and some coverage levels close to 100%. All in, net profit in the region exceeds EUR 180 million in the quarter. And now back to Onur that is going to highlight the main takeaways of the quarter.

Maybe just to save time for the Q&A, which is the most interesting part of this and rather than me reading you through these messages, Basically, we do think that we had a wonderful quarter. What is even more critical for us is looking forward. We do have a clear optimism and we do have some positive perspectives going forward despite the fact that we are in a market environment of high volatility, and you have to see how the markets evolve in the coming quarters and months. But we have very positive prospects. That's why, as Rafa has mentioned, we are upgrading our NII guidance in Spain, in Mexico and as a result, in the group. So we are looking forward. And as I mentioned, hopefully, in the second quarter call, we are in the process of revising upgrading our long-term goals, and we would hopefully be sharing better numbers in most of our KPIs there. So we are looking ahead with optimism and we are now ready to take your questions. Patricia, I give it back to you.

Yes. Thank you very much, Onur. We are ready now to start with the Q&A session. So the first question, please.

(Operator Instructions) And our first question today comes from Maksym Mishyn from JB Capital.

I have 2, if I may. The first one is on customer spreads. In Spain, they have been expanding significantly and seem to continue expanding in the coming quarters. However, I was wondering what kind of customer spread should we think of when repricing is done? And also, does the increase in spread in Mexico related to higher growth in consumer and corporate loans than mortgages? And the other question is on capital. Onur, you mentioned that you now have EUR 4 billion of excess. And how should we think of its deployment? And what would trigger you to give us more color on how you plan to deploy it?

On the customer spread, as you see, the Spain number is 2.75% now. But this is the quarterly average, as you can imagine, and the trend of going up still continues. The month-only March figure is actually 2.84%. Same for Mexico, you asked about Mexico. You see here a clear trend of increase. 11.72% is the quarterly average, but the month-only March number in Mexico is 11.87%. So the trend is there. The trend continues because we are still repricing some of those loans. As you also know, our mortgage portfolio in Spain, 2/3 of that we reprice every 6 months and 1/3 we price every year. So some of the rate increases that has happened in the past year has still not flown through to the bottom line. As such, NII trend is there to stay for a while, depending on the rate position of this European Central Bank and other central banks, but we're about positive reading.

In Mexico, I didn't get the full question. If I did miss anything, please Rafa, jump in. On capital, maybe I answered that one very quickly and very clearly. On Capital, Max, we have been very clear on this. In every single call, what we have been saying is that we don't want to operate with excess capital. Our target capital range is 11.5% to 12%. We took the upper end in the presentation today also, we took the upper end as the reference. And we do have EUR 4 billion as of today, EUR 4 billion excess capital. What do we do with this? We invest in our business.

Our focus is clearly on organic growth. And then as the capital is excess, we are very committed to distribute it back to our shareholders. And on this one, our track record, in my view, is quite clean. In the last 18 months, only in a period of 18 months, we have given back EUR 8.2 billion back to our shareholders, EUR 2 billion from the 2021 results, EUR 3 billion from the 2022 results. And as you know, EUR 3.2 billion from the extraordinary share buyback program that we did after the sale of our U.S. business, EUR 8.2 billion. Actually, the last share buyback we finished last week. No, Rafa...

Yes.

So we are doing it in a constant and diligent manner. We are very committed to this. I would only reiterate the fact that we are committed to giving it back. We are very committed to attractive and sustainable shareholder remuneration. Max, today, we are announcing a return on tangible equity of 16.3%, more than 16%, and we are still trading below the book. So some of you are also asking us whether we would be stopping the share buybacks, when we reach the tangible book value, if you reach the tangible book value, first of all, the 16% return on tangible equity and below book valuation, at least to us doesn't make sense. When we look into the cash flows of our bank, to our shareholders, some projection on this.

We still think clearly that we are undervalued. But beyond that, the tangible book value reference is not a reference for us because our intrinsic fair valuation, we believe, is much higher than tangible book value. In that manner, what I can tell you is that we will continue to remunerate our shareholders in a positive and a sustainable and attractive way, as I mentioned. And it seems like share buybacks will also be a clear part of that payout policy. And I pause here, but you can see our clear commitment based on our track record. And when are we going to do the next round and so on? Again, we just finished it last week, the last one. But this year, next year, we will continue on the process.

Thank you, Max. Next question, please.

The next question comes from Francisco Riquel from Alantra.

Yes. Two questions on Mexico. The NII guidance that you have upgraded to high teens, if I were to extrapolate the run rate in the first quarter, I get to 17% growth already, even if you are increasing the ALCO bond portfolio there in Mexico. So the guidance, one could assume that NII could stabilize in coming quarters from here. So I wonder if you can comment on the tailwinds and headwinds for NII in the coming quarters. Just to assess whether you are being conservative or not in this guidance in Mexico? And what are the main drivers? And then also in Mexico, the loan to deposit has already reached 100% in Mexico, deposit beta is just half of what Santander Mexico and Banorte have reported to date. So at what level are you sensitive and will you start paying up to retain deposits? Where do you see the beta heading to in Mexico by the end of '23?

Perfect. Thank you, Francisco. On the NII stabilizing, Francisco, I think you have been following us very closely for many quarters and years. I do think that you know we are typically the profile of we say something and we deliver. In that sense, there is some conservatism in the number, as you have highlighted, we wanted to upgrade the figure for sure because we are not seeing actually any headwinds at the moment on the fundamentals, but we wanted to be a bit conservative so that we can clearly deliver on our promise. Then loan-to-deposit ratio, the second question that you asked, we are at 96%. So I'm not sure that it's printed in the material of the presentation, but it's 96%. Our LCR is 188%. So we don't have any liquidity challenge whatsoever. So in terms of the betas, at the moment, as you can see in the page, 2.29% is the quarterly cost of deposit figure for Mexico, the month-only the figure is not that different from that.

So independent of the rate situation, as you know, the Central Bank is 11.25% in Mexico, we are able to maintain that number. Why? Because we are in transactional deposits, I keep mentioning it to you every quarter. But in my view, it's a unique number. We have 40% market share in payrolls, [Nominas], the payroll payments of the country. These are transactional deposits that flows, and as a result, we are able to maintain such cost in deposits because they are small ticket and they are small ticket and they are widespread to many customers. People ask us, yes, but the gap is big, in 2018, it wasn't that far away. 2018, the rate in Mexico was 8.5% and we were still at 2% in terms of cost of deposits. So we are able to maintain this because of the structure of our business and because of the fact that we are serving many customers atomized many customers in our business. And as such, the beta is not that material. So we wouldn't expect, by the end of the year, you're asking, we wouldn't expect that big of an increase, some increase but not that big of an increase in the cost of deposits in Mexico going forward.

Thank you, Franco. Next question, please.

The next question comes from Benjamin Toms from RBC.

First on costs, your operating expenses were up 26% in constant currency terms. That's running ahead of weighted average inflation at 20%. Can you just clarify that there's some lumpiness to costs here based on some investments. And by the end of the year, you'll be back in line with the weighted average inflation number?

And then secondly, in the appendix, you show your commercial real estate exposure. It's EUR 9 billion or 2% of exposure at default, which is quite low relative to peers. Can you just provide some more color on this number, please, maybe by geography or by how much is office space or maybe the average LTV of this lending?

Let me start very quickly with the second one. The average LTV is around 50% of that exposure. So it's very nicely and highly collateralized and it's basically spread between Spain and Mexico, mainly. So we don't see any risk at all in that portfolio for us.

On the cost topic, the 20% growth, this 20% growth in inflation versus the 26% growth in costs. It is a bit specific Benjamin to the first quarter because in the coming quarters, what we see that growth or the gap to be softening up a bit. And when you look into the core of why that number is as such, first of all, the hyperinflationary countries, especially Argentina and Turkey, the announced inflation figure and what our people live through, there is some gaps. So we have gone a bit above inflation in terms of the salary increases and so on in the hyperinflationary countries. That's one. But more importantly, when you look into our 2 core geographies in Spain, we are below inflation.

In Mexico, we are above inflation. And on that one, we are a bit purposeful, let me say it that way. We do think that this is the time. Mexico is, in our view, booming on multiple dimensions. And we do have a competitive discontinuity in the market. As you know, one of our competitors is being sold. So we do think that this is the right time to invest in Mexico to grab market share. And you see that in the growth figures. We are gaining market share across the board in Mexico.

And as such, we have purposefully decided that we might go because we do have this mantra that we don't go above inflation in our geographies. But in the case of Mexico this year, we do think that it would be very much justified to go for the revenues and for the business than purely optimize for cost. So we are overinvesting a bit in the figures. Overall though, in the coming quarters and at the end of the year, you would see that 26/20 gap to be narrowing. Anything you want to add on this one, Rafa?

No, probably I mean on the commercial real estate, as Onur mentioning, I mean, it's a EUR 9 billion portfolio is 50% Mexico, 50% Spain. And the only portfolio that has been growing in the last 2 years has been in Mexico. I would say, mainly related to the nearshoring effects and the construction of logistic warehouses in the north part of the country.

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

The next question comes from Ignacio Ulargui from BNP Paribas Exane.

I have just 2 questions. One on the competitive landscape in Spain in terms of deposits and how do you see deposit betas evolving so far? There hasn't been a material increase in deposit costs. I just wanted to get a bit of a sense how do you see competition in terms of cost of deposits in the domestic business?

Second question is linked to the SME lending growth. If you could give us some color on the initiatives that you have in Mexico for (inaudible) leverage on the nearshoring effect, focusing on the SME and the commercial side, mainly.

Just one follow-up on the capital and excess capital Onur you mentioned last call that the bank could explore moving or migrating to standardized models. Has there been any progress on that? There could be any kind of use of the capital to reduce the future volatility of the ratio?

Rafa, if you want to take the second on the SME lending and the nearshoring in Mexico. On the first one on the Spain competitive landscape and in relation with deposit betas and deposit costs, you can see it in the numbers as well, Ignacio, if you look into the Spain cost of deposits increase, so far, if you take the last 12 months and then if you take the reference as the ECB depo rate, basically, our beta so far is 12%. And this does vary very much from segment to segment. In the case of CIB, the big large corporates, we are around 70% beta, in the case of companies, including all sizes of companies, excluding the large ones, the company segment, it's around 20%.

And in the case of retail, which is the core, as you know, of our deposit base, 89%, actually, as you know, is demand deposit, and it's mainly driven by retail. The beta for that segment for the retail segment is less than 5%. Now what is our expectation going forward? That's why we are upgrading actually our NII guidance today. We are expecting the betas still to be 20%, 25% as we have guided you average at the end of the year, but we are expecting that to evolve in such a way that it will not be happening soon. It will be later than originally planned. That's why the NII guidance is going up. And why is that the case?

Ignacio, there's so much liquidity in Spain. As you can see in the figures, our LCR is also 161. Our deposit versus our LTD in Spain is 92%. We have EUR 45 billion in the European Central Bank as excess cash. And on top of this, as you have seen, quarter-over-quarter, Spain lending growth is negative for the market. For the market, we are doing better than the market, but for the market, it's coming down. So the liquidity excess is not seeing any pressure from the growth of the lending. As such, as much as the liquidity excess situation is as such, I don't see any competitive market-driven push on any player to go after deposits in a big way. which implies once again that the original plans that we had in terms of the betas and so on, the overall number still stays, but there will be a delay in our view, for those numbers to be realized.

The second one on SME, Rafa?

SMEs in Mexico, Ignacio, first of all, in terms of the growth in the quarter, you have seen we have been growing in line with the growth of the balance sheet, around this 40%. But I think the relevant fact at the end of the day that we have been growing market share in SMEs in the last year, close to 100 basis points in the last 12 months. And we believe this is linked to, I would say, 2 factors. The first one is just clearly on the demand side. I mean the nearshoring effects, we are seeing quite a demand, especially in machinery and equipment sectors that are the main drivers of the demand there. And second, I would say also probably just the payoff of some of the investment that we have been doing in the segment in Mexico in the last few years, especially in the digital connectivity with the clients. So at the end of the day, it's a combination of our investment, the creation of the franchise that we have and also clearly with a significant growing demand from the SMEs, given the natural connection with the U.S.

And then regarding your final question, Ignacio, moving to standard models and so on, it's a process. And there is no positive figure whatsoever from that work in the numbers that you are seeing today in capital on the contrary because of our advanced models. Once again, we registered minus 20 basis points of regulatory impact, which was the impact that we were guiding you for the full year. We have taken that in the first quarter. But in terms of the moving to standard and the potential positive impact of this in our numbers, there's nothing in our numbers yet because it's a process. It takes time, as you know. It requires also a clear dialog with our supervisors and so on. But there is no positivity coming from it yet.

The next question comes from Alvaro Serrano from Morgan Stanley.

Two questions, kind of both follow-ups. In Spain, in particular, you've explained why the deposit balances were down, mainly seasonality. I was just sort of curious on your thoughts, how do you think deposit balances are going to evolve for the rest of the year? Is there a sort of further transfer to off-balance sheet products or can we expect it to be flat or up? What are your thoughts there? And also where the term deposit mix might end up at the end of the year?

And the second question is on capital distribution, and I apologize if you touched on this already because I've been on and off, so sorry, in advance. But on that capital, it sounds like you're very committed to distributing -- given the level of the capital, could we expect some extraordinary distributions to be announced already interim or is this something that the Board will consider at the end of the year?

Very good. On the deposit outflows, first of all, let me give you the breakdown on that Alvaro. So the EUR 7 billion decline that we have seen in the deposit base in Spain, EUR 7 billion. EUR 2 billion of that was big companies, enterprises, let's say, back, as we call it, Banco de Empresas, the commercial banking and also CIB, the EUR 2 billion. EUR 5 billion is retail, okay? The EUR 2 billion of the CIB and Empresas, the companies, that is pure seasonality as far as we can see it. The EUR 5 billion in retail, it's basically three components: EUR 5 billion outflow. 40% of that is more or less 40% of that is basically the payments of loans.

There are some early payments and there were in the month of January, there were double payments. It's because of the work days and the fact that the end of the year was on a weekend and so on. 40% is early payments and double payments of the credit. So credit implied reduction. Then the -- another 40%, basically around EUR 2 billion is moving to off-balance sheet products, especially funds, mutual funds. And then the rest, the EUR 1 billion is basically the seasonality of retail. In this context, the key two changes is early payments and additional quota, installment payments or loans and moving to off-balance sheet products, mutual funds and so on.

The second one, the mutual fund movement will continue in that manner, more or less. The first one, the early payments and so on, we are seeing some clear stability there, so it will not be increasing too much or it will be not happening in that manner. So the deposit outflows might be happening, but in a marginal manner, as you know, our deposit number is EUR 212 billion, EUR 213 billion. So it's very, very (inaudible). But given this, you are asking, I guess, also the implication on the cost and so on.

And on that one, as I just mentioned, the deposit betas that we have guided you, 20% to 25%, the combined beta, that's still our expectation for the end of the year, but we are expecting that beta evolution to be much slower. And in the coming months, we don't expect a major change in the deposit beta. Then the capital distribution can be expected an interim payout and so on, you can expect an interim payout, that is a process. You can expect it might happen this year or next year, a piece of that excess capital will definitely be, in our view, flowing through to our shareholders.

Thank you, Alvaro. Next question, please.

The next question comes from Carlos Peixoto from CaixaBank.

So first, was actually to on the capital. We noticed -- well, basically, these other lines that you have so basically the (inaudible) 20 basis point negative impact from regulatory items. So this means that basically, you have about nearly 40 basis points positive impact from the rest. I was wondering if you could break it down a bit on how much was the minority interest impact? And then how much were the effects -- was the effect from hyperinflation.

And then still on capital, on the market impacts, I was just wondering if you could give us some additional color on what was behind the mark-to-market of the Held to Collect portfolio. I believe this wasn't the usual process. Just have a bit of feasibility there. And then finally, looking in at NII, if we're looking at a different area on the corporate side, we noticed there is significant improvement in NII as well. This relates to a higher remuneration on excess liquidity. Well, basically, what is behind this?

The last one, if I didn't capture it very well because the line was not so good, Carlos. But on the first one, I guess, you're asking the breakdown of the other bucket -- the breakdown of the other bucket is very simple and clear. So 8 basis points comes from minority interests. 27 basis points come from hyperinflation, minus 20 basis points from the regulation impact, as I mentioned regulatory updates and so on. And then the rest is basically marginal. Then mark-to-market or Held to Collect, Rafael, do you want to comment on the mark-to-market or Held to Collect, the famous topic over the last few months.

On the mark-to-market, I think we have a positive effect from FX, I think, around 2 basis points. And then we have a positive mark-to-market of the portfolio for -- 10 basis points, sorry.

But I think he's asking for the mark-to-market position today of the bank in terms of Held to Collect. Carlos, Held to Collect today, the end of March, actually, today is positive. It was minus EUR 100 million. All the euro balance sheet Held to Collect book, the face value or the mark-to-market of that book, which is not obviously in the capital, is around EUR 100 million at the end of March. And as of yesterday, actually, it was a positive figure. So some of the big numbers that you have seen in the U.S. on the Held to Collect book and so on, obviously, it doesn't exist for BBVA.

Then the NII or Corporate Centers, the big item in the Corporate Center is not NII, but the NII is mainly the funding cost for the equity participation that we have in different geographies and so on. So that's not the key thing. The number for the Corporate Center is relatively bad this quarter for two very simple reasons. Number one, we do hedges, as you know, especially for currency and Mexican peso has appreciated so well in the first quarter that we are seeing the positivity of that in the quarter and in the coming quarters, actually, when you convert the Mexican peso earnings to current euros.

So in the new -- even in the coming quarters, we will see a positive correlation that the fact Mexican peso is appreciated. But we do have hedges and then do have the Mexican peso hedges and appreciation of currency immediately hits you in the hedge figure. And we have like around EUR 180 million in that. And soft -- if Mexican peso depreciates a little bit that EUR 180 million will disappear and the Corporate Center number will also improve. In any case, though, we have the insurance for the Mexican peso currency changes already bought and locked into our balance sheet, so the Mexican -- whatever happens to the Mexican peso in the coming 9 months, a good part of it is already hedged.

The second piece in the Corporate Center is the tax effect. The Turkish profit has been positively affected from some tax changes in Turkey. And as you know, we do smooth out any tax impact into the overall P&L, which means if there's a positive impact, for example, in the case of Turkey, as we have lived through, we do a negative in the holding in the first quarter so that we can smooth it out for the whole year. So in the coming quarters, some of that negative will be released back to the P&L. That's the reason why the Corporate Center number is that negative. In the coming quarters, our expectation is that the bottom line of the Corporate Center, obviously, will clearly improve.

So thank you very much, Carlos. Next question, please?

The next question comes from Carlos Cobo from Societe Generale.

Just a couple of questions for me. One is if you could please confirm or clarify what was the NII upgrade in Spain? I'm sorry, in advance, I missed that. And the question would be the cost of risk in Mexico that has increased a little bit from last year. Could you explain a little bit the drivers underlying that? It is consistent with your full year guidance, but that doesn't mean that the current run rate is going to be recurrent or you still expect a little bit of increases in the provisioning charges. And if you could comment on the same line for 2024, that would be great.

You want to take the NII guidance in Spain, Rafael?

Yeah. Carlos, if you remember, I mean, the NII guidance that we provide for Spain in January were just to grow to low 20s. Now we are upgrading -- rising that guidance, but we are expecting the NII in Spain to grow around 30%.

Regarding the Mexico cost of risk, Carlos, it's completely driven by the change of mix in terms of growth. If you look into the Mexican page in the presentation, you would see that we are growing very nicely, actually in very high return products, very high return products, but they are also high cost of risk products. Credit cards is growing 21.9%. SME is 21.2%. Consumer 16.5%, whereas the average is 13.9%. So the mix is changing towards high margin, high return, high cost of risk products. That's the key change, key reason for the increase of cost of risk. We guided all of you, as you know, below 300 basis points, and we clearly stick with that guidance.

Thank you, Carlos. Next question, please.

The next question comes from Andrea Filtri from Mediobanca.

First question is on ALCO is up EUR 6 billion Q-on-Q. Where is your aspirational size and what contribution to NII do you expect for this year for ALCO? The second question is on IFRS 17 that you've adopted this quarter. If you could indicate to us what the main drivers will be going forward of interpretation of impact for IFRS 17? And just two clarifications. One is the guidance on Mexican NII. Is it on reported or constant euros? And the deposit beta you have given for Spain, is it the average for the year or the year-end beta you expect?

Very quickly on the last one, it's year-end. Very quickly on the third one, it's constant euros. We always provide guidance in constant euros. IFRS 17, I will defer it to you, Rafael.

On IFRS 17, I think you have seen the implementation of the new accounting rule represent a reduction of around EUR 98 million on net (inaudible) of the bank. But at the same time, we have to restate the numbers of the last year that defined that all -- the restatement is going to be around EUR 65 million. So at the end of the day, this negative impact of IFRS 17 is mainly coming from last year. Going forward, the dynamics are not going to change. You see -- I mean the impact is very limited. And at the end of the day, what we are going to see is just evolution in line with the quarter.

Regarding the ALCO size, the first question, Rafael, please jump in on that one as well. But very quickly on my side, we don't have a target at all. We see ALCO as a mechanism, obviously, to create value, but as a clear mechanism to manage our structural risk, a special interest rate risk management. It's an important piece for us. In that sense, we have to also see that we are adding value by -- as we do this, you have mentioned the EUR 6 billion increase, and there are very different reasons for that EUR 6 billion increase because EUR 2 billion of that has come from Mexico.

And in the case of Mexico, we do think that the long end of the curve, it does offer opportunities, and it helps us against structural risk management. As such, we increased it on a clear purpose to lock in some of those rates. In the case of Turkey, another EUR 2 billion increase out of the EUR 1.7 billion to be precise, of the EUR 6 million, it is mainly because of the regulatory requirements -- indicates the rest is in euro balance sheet, EUR 2.6 billion increase in the euro balance sheet, and that is more tactical and more short term. And we still will not increase the ALCO book, although we have a lot of liquidity, yet unless we see better returns in the long term of the curve, basically. Anything you want to add to Rafael on this?

No, no, you already mentioned. I mean, we don't have a goal in terms of size. I think what we try to follow is the sensitivity to interest rates of the balance sheet and the combined balance sheet of the customer balance sheet plus the ALCO portfolio and the variation in the quarter is just, as Onur mentioned, regulatory and also an increase in the Mexican portfolio mainly.

Thank you Andrea. Next question, please?

The first question is on Mexico. What is the loan-to-deposit ratio and the cost-to-income ratio at which you want to run your business there? The second question is on South America. The market doesn't seem to care too much about the region, but it's 10% of your earnings and 10% of your tangible equity. So it seems a bit of a waste of energy and resources. So what strategic options are you considering there? Is a reshuffling potential disposals under consideration? And just quickly on Turkey, how are you preparing the balance sheet for the upcoming volatility? How much of your EUR 7.8 billion of equity is currently hedged?

Very good. On Mexico, the loan-to-deposit ratio of 96%. Do we have a goal? No, it's overall liquidity management, liquidity and other risk management that we have to look into. But Marta, do we have a notional goal to go up? No, we have a notional goal to grow our business, and we can grow the business on both sides of the balance sheet. If we can grow healthily on the lending side, we will grow our deposits as well. I see no problems whatsoever in growing our franchise. I mean, if you look into our market share, we lost only market share in time deposits because we didn't want to pay. If we need deposits, we can get it if we pay for it, no -- in the time deposit space.

To cut the long story short, the core priority of us in Mexico is to grow the business, and we will manage the loan-to-deposit ratio as a result of that. Cost-to-income, we have guided you also in the Investor Day that we would like to operate around 30%. We are already below 30%. And hopefully, we will maintain that below 30% reference going forward. South America, this is the first time that I'm hearing it from you. We don't see it clearly as a waste of energy at all. It's not only the markets that we have internally, domestically, locally in those countries.

A big chunk of our clients has businesses there. So we follow our clients. We follow our clients in Spain and where are the Spanish companies? They are in Latin America. So it's very strategic to us. The whole region is very, very strategic to us. And you can say, maybe you can only do CIB, [not all]. No, no. I mean, when we are there, we would like to do the full business. And in that sense, we are following our clients, and it's very, very strategic to us. So I would not at all categorize it as a waste of energy. And then Turkey, what are we doing and are we basically hedging a piece of the equity? The answer is yes. Rafael, do you want to comment on this? It's your expertise.

No, Marta, as you know, we -- our hedging strategy on FX is mainly on the assessed capital that we have. And clearly, we have been very active in Turkey always. But currently, clearly, we are hedging. We are hedging above average, given the [advantaging] that we are going to have in the coming months. So at the end of the day, we are hedging, I think more than 80% of our (inaudible) capital in Turkey. Managing at the same time, the carry cost, I think we did early saw that we took advantage of the pricing, what was in the market at the beginning of the year, but also combining with some volatility strategies just to optimize the cost.

Marta, you have it also in the appendix of the presentation that we have shared with all of you. 10% depreciation in Turkish lira is only 1 basis points impact on capital. Why? Because as Rafael said, we hedged a big part of the excess capital. That's why the sensitivity is so low. And regarding other measures in Turkey, we are trying to reduce the duration gap as much as possible, being ready for the rate rises if it happens. So the capital and the interest rate sensitivity, we are putting a lot of effort into it. And I do think that we are in a very good position at the moment.

Thank you Marta. Next question, please?

The next question comes from Benjie Creelan-Sandford from Jefferies.

First question was just on costs in Spain. I noticed that since the end of the restructuring program, the headcount in Spain has been ticking higher. So I was just wondering if you could talk a little bit about your hiring plans in the domestic business and whether that is contributing to a higher cost growth or not really a change of mix of headcount. The second question was I guess, some of your peers, we've seen been quite active in terms of partnerships on the payments side.

I just wondered whether you had any plans on that side for your payments business. And then final, just a follow-up on net interest income in Spain; I mean, you've obviously given a lot of detail so far but I was just wondering whether I could push you to say when you expect the peak in NII to come through on the basis of the current forward curve? Is that -- does NII peak in 2023 or do you think we can continue momentum into 2024?

Hiring plan very quickly, again, Benjie, thank you for all the questions having plan. You would see in the FTE, the Full Time Employee evolution of BBVA that there is some increase in the Spanish perimeter. It's mainly because of the internalizations that we do in the areas of data engineering, IT, basically. So there's some hiring, but it's mainly internalizing some of the external resources that we are using from different companies. And as such, you would see an increase in the FTE. But in the network, in the service and so on, we have increased a little bit, but we don't see a major recruiting effort or so on in the Spanish perimeters.

Partnerships in the payments business, we see payments as core to our business. In that sense, as long as we don't deteriorate that core notion, we might look into different things, but that's not in the plan at all. We don't have anything cooked in the process at all because we see it as core, and it's something that we have to be on top of clearly. NII, when is it going to peak? It depends on deposit beta. As it stands, it's going to continue to go up in the coming months and quarters, but depends on the deposit beta.

Thank you Benjie. Next question, please?

The next question comes from Ignacio Cerezo from UBS.

I've got two, one in Mexico going back to the loan loss number. You've mentioned mix changes as the reason for the pickup of loan losses. But I mean you said 20%, 30% increase basically versus the average of the last two, three quarters. You've been growing consumer for some time already. So is this just the beginning of vintages getting a little bit worse? Some of that growth translate into lower losses or is there anything more specific in the quarter? And the second one is if you can give us a little bit of color basically on the scenarios you can see out of the Turkish elections, best-case, worst-case, base-case, if you have one, basically a little bit of information on that.

Let me start very quickly on the second one. It's a political assessment. We won't get into it. We are prepared for any scenario. Let me say it very clearly. Mexico, the loss numbers, Ignacio, if you look into the past 10 years of Mexico, the average cost of risk was 340 basis points. We guided all of you. It's going to be less than EUR 300 million, and we are sticking with it. You are mentioning -- I go back to the same explanation that I gave to one of the previous questions. It's all about the mix. If you look into the cost of risk by product, we are clearly there. So if you are looking for a sense of -- is there some deterioration and so on, my answer is clearly no.

And we are also obviously following very clearly what we call the vintages. So the new things that we produce, the new consumer loans, the new credit cards, what's happening with them, we see zero surprises or negative surprises in those numbers as well. So we are -- we guided you less than EUR 300 million, which was clearly lower than the typical average over the last decade, and we are sticking with that guidance. And there is nothing to be negatively surprised about in that number. Anything you want to add, Rafael?

No?

Okay. Thank you. Next question, please?

The next question comes from Sofie Peterzens from J.P. Morgan.

Yes. Sorry about that. Here is Sofie from JPMorgan. So just going back to your capital position, first of all, given that there were kind of 28 basis points coming from Turkey in the core equity Tier 1. Is this all kind of fair this day or could some of these capital improvements this quarter kind of refers in coming quarters? And could you also confirm that the full 20 basis points of regulatory capital headwinds have been taken and we shouldn't expect any further capital headwinds ahead? And then just finally, you have EUR 4 billion of excess capital. Things are going well in Spain and Mexico. How should we think about -- or how do you think about M&A opportunities? There are some smaller banks in some of your neighboring countries for sale. Do you get any opportunities or will focus be purity on organic growth?

So on the first one, if I didn't -- if we couldn't get it properly, please alert us. But you're asking about the capital headwinds and also the number for the Turkey, will it be reversing if I understood it correctly. It wouldn't be reversing at all, Sofie. The reversal is not going to come from that item. It can come from FX. In these types of things, hyperinflationary economies, you do have this capital add back, as we say it in the capital figure, but then you typically have the depreciation in the FX. The FX depreciation has not happened in our view, in the way that it should have because there's a big inflation but not too much depreciation devaluation in the currency.

So you would be not reversal in that number at all because that's the number. But you might see higher FX-related impact in the coming quarters. But if you were following to the first part of this call, as we just said on the FX we did some hedging, which implies that 10% devaluation of the currency would only create 1 basis points impact in capital. So the negativity, the reversal, as you said it, might come from FX, but that sensitivity is being managed very, very clearly.

Any capital headwinds going forward on the contrary, I do think that if you look into our organic capital generation capacity, if you look into our improved guidance today in NII in Spain and Mexico, I would see a very positive organic capital generation going forward. And we did guide you that beyond regulatory impacts beyond any nonorganic inorganic transaction and so on, we should create EUR 1.5 billion organic capital every year after the payouts. And we are clearly going to be, as I see it, clearly, going to be above that organic capital generation formation kind of goal or reference.

So we don't see any headwinds on the contrary, we see positive organic capital generation capacity. The EUR 4 billion in the excess capital and M&A opportunities, we are focused on organic growth. We are focused on organic growth. I mean you have asked me also twice in this call now, when is the timing of giving back that extra capital? I'm not going to answer the timing question. The only thing I'm telling you is that this year, next year, we are committed -- we have delivered -- we have a proven track record of giving back the excess capital to our shareholders. We are committed to do that also this year or next year. And M&A, we are focused on organic growth is the answer.

Thank you, Sofie. Next question, please?

The next question comes from Britta Schmidt from Autonomous Research.

My first one would be could you add a little bit of color on the loan growth outlook in Spain by segment, given what we've seen with prepayments and mortgages and also view on corporate demand. The second one would be on asset quality. As 12 months your LIBOR is approaching 4%. At what sort of level of rates would you become a little bit more nervous around the asset quality? And then lastly, on Turkey, it looks like excluding the tax impact, profits were down quite significantly. I mean what is the -- barring any volatility around elections, what is the outlook here? Do you still expect the Turkish lira customer spread to decline further? And is there a possibility that the P&L could even turn negative in any of the coming quarters?

Very quickly. On the last one, the Turkish one, you are right. The big part of the profit came from tax, but you should also realize that in the first quarter of 2023, we booked EUR 60 million of additional kind of PMAs, provisions for the earthquake, and we booked EUR 35 million of additional costs due to earthquake. That was a big earthquake and more than EUR 100 million extraordinary hit to the P&L we have realized in the first quarter. Going forward, we have to see how the situation evolves and whether the central bank policies and so on, how they changed? Do they change after the elections, independent of the election outcome, we do expect some orthodoxy coming into those policies, but we'll see. So we will discuss more in the second quarter on this. The EURIBOR when do we expect the high EURIBOR levels affecting the asset quality in Spain. We did mention this to you to all the investor community also before Britta. Basically, it depends.

It's mostly mortgages. The key, as you know, the asset category that we should look into, EURIBOR related is mortgages, the households and the mortgages. But as you might remember, basically, 75% of all the variable rate loans, mortgages that we have in the balance sheet today, 75%, they were originated before 2012. What does that imply? The increase in the installments due to the EURIBOR increase is relatively capped because the principal amount in the installment has come down to a level where the increase in the rate, it's spread across many customers, many customers, but the increase at a customer level is not that high because a big chunk of these variable rate loans have been originated many years ago. In that sense, in our view, the asset quality implication would not be that big. This is what we are seeing even today.

I mean, it has gone up, EURIBOR a lot. But in that sense, when you look into the NPLs when you look into the cost of risk for the mortgage portfolio, specifically, we don't see a major issue. We don't see an issue actually because of that fact because of the installment increase is relatively capped due to the age of those loans. On the lending growth by product, Rafael, in Spain, do you want to talk about it?

I will say, I mean, probably the more relevant to comment there, Britta is just the prepayment that we already mentioned, affecting mainly mortgages, but also consumer lending. We have seen some growth on commercial. I think quarter-on-quarter, 0.7% growth in commercial. And also, we have seen after a few years in which we have been downsizing the size of the public sector loan portfolio. We are growing and then we are growing now 3.5% in the quarter and 1.1% year-on-year. So at the end of the day, growth in commercial, growth in public sector and clearly some deleverage because of the prepayments on the retail side.

Thank you, Britta. Next question, please?

The last question comes from Fernando Gil de Santivanes from Bestinver.

Two quick ones please, follow-ups. NII in Spain, what is the deposit mix that you expect (inaudible) 2023? What is the EURIBOR reference that you're using for these NII guidance that you have provided? And what is the difference between the previous one and this one? And finally, on the sensitivity in Turkey, so you're declaring now 1 basis points for every 10% move, before it was 5 basis points. I mean how much is the cost of these hedging? And how long can you keep it during the year?

The cost of hedging in Turkey, maybe you take on the first one, the EURIBOR, what is the EURIBOR assumption that we have in all these NII guidance that we are giving to you. It's basically around 4%. As we -- I think it was in the last call that we guided to, we were forecasting a band of 3.5% to 4% -- we do expect that maybe in the coming -- this quarter, in the second quarter, we might see slightly above 4%, but it's going to be around 4% in both 2023 and 2024, the average EURIBOR that we would be seeing. That's the assumption that we have in the numbers. But the band is the 3.5% to 4% still throughout the different quarters it's going to be in that band. The second question was deposit mix on the deposit. It's all in the better. It's all in the better Fernando as we are guiding you 20%, 25% at the end of the year. The Turkish cost of hedging, Rafael?

Fernando there, I mean we don't provide the exact number, but we have been executing hedging, especially in February and the March. So at the end of the day, our hedging cost is well below the current levels of the market that we have seen a significant increase in the cost of hedging in Turkey, especially in April. But clearly, in our case, it's well below, although it's a relevant number, given the inflation differential.

So thank you very much, Fernando. This was the last question. Thank you very much for your questions, for participating in this call. And let me remind you that the entire IR team will be available to answer any questions you may have. Thank you very much.