Banco Santander SA (SAN) 2017 Q1 法說會逐字稿

Good morning, everyone. Thanks for joining to the Santander Earnings Conference Call. As every quarter, our CEO will kick off this presentation with the group performance for the first quarter, as well as he will address concluding remarks. Our CFO, Mr. José Cantera, will address in detail the business area performance for the first quarter. Obviously, we'll have plenty of time for your questions live, as every quarter.

So with no further delays, José Antonio, the floor is yours.

Thank you, Sergio, and good morning to everyone. Thank you for attending this earnings call, the first quarter's earnings call. Well, as usual, the presentation, we split in 3 parts. The first one, I elaborate on the highlights, the main highlights of the group for the quarter. José will go into the business areas in more detail. And finally, I will sum up with some final remarks, conclusions over the quarter and a view looking forward.

So first of all, starting -- I will say, again, our statement that we are making a solid progress towards our 2018 goals. And this is what these numbers show clearly. So the profit in the quarter, the net income in the quarter, attributable profit was EUR 1,867 million, 10% up in constant euros compared with the previous year, 14% in current euros. This quarter, the currencies came in favor, particularly due to the appreciation of the Brazilian real. As always, I am going to focus in the presentation more in the constant euros, that reflects pretty much what is going on in the ground.

So this profit is well-spread across markets. In fact, we grew in almost all markets in constant euros. But Poland, I will elaborate a little bit and -- because we were lower a little bit on Poland, why this happened. Net interest income continue to increase and fee income went into the double-digit territory.

That -- I do the remember to you that our goal was to grow the income in line with circa 10% in the period that we were showing to you in our Investor Day, and we are progressing towards this goal. And this reflects pretty well the commercial transformation that is going on in the bank and the success of our strategy towards having more loyal customers and higher transactionality with our customers.

When it comes to the balance sheet, I will say to my remarks, we continue to build capital on a steady basis. Quarter-after-quarter, we are heading towards our goal of reaching 11% core equity Tier 1 in 2018. And the -- all the profitability measures, return on tangible equity, earnings per share and tangible net asset value per share, are heading in the right direction. In some cases, probably this quarter, a little bit faster than in previous quarter. But what we appreciate -- what I appreciate more in these results is the consistency and the predictability that are showing that we are progressing in the commercial side, what relate this progression into the financial numbers.

When it comes to the business, to how the business is progressing, we are having a selective growth. The demand for loans is not very, very strong. We'll see some difference between emerging and mature markets. A little bit, we managed strongly in emerging markets. Not so strong, or even in some countries, a bit weak in mature markets. We are growing the loan book just 1% compared with the previous year. We are growing pretty well in the liability side, and with extremely good quantity. So demand deposits are growing 12%, and mutual funds are around 11%, while time deposits are falling. So this reflects our policy and our bet on higher loyalty, higher transactionality with the customers.

When it comes to the balance sheet, all the figures are heading in the right direction. NPLs, 3.74%. We continue to reduce the stock of NPLs at a good pace. And the cost of credit is pretty much in line with what we were expecting. And we communicate to you both in Investor Day and the update Investor Day we did the last year.

We continue to make good progress, as I shown before in loyal customers and in -- both in individuals and in companies. And our digital proposition is making very good progress in all the countries with different propositions. I will elaborate a little bit more on look forward on this, but you see the growth that is quite impressive.

When it comes to the P&L, I'm going to focus in the constant euros column that is -- we see a pretty consistent progress on revenues that are growing in the 6%, 6.2%. Expenses, while under control, we will say in more detail unit by unit, but well under control. The provisions line reflect the improving quality that we -- credit quality we are having across the board, and those provisions are falling.

And it's true that in the quarter, we have a tax rate that is relatively high, 34%. We do not expect for the entire year to be at this level. Probably, we will more in the level of 31%, 32% in the coming quarters, in the -- for the whole year.

So when we compare the numbers with the previous quarters, while we are showing double-digit growth both compared with the previous quarter. Rather, the previous quarter, as you know, has the impact of the payment to the deposit guarantee scheme. And the second is the resolution fund, the (inaudible) that guarantees the payment of the guarantee scheme. But we are showing pretty good consistency in growing results.

With good performance market-by-market. You have on the right side, all the markets. As I mentioned before, all of them have -- are in positive territory but Poland. And Poland is still reflects a payment to the deposit guarantee scheme in Poland and some period-ification that, instead of falling into the first quarter, it goes into the second quarter. But the underlying profit in Poland is growing in double digit.

Generally speaking, profit growth in mature markets was due to lower provisions, reduced costs and higher fee income. The performance in interest -- in net interest income varies market to market to market. While in developing markets, we have a, as I said before, pretty good scenario of growth in volumes, high interest rates, greater customer loyalty and good market environment that translate into healthy numbers all across the P&L.

If we analyze first revenues, we see revenues, as I said before, growing 6%, EUR 300 million up, both NII and fee income. Other income, probably we had higher than usual trading gains due to financial interactions mainly in Brazil, probably something around EUR 100 million more than what should be expected going forward as an average quarter-after-quarter. But having said that, we are showing very good progress and very high quality on these revenues, both the NII and fee income are showing what we are doing in the ground with the progression I showed you in relation with the -- with our customer base.

When it comes to volumes, I said before, in the loan book, we have different trends about why when we focusing in mature markets, we see the -- still, the deleverage going on. No growth, decreasing in Spain, the loan book, U.S. and Portugal. While U.K. is relatively flat-ish. When it comes to emerging markets, we're showing, well, high single-digit growth. So this is the difference between emerging and mature markets. You stood at mature markets, both Spain and Portugal. Within that, we are starting to stabilize the size of the loan book. And probably we are heading to a more flattish environment, no more deleveraging in those markets.

In customer funds, we're doing pretty well. I mentioned before, we are growing in all the markets, pretty consistent, and the quality of the growth is very good. Well, demand deposits are growing double-digit, retail funds are growing double-digit while time deposits are still falling in an environment of (inaudible) rates. So this is the trends in volumes.

When it comes to fee income, fee income, as I mentioned before, we are in double-digit growth. This is pretty much the result of plenty of initiatives we are taking all across the board. What this page is trying to summarize in initiatives in different markets that are progressing quite well towards our goals in relation with customers.

You have the 1|2|3 requisition in Spain. You have the Santander Plus in Mexico that gathered 400,000 customers in the first quarter of 2017, 1.5 million since we launched last year. And then you have the proposition for the large multinationals in the cash management, Santander Cash Nexus. You have GetNet in Brazil acquiring business where we started from scratch a couple of years ago, and now we've already got north of 10% market share and we are progressing well. You have the greater Consignado in Brazil. Aeroméxico credit cards, where we already gone to 400,000 credit cards on this. And you have new propositions, new digital propositions, for consumer loans in Chile.

So all, we can elaborate more on this, but this try to reflect that the propositions being -- with a high component of digital operation are progressing quite well. And this reflects pretty well in the fee income. Retail banking fee income is growing, up 12%. GCB fee income is growing, up 14%.

On the cost side, firstly, we are growing the cost well below inflation, minus 1.6% of the inflation we have in our -- in the different geographies. We are being very selective here. We're investing quite heavily in Mexico to improve our operations, process systems and digital proposition to the customers. And you see the cost growing according to that, 4.3%, while we are accommodating with our offer to the customers in country, more mature markets. And you see the cost falling accordingly in Spain, in Portugal, in Poland and in the Corporate Centre, what -- due to the restructuring we did last year. So overall, we are making a -- we have a very good cost control that allow us to continue with one of the top in class in terms of efficiency.

Credit quality. Provisions are falling. Accordingly, our NPL ratio is falling almost 60 basis points in 1 year. The covering ratio is pretty stable. The cost of risk is falling. And I will say this quarter, and probably José will elaborate on this, this changing -- it's not the changing. It is aligning between the SCUSA and bank that produce an uplift of the NPL of 6 -- 7 basis points in the quarter that we will explain to you in more detail because it's a change of criteria that align the bank in the U.S. with SCUSA.

So finally, in terms of capital. We guide you towards 10 basis points per quarter on average. This quarter, organic was 7. We have -- in the numbers, you have -- we consolidate Argentina, just balance sheet at the end of the quarter, that consumed 3 basis points. And you have the available-for-sale portfolio that this quarter, the mark-to-market came positive. And that was mainly the available-for-sale portfolio. They are all minor issues. But the main one was this one, another 7 basis points. And we went into 10.66%.

Our leverage ratio continue to be very solid. And this taking into account that our density between risk-weighted assets and assets is one of the -- is in the higher part of the industry. So good progress in this, we are.

So just to update you we -- at the beginning of the year, we published our TLAC needs and our issuance needs in relation to comply with the TLAC. We made significant amount of issuance. EUR 13 billion in the quarter, EUR 8.8 billion were TLAC-eligible. So of the message here is on top of having the extraordinarily good liquidity position, we are making a significant progress towards having all the TLAC-eligible instruments in our balance sheet to comply with the regulation.

So finally, looking at the ratios. The main ratio, the return on risk-weighted assets, is progressing well at 1.48%. The return on tangible equity in the quarter is 12.1%, making 100 basis points higher than the previous year. The earnings per share, growing at 14%. And the tangible net asset value per share is still growing consistently, 5% year-on-year.

So as we announced in our shareholders' meeting, we -- our intention is to propose to increasing dividend of 5% total dividend, with the cash component growing close to 10%. And this is pretty consistent with what -- with our announcement to you that our intention was to grow the business, to increase the dividend and to keep building our capital ratio.

I'll now handle over to José that is going -- to elaborate on the business segments.

Thank you, José Antonio. Good morning, everyone. I will comment in more detail now on the main business areas and more quickly on the rest. And Santander's results are more stable and predictable than most of our competitors thanks to our diversification, not only in terms of business, as José Antonio showed in the slide, but also in terms of geographic diversification, where 50% of our business is in Europe, 50% is in the Americas and also roughly 50% is in developing economies and 50% in developed economies.

Compared with previous quarters, it's worth noting the increase in the contribution of Brazil that now represents 26% of our first quarter profits. In Brazil, we had an excellent quarter both in retail and in market-related revenues as lower interest rates and a more stable currency helped our customers be more active in their hedging activities.

Lending was up in the quarter year-on-year, 4%. And also, we continued to improve our funding structure with lower high-cost funding deposits, less on finance areas and more current accounts and time deposits that are significantly cheaper. We continue to flow very well in terms of loyal and digital customers, increasing transactionality. And we are doing more activities with these clients.

As a consequence of higher volumes and better spreads, we saw an improvement in net interest income. The spread was the highest in the last 9 quarters, as I said, benefiting from the lower rates that we are seeing in the country. Fee income is also growing significantly. As you can see year-on-year, is a 27% growth. Quarter-on-quarter fall is due to some seasonality associated with the accounting of insurance fees.

As I said, good performance in financial transactions, benefiting from the higher activity of our customers, corporate and large customers, in these type of business. Provisions were lower quarter-on-quarter and year-on-year. And the cost of credit was lower than in the fourth quarter. What we think, it peaked, and we will see from now on, gradually lower cost of credit going forward.

All in all, attributable profit was up 38% in constant euros. And the profitability of our business in Brazil increased significantly to a return on tangible equity of 16.5%. We believe that as the economy stabilizes and starts to grow and as interest rates continue to go lower, we will see a strong retail performance in the country. However, the first quarter performance, particularly related to trading gains and market-related gains, we don't think can be extrapolated to the next quarters.

In the U.K., the economy is doing better than we thought after Brexit. Expectations point to a 2% GDP growth this year. And as such, we are benefiting from this better activity than we expected. Our 1|2|3 proposition is -- which is -- which continues to be the most attractive in the country, continues to attract customers and balances. We are growing in companies, gaining market share, quarter-on-quarter of 3%. Although in mortgages, we saw lower demand.

Profits were up due to higher net interest income, driven by lower financial cost. This is the consequence of the revision of the conditions of the 1|2|3 account in November of last year. We had some impact in the fourth quarter. We now have a full impact in the forgive this year, and that explains the lower cost of deposits but also a very low cost of credit. It was almost -- it was 3 basis points, but very, very great quality remains very robust.

In the quarter, there is an extraordinary charge of GBP 32 million related to PPI and the publication of the FCA paper in March 2007 that sets a definite date to when the claims for that. And also a GBP 25 million charging cost associated with the banking reform.

In Spain, our 1|2|3 strategy continues to attract, like in the U.K., more customers and volumes. And this is helping us in all lines of the P&L. We now have more transactionality with our customers. 50% of the payments made in Spain by mobile devices are done -- are conducted through Santander thanks to ApplePay. And in the last few months, we have increased the number of credit cards and debit cards by around 1 million. And that is, as I said, reflected in the numbers. Loans were stable in the first quarter. We had good performance, as in previous quarters, in consumer loans and SMEs but lower demand in lending to institutions.

Year-on-year growth in profits is driven by lower cost of credit, lower costs and higher fee income. In this case, fee income was up 5% in our retail business and 19% in global corporate banking as better economic activity is helping us with our corporate clients as well.

We have had stable net interest income in the last few quarters. When we compare year-on-year, it's still lower, and this is due to the repricing -- mostly to the repricing of mortgages at lower rates. Remember, this is related to the 12-month Euribor that moved into negative territory in February, March of last year. But again, we have seen stability in net interest income in the last few quarters. Our expectation is to see basically flat loan growth and net interest income in the quarters to come.

Santander consumer had a very strong quarter, maintaining the positive trends that we saw in previous quarters. The profitability of the business reached 17% return on equity or 17%, which is a very good number. Lending increased in all countries, basically, as auto lending continues to do very, very well.

We are developing a digital strategy in Santander consumer, basically open -- an e-commerce open platform, digital interaction, analytics, digital et cetera, et cetera. In other words, we are trying to be more digital and we are starting to see the benefits of that. As I mentioned, lending in all our geographies that was positive.

Net interest income was higher and cost of credit continue to go lower. And this is the case for 8 quarters in a row. And right now, cost of credit and credit quality are at historically low levels.

It's worth noting the recovery in quarter-on-quarter fee income. It's true that fourth quarter fee income was abnormally low because of some one-off effects in Germany. And around this number, probably be less is what we would expect for fee income in the next few quarters in Santander Consumer Finance.

Now moving very quickly to the rest of the countries. In Mexico, we had a very good quarter in terms of activity and results. Profits were up 24%. As José Antonio mentioned, our commercial strategy is yielding very positive results. We already have 1.5 million customers in Santander Plus, Aeroméxico card has captured 500,000. And we continue to focus on capturing payrolls from the relationships we have with the largest customers in the country, with the largest corporates in the country. As a result, loyal customers were up 17% and digital customers up 61%.

Loans grew year-on-year double-digit. Also deposits increased double-digit. More importantly, the mix of our deposit base helped us benefit from the higher rates that we are seeing in the country. As a consequence of that, you're seeing higher spreads and higher net interest income, both the consequence of high spreads and higher volumes.

Fee income is also higher as a consequence of this better transactionality, more transactionality we have with our clients, but also due to more activity in advisory and investment banking-related fees in the country as investments in infrastructure continue to develop. Provisions increased due to more -- because of lending, as I mentioned, grew double-digit and also because of the sale of some nonperforming portfolios. However, cost of credit remained stable, very much stable, at around 3%.

Moving on to Chile. The focus in Chile continues to be the quality of service, digitalization and transforming our commercial and retail banking. We continue to focus on growing middle market and SMEs and accelerating the commercial transformation with a new branch model. Year-on-year profits were up 9%, basically with good performance all across the P&L in revenues, in costs and in provisions. And it is particularly important, the continued improvement in the quality of risk in Chile in the last few quarters.

Moving to Portugal. The 1|2|3 proposition continues to attract more customers and more volumes as well. In Portugal, loans were lower due to very low demand and also because we sold some portfolios. In deposits, the cost of deposits were down from 68 basis points to 30 basis points thanks to this 1|2|3 proposition and the fact that our bank in Portugal continues to be perceived as the best bank in the country.

Gross income was impacted by the sale of the ALCO portfolios last year. But again, good performance in provisions and costs explained the better performance in the bottom line. Lastly, just to mention that we reached a tentative agreement with the government related to the dispute associated with the swap contracts with public transportation companies.

Moving to Argentina. As José Antonio mentioned, we accounted for the acquisition of Citi at the end of the quarter. So we have the full balance sheet accounted for as of the 31st of March. That meant approximately 15% growth in volumes. But because it was at the end of the quarter, we don't have any impact on the P&L. We are gaining market share as the economy stabilizes. Argentina is one of the countries with the lowest banking penetrations. We're starting to see loan demand and we are benefiting from that, gaining market share in loans. Profits were driven by higher volumes and greater weight of total deposits and attractive prices and also improved efficiency.

Moving to the U.S. The focus at the bank is to improve its profitability. In that sense, we are having measures to have costs under control, optimizing the balance sheet, decreasing the cost of deposits as the core deposits went up 6%. And with higher -- slightly higher rates in the U.S., we are also benefiting there. Profits went up due to, as I mentioned, lower funding cost, more stable operating cost and lower provisions relative to the first quarter of last year, where we had a one-off-related to the oil and gas segment.

In Santander consumer, we continue with our strategy to derisk the company, improving the cost of funding are realizing the full potential of the agreement with Chrysler. Profits were lower due to the change in mix towards a low-risk profile and still high cost. And we changed the accounting of nonperforming loans at Santander consumer to make it -- to align it with the accounting that we have at the bank. As a consequence of that, we had an increase in nonperforming loans in the quarter and some small movements between different lines in the P&L. No impacts at the bottom line though. And if you want more details, our Investor Relation department is at your disposal to discuss these small changes amongst different items in the P&L.

Finally, in Poland. We had a very good level of activity with loans to individuals growing 9%; to SMEs, growing 7%; and very strong growth in demand deposits. There were, however, some one-off elements not attributable to the management of the company this quarter that make the post-tax comparability not accurate. We have a higher tax rate, an extraordinary contribution to the deposit guarantee fund. And also the impact of the tax on assets essence that was put in place in the first quarter of 2016. Without these effects, earnings would have grown double digits with a good evolution of net interest income. Cost, as José Antonio showed, very well under control, and improved asset quality.

Let me now analyze the Corporate Centre. Losses in the quarter were higher due to the higher cost of our ForEx hedging, which explains the increase in the negative figure against -- or in this case, it's losses on financial transactions. Eliminating this impact, which obviously shows -- will continue to show some volatility in the coming quarters, the weight of the Corporate Centre relative to the total of the bank was lower than 20%, which is our objective long term.

The financial costs were also up due to the issuance of TLAC-eligible instruments which we issued in the quarter, basically explain approximately between EUR 8 million to EUR 10 million increase in the financial costs this quarter. In terms of operating cost, meaning they just represent 2% of group's total cost and were 5% lower year-on-year.

And with this, I will turn it back to José Antonio for his final remarks. Thank you.

Thank you, José. To conclude and without taking time away for your questions, let me to highlight that, as I said at the beginning, we are making good progress towards our goal. You have in the screen, the main targets we have and our progress in all of them. So I think that our progress is good. And more important that, that is consistent and is predictable. Both in the commercial side at the top, of how the commercial side translated into the financial figures, into fee income, into lower cost of risk, cost to income headed in the right direction. And finally, it translate into figures into the EPS, dividend per share and our capital building efforts. This is the past.

What we face in front of us is a macro environment that is, I will say I will qualify as constructive. So last year, we still had Brazil in a recession. Now it's not a great environment, but we expect some positive growth this year. And the reforms in the country are going the right direction and we expect to show more progress there. So the macro environment is more constructive.

And interest rates, well, 1 year ago probably, we were discussing how low it can go. Now we are discussing when eventually it may go up in the coming quarters, so that means quite a change in the position we have in the macro environment and in the future of interest rates, that as you know, affect in a significant way our commercial banking.

While our plan is to continue with our strategy. You have the figures in which we focus the most to see how our strategy is going in the right direction, and the loyal customer, the retail customer, how this translate into fee income growth.

And if we are able to improve our efficiency ratio as -- and to keep the distance, or if possible, improve distance with our peers. So in this way, digitalization is a key enabler in order to -- on both sides to produce higher revenues and lower cost and translate it into higher customer satisfaction. And then what is at the bottom, in any market, we are top 3 in customer satisfaction in the countries we operate. And this is the best start in order to [create] larger, some more productive customer base over time.

So when it comes to the value we are originating for the shareholders, I already mentioned our dividend policy. We -- our intention is to increase by 5%. The cash dividend by 9% this year, while our dividend yield was approximately around 4%. And our total shareholder return is well -- our target is to be well above the market in the short-, medium- and long-term. And long-term is extremely important for us.

Let me to remember that we're going to have our group strategy update in October in New York, 10th of October in New York. And more than happy to have you there to discuss where we are heading, to want to update to you of the main trends of the business.

And I leave you here. Now you have time for your questions that we try to address.

Thank you.

Indeed, now we have time to take (technical difficulty) on the phone. So please, operator, we can kick off the Q&A session.

(Operator Instructions) The first question we have today is from Francisco Riquel from Alantra Equities.

Particularly in Brazil which is the area I wanted to focus. Two questions here. The first on margins. If you can drive us through the trends in margins now that the SELIC rates are falling rapidly and will continue to fall in the next 18 months. Shall we expect a short-term uplift and then margins to fall year end or next year? Or how shall we think about normalized margins in the low interest rate environment versus the loan growth that you expect, NII versus loan growth? And also, if you can update the trends in spreads by the main categories. And the second is about the cost of risk in Brazil. It is improving every day, but when -- where would you see the normalized level now that the economy is improving? And where do you thank you can get there?

Thank you for the questions. I will try to address the 2 questions. Yes. The first thing, one, margins trends. What you saw in the quarter, some growth in margins, both in assets and liabilities. So in the loan book and the deposits. But I continue with the loan book expansion in margins was due mainly to the change in mix. We are growing faster in consumer-related activities than in Global Corporate Banking or in corporates. And this -- due to the mix, the margins went up. While in deposits, we'll be much more effective in managing deposit costs and I don't think that we continue to follow this trend. We are midway still in matching the deposit cost. So the earning margins will depend very much on the mix on the asset side and we still have some room to improve on the deposits on the liability side, with some substitution effect between some wholesale products that's changing for time deposits, some things like that. Finally, you mentioned -- the second question is the cost of risk. The cost of risk, as José said, we are starting to show a decreasing trend. We are now, for 8 years something like that, we come around 5%. Probably, we are heading towards some figure close to 4%. Yes. So but I'm meaning -- I am looking from now, 3 or 4 quarters from now, having a trend towards approaching the 4% maybe at some point, with the cycle being more advanced. I don't know if you want to add.

No.

The next question comes from Marta Sanchez from Bank of America Merrill Lynch.

I've got 2. The first one is on Santander Consumer Finance. The cost of risk there remains abnormally low compared to history, here at just about 28 basis points. And the average since 2007 has been above 150. In a context where there are rising concerns around the value of collaterals for auto lending and that we may have IFRS 9 impacts soon, how do you see the cost of risk for Santander consumer in Europe going forward? And the second question is on capital. Your organic generation is a touch softer than your 40 basis points guidance for the full year. Given that we have headwinds before year-end of about 20 basis points if just taking SCUSA increases and then once you consolidate your asset management business, how do you see the capital before year end? You think you'll be able to be above 11?

Okay. The first question, the cost of raising consumer finance is to what you said, Jose elaborated on this, we're at the lower level in this cycle. Well, let me elaborate a little bit more on the business that is behind this. This business is 65 car lending with some collateral. The collateral is the car and the 35% remaining is durable goods and credit cards, mainly durable goods, some (inaudible) lending. It's true that the cost of risk is low, it's low compared with respect to the growth of the cycle, but we're not seeing any sign of the deterioration on this. It's important to take into account that this business is probably -- Jose show in the presentation is like 1/3, a little bit less. 20% of the profits come from Nordic countries, around 20% from Germany and a little bit less from Spain. So the portfolio, out of the EUR 90 billion portfolio, like the EUR 50 billion or EUR 55 billion comes from North European countries that typically the cost of risk, with respect to the cost of risk is lower than in Southern European countries. And -- but having said that, what you said is absolutely true. But we are not seeing any sign of deterioration at this stage. The capital you then -- you mentioned -- you pointed clearly, the moving business we have in relation with this. Organically, we think that we can keep generating on average of 10 basis points in the quarter, is to that we agreed to buy back 50% of our asset management. Also, we have the commitment to buy just a stake in SCUSA. And we already told you that, if I am right, I'm speaking by memory, this consumer between both like 17 or 18 basis points. So you can make your numbers, based on our expectation of organic generation plus the 17 basis points that may cost us when the -- we get the regulatory approval for both acquisitions.

Next question, please.

The next question is from José Abad from Goldman Sachs.

I have 3 questions. The first one is on the real estate division in Spain. Could you please give us some color regarding the units that you sold in the quarter? Maybe demand? How close asset classes have you seen? And maybe also sell prices when you'll sell enough at or above or below book value? And maybe also expectations regarding provisions and activity in that division going forward? Second is on the cost of risk in Spain. You've reported 33 bps, which is around half of what you reported a year ago. Is that the bottom of the cycle cost of risk? Or given the strength of the macrocycle in the Spain, you expect this to go even lower? If so, how low could the cost of risk in Spain go? And the last question is on the order income and losses line at the group level. So you've reported EUR 707 million here, this is around half -- twice as much as what the market was expecting. So business model is spread across 3 regions: Spain, U.K., Brazil. Could you please give us some color on what is actually behind this number?

Okay. I'm going to answer the second and the third question. I'll hand it to Jose to answer the real estate one. So in relation to the cost of risk, you mentioned the 33 or 30-something basis points in Spain while the credit cycle is quite benign. We still expect because of this to go a bit lower. How low can it go? Difficult to say. In some cases, we see some overshoot in it, depends on the market conditions. But as a reference at some point in the previous cycle, we got as low as 16 basis points, if I remember well. So still some room to go lower than we are. What base? Difficult to say. But I will bet on our lower cost of risk in Spain. You mentioned our income very high, this is mainly due to Brazil. In Brazil, as you know, we have a significant contingencies both for labor-related litigation and for civil litigations in Brazil. And we increased provisions there to face potential future claims on these 2 fronts. And this is the main reason there are other items, but the main one is in Brazil. There may be another items here and there but the main one is due to Brazil and that's the reason why this figure -- the other income came negative double-down or moved double-down, what is usual quarter-on-quarter. Jose?

So your question about the sales of our real estate unit in the quarter. We sold slightly over 3,000 units, including everything, for a total gross amount of around EUR 600 million. The discount -- the average discount on this was 40%, similar to the average in '16 and in '15. And obviously, at these discount levels, no impact in our P&L.

The next question comes from Alvaro Serrano from Morgan Stanley.

Two questions and a quick clarification. On Brazil, first of all, you mentioned the margins, there's still some room to improve margins. If I look at the run rates, it looks like you're running for double-digit NII growth, which is I think is slightly better than the guidance you'd previously done. When we look at the next few quarters, is it -- are you purely relying on margin improvements or I see the loan growth is still pretty muted. What do you expect in loan growth in that relatively constructive margin outlook that you've given? The second question is on Spain. Just today another article talked about potential M&A involving Santander. You've mentioned your policy before but maybe for you, Jose Antonio, as the CEO, when you look at your Spanish business, some of your competitors now are a lot bigger than a few years ago. What would you ideally want bigger? And what segments do you want to be bigger? What regions could you be bigger? Where could you improve your franchise in Spain? And the quick clarification. Have you booked the Tier 2 coupon in the quarter?

Okay. Well, I will clarify a little bit margins in Brazil. Our best estimation is, as I said before, that the margins, line by line, will remain relatively flat, yes? What is going to drive the margin mainly is the mix. What is happening right now is we're growing extremely fast. Through gaining market share in several segments, that relatively high margins is like auto lending and payroll-based lending. We are growing much faster than the market. Those tend to be higher margins and the average and this is running the margins up. Also, we are doing a -- the team is doing a very good job of the liability side and also the deposit margins went up and we expect to see some room there other than interest rates falling. You mentioned also that in absolute terms, not in margins and NII, the loan growth. Well, we haven't changed our minds. We expect the Brazilian economy to grow sometime this year, not particularly strong growth. But coming from the minus 3.6% or 3.8% last year into some positive this year is a big change. And we expect the -- accordingly, to this, we expect mid- to high single-digit growth in the loan book. Other things equal, keep in mind that the depreciation, appreciation of the currency affect the size of the loan book due to -- some part of the loan book is in U.S. dollars. In relation to Spain, well, first of all, as you very well know, we don't have a problem of scale in Spain. We don't want to bet on the size in any market, in Spain or in any other markets. Size is not a target for us. And if someone else is bigger than us in balance sheet, we want to -- we try to be better than our competitors in profitability and in the capacity to relate consistent, predictable profits going forward. This is how we roll. So naturally, we've been pretty clear with you, in the markets that we didn't call for Santander. We are going to look at the opportunities that may arise in the market opportunities in the sense that someone is willing to sell or there is process because some bank failed and we look at this and the same apply to Spain. So we're going to apply our -- it's more a financial exercise than a strategic exercise because we don't need more scale than the one we have in Spain. If something comes to the market, we will look at it, and we apply our traditional approach of trying to get a return on equity significantly higher -- return on investment higher than our cost of equity and being accretive in EPS in a relatively short period of time. Those are our guide. You mentioned, finally, TLTRO was included in the quarter.

We started accruing for TLTRO from January 1. Thanks, Alvaro. Next question, please.

The next question is from Ignacio Ulargui from Deutsche Bank.

I just have 2 questions. One on -- if you could just keep us a bit of a guidance on preliminary impact on IFRS 9? Or could you imply that to the provision in charge next year? And secondly, just a bit of follow-up. You said that trading in Brazil cannot be extrapolated. Is other provisions as well -- something that will be something offset? And should we expect this increase we've seen in the quarter to happen in the coming quarters as well? Or was it bit of a one-off because of your stronger trend in income?

Okay. The first question guidance from IFRS 9. We are running the process we are refining this but the best estimate we have right now undertake this is a written in stone is that may -- on a fully loaded basis may cost us around 15, 1 5, basis points one-off in capital at the beginning, I think, it's at 1 January 2019, (inaudible) yes? So this is...

January 18.

'18. Sorry. 2018. This is our best estimation at this stage. You mentioned all provisions one-off -- the Brazil is a one-off -- is kind of a recurring item. I will expect to be more kind of a one-off recurring. So I do not expect the other income to remain at these levels quarter-on-quarter, particularly, in Brazil in relation with this. We increased provisions for labor-related costs, litigation in relation with labor because although we are doing pretty well in the number of cases we win the court, the cost per case is getting higher and that's the reason why we did more provisions specifically.

Next question, please.

The next question is from Sofie Peterzens from JPMorgan.

This is Sofie Peterzens for JPMorgan. I was wondering if you could just update us on your interest rates sensitivity? How we should think about the impact from 100 basis points increase in rates? And my second question is on from the (inaudible)U. S. There is some market concern around the order in the market in the U.S. Could you just give your view on how we should think about that going forward? And in addition of what do you expect from the [seek] or stress test later this year?

Stress test? Can you elaborate?

Let me answer the first question, the interest rate sensitivity. I'm going to give you some rough numbers, again. This is for a parallel move upwards of a 100 basis points, which as you all know, this is obviously a theoretical exercise because this never happens this way. But for the parent company, we will have a positive impact of around EUR 450 million. Close to EUR 600 million in the U.K., EUR 150 million in the U.S., and over EUR 100 million in Portugal. On the other side, 100 basis points drop in Brazil generates around EUR 100 million.

Okay. Auto lending in the U.S. as has Jose mentioned in the presentation, last year, we reached a little bit above portfolio, so that means that we -- our average FICO in the underwriting was higher than in the previous year. As a result of this, the yield went down on a like-for-like basis. The market, to be honest, is very dynamic, yes? So it's fairly competitive and very dynamic and the different players (inaudible) up to the market and the view they have in the markets. The main discussion in the market is not much about yield, it's more about eventual credit quality and the discussion of our residual volumes going forward, yes? So -- but we, as SCUSA, reviews the average yield on higher FICO underwrite. This is what we did. We naturally expect according to this to have a lower cost of risk. In relation with the stress test, well, I don't know if you want to elaborate something.

Nothing in the U.S.

In the U.S., well, we -- on the quantitative basis, well, we passed very well. We are one of the best-capitalized banks in the States. Our (inaudible) fully loaded in our holding companies' north of 14%. Last year, after stress test, we were in the 11%. So I do not expect any particular thing on this. What is more important is, we are probably -- as we are making, I would say, a very good progress in addressing the items that were in the former (inaudible) on the qualitative side, and when we look at the issues pending in relation with the supervisor and the regulator, we reduced dramatically. Dramatically means that we reduced more than 60% the number of our standing issues with the regulators last year. This year, we're making good progress, so we spent good news on the regulatory front in the U.S. And on the quantitative side, honestly, our solvency ratios and everything is very good.

Thanks, Sofie. Next one, please.

The next question is from Ignacio Sánchez-asiaín Sanz from UBS.

A couple of questions and a clarification and back to the net interest income in Brazil, you tell us the size of the treasury portfolio you have there and the contribution to net interest income from that? Second question, in terms of fees and Latin America, if you can give us a flavor in terms of what kind of growth rates we should be expecting for the rest of the year? And the clarification is on the tax rate. I think I understood that you're expecting the tax rate for the group to go back to levels of around 31%, 32%, the rest of the year. Is that correct?

The ALCO portfolio is still the size is EUR 11 billion. Last year it was making some negative margin. This year it's already in positive. Very likely, it's going to be more positive going forward. The size of the portfolio is EUR 11 billion, yes? So the second question, fee income. Fee income, I'm fairly positive, fairly optimistic, about our capacity to continue to [utilize] Banco -- good fee income, which I would say across the board. In Mexico, we are progressing quite well in gathering new customers. In Brazil, we are gaining market share in a significant way, involving credit cards, in acquiring business. We're doing well in mutual funds, you saw, we grew 11% in mutual funds. I think we're 11% more in Brazil and in Latin America. So I'm fairly optimistic about our capacity to keep growing because the correlation is very high between the number of customers we've got, the number of loyal customers we are able to increase and the fee income that we are able to generate. Particularly in Brazil is due to we are making solid market share gains in high generating fee income business, acquiring on credit cards, particularly. Also in consumer lending and the auto lending. I mentioned the corporate tax this quarter was 34%. I guide you to 31%, 32% corporate tax for the whole year.

Thanks, Ignacio. Next question, please.

The next question is from Mario Ropero from Fidentiis.

I have a question on the cost to evolution in Spain. That is -- there was a material reduction in the headcount in this division. Could you comment on this? And whether this is part of a bigger reduction going on in 2017. And also on the cost savings, you are expecting from this? Whether we have seen all of this already in the first quarter? And then in line with all this, if you can give us guidance on the cost to evolution in Spain in the year.

Cost in Spain, well, it came down 4% or something like that. It's what we expect for the year, yes? So if we got close to this, yes? So this is the result of the restructuring we've done last year, and we don't have any particular plan like the one we did last year, we are accommodating our distribution network, investing in the distribution network, investing in digital capabilities, in order to accommodate our distribution capabilities to the -- what is our perceived demand by our customers. So this led to a significant investment in the utilization and changing the morphology of the branches of the -- those of you who are in Spain, you see that we are in the process of adopting our branches as to what is our perception of the future events.

Thanks, Mario. Next question, please.

The next question comes from Stefan Nedialkov from Citigroup.

I've got 3 quick questions. On fees, are you retrading your 10% CAGR guidance through 2018? On Brazil, how is your loan growth guidance of mid- to high single digits going forward? Does that incorporate what the government is doing with the state banks in terms of removing the subsidies from the lending rates that the state banks are offering as well as the potential change in reserve requirements on the deposit side? And my third question is on the U.S. SCUSA. Do you, as a general course of business, carry insurance on your residual values for used cars?

Well, fee income. We keep our guidance for 2018. So we said, (inaudible) got 10%, if I remember well, on the 3-year period. We come from low levels. We are now slightly above 10%. But on average, we think that we keep the guidance for this circa 10%. In Brazil, you mentioned the guidance we gave for the loan growth and how this can be affected by the policy of the state-owned banks. Naturally, they change the policy. Probably they cannot affect the market if mainly they produce subsidized loans to the economy, this affects our growth vis-à-vis their growth. I don't expect this to happen. Also the reserve requirement, this has been usually in the past for different purposes. I do see the monetary policy being more orthodox going forward. So I do not expect -- it may happen, but I do not expect a material change in the reserve requirements. It's true that we may expect some pressure coming from, in particular, products or settlements, coming from the supervisor or the regulator or the concerned authorities in order to reduce spread in some items. Or fee income or fees in some specific approach. This may happen. We should take expect from time to time this to happen. You mentioned the used cars if we have any kind of insurance. I understand that you're referring to the residual value. What I can tell you is, we are being very conservative in our provisioning, vis-à-vis with the residual value that we have one of the -- we know that this is one of the main reason we are facing in this business and we are being very conservative in provisioning in this particular circle.

If I may add, we have a -- the accounting of the spread of the loan is dynamic. So either adjust to the expected residual value at every single -- at any given time. So if during the life of the loan we see lower expected values, the income we accrue on that particular loan is adjusted downward to account for that adjustment to residual value. So it is conservatism. It's very -- it's a conservative accounting of revenues and of provisions.

Thanks for your question, Stephan. Next one, please.

The next question is from Adrian Cighi from RBC.

This is Adrian Cighi from RBC. I have a few questions following up on Spain and one on the U.K. On Spain, loan yields declined in the quarter but aside from the repricing on mortgages, are there any other spread developments particularly on the corporate loans that you could highlight? And when do you expect the repricing for mortgage-backed books to turn positive? And on the U.K., you mentioned new asset margin pressure. Do you see this across any particular customer segments? Or is this across all products?

Well, the pricing mortgages in Spain, well you follow the Euribor 1 year, we are coming to -- the Euribor 1 year has been relatively stable in the last couple of months in negative territory around minus 10 basis points or something like that. I -- what we do is expect is -- well, the repricing downward's coming to an end or it's coming to an end. And at some point, if we are right in our expectation towards higher rates at some point, at the beginning of next year, given at the beginning of next year, the Euribor [tour] start to turn around in the other direction. But for this year, we do not expect any big deal coming from the repricing mortgages. The majority of the repricing is done and what we expect is certain kind of stability in a couple of months before we see a -- this change in direction and going eventually up. And in the U.K., the question was?

Mortgages.

Well, in mortgages -- well, when I compare this year with the previous year, the margin is lower this year, only was 1 year ago at this stage, at this point. But the market remains fairly competitive with up and downs that happened very often. But the market, in general, is very competitive and the margins -- the front book margins that we see today comparable to what we saw 1 year ago at this period of time are now lower. It's true that on the other side, attrition in SVR book is now lower than it was 1 year ago, okay? So somehow one compensate the other. But they are the true trends that we are seeing in the market.

Next question, please.

The next question comes from Carlos Cobo from Societe Generale. The line from Carlos Cobo just dropped so we will take now the question from Daragh Quinn, KBW.

It's Daragh Quinn from KBW. Just a question on the U.K. Could you just remind us of your outlook for normalized loan loss charges given the change in mix that you're seeing and expecting in the loan growth? And then a question on Mexico. If you could just comment on the increase in loan loss provisions this quarter. Your outlook for the remainder of the year and also if you think you can maintain the current level of loan growth? Or do you expect a further slowdown?

Quinn, (inaudible) as you mentioned, the loan loss charge is at the minimum level. So (inaudible) that at some point in last year, we were expecting to go higher. Currently, we are not seeing any kind of deterioration. And as a result, the loan loss charges are they -- very low level as you can see in the P&L. In the -- it's true that we're changing the mix, we're growing faster on the mid-corporates, SMEs and some mid-corporations. We are growing loans, but at this period of -- particularly, this period of time, we are seeing very good credit quality all across the board. And although we have been relatively cautious vis-à-vis with Brexit on having a slowdown in the economy, we haven't seen so far any of these happening. On the other side, what we are seeing is a fairly competitive unsecure personal lending market. So it's something that is growing and it's fairly competitive and we are now growing that much there. In Mexico, you mentioned increase in loan losses this quarter and the loan growth. We reduced our loan growth at the end of last the year and this quarter we were a bit cautious vis-à-vis with the economic, macroeconomic developments. Now things are turning much better, and these 2 that we show in the quarter some loan losses, particularly, coming from the credit cards. But we analyze this, we are not seeing any particular trend that we can extrapolate from what has happened in the first quarter. Probably some of them due to some particularly heightened simplification, things like that. Nothing that lead us to change our view and relation with the credit losses in Mexico.

If I may add, as I said, the cost of credit was around 3% in the quarter. And we would expect that to remain very much at these levels for the rest of the year, slightly upwards, slightly downwards, but around the 3% level we showed in the first quarter. Thanks for the question, Daragh. Next one, please.

The next question comes from Mario Lodos from Banco de Sabadell.

I have 2 quick ones on Brazil. First of all, if you can help me somehow to understand the dynamics of the client liabilities and maybe time deposits. They are going strongly for the last 3 quarters. And I would like to understand if this -- why it didn't happen before. Is it just a result of the 1|2|3 accounts? And on the other hand, related to Brazil as well, can you give us some info on payrolls in Brazil? I mean, this kind of lending is more demanding on cost of risk or is it, let's say, equal to the rest of the portfolio?

The 2 questions. In current liabilities, we changed our pricing and product policy more than 1 year ago. What we are seeing now at the beginning was the materiality in the P&L was below. Now it's getting more and more important. So we think that with this change in products that is going on, we are reducing a kind of wholesale products. That is called (foreign language) in Brazil, and we are pushing more towards time deposits. At the same time, we align our pricing policies in other products with those of our competitors. And as a result of this, quarter-on-quarter, we are making significant progress on the margins we are getting on the liability side. This is, as I mentioned before, this is not yet come -- came to an end. Will came to an end -- it will normalize, I would say, at the end of this year, more or less, yes. Payroll in Brazil. The payroll-based lending in Brazil, that is what they call credit to [cost] now, is a low-risk lending, yes. So you have as a collateral, the payroll. And those workers tend to be workers of state of -- or public service worker or multinational, so very large companies. So this lending is relatively low risk. The reason we are growing so fast -- and let me -- to remember you that we bought a specialized lender on this segment 1 year ago, 1.5 years ago. And since that, we are growing very fast in this product. We are now in the 50s and 60% year-on-year and we are gaining significant market share in this product. But it's relatively low cost of risk.

The next question comes from Andrea Filtri from Mediobanca.

.

At this stage, how do you consider the potential Basel IV interim impacts within your CET1 targets? And how should we look at the potential risk from the notary fees on Spanish mortgages? Finally, do you consider the current profitability of the U.K. franchise sustainable?

Okay. In relation with Basel IV, well, there's no news in relation with this, yes, so we are kind of in a standstill period. We don't have any particular -- I don't know if you have any particular thing to add on this, yes. In relation with Spain, the mortgages, plenty of noises. The government is working in a draft of new mortgage law that eventually will get approved in the coming quarters, yes. So specifically, in the question you raised, commissions -- or the fees -- other fees, aside from floor losses, there is plenty of noise in the market. When you get fees that devalue a lot, the fees that may be at risk are relatively minor fees. Some of the ones who are mentioned like the taxes and other major fees are not at risk, from my point of view. But are [at risk] some minor fees, we think it may be relatively low potential impact. The return on tangible equity, U.K. profitability in U.K. is to (inaudible) well above our guidance for 2018 right now. As I said before, when we were presenting our view for U.K. last year by September, the market was -- ourselves -- we took a view that was cautious, vis-à-vis with the developments in the big growth in the U.K. Now things came better than we were expecting. And we -- accordingly, we got a return of tangible equity that is higher. Also, let me point out the question that was raised by one of your colleagues before, the loan-loss charges, a minimum level in the U.K. that advise us to be relatively cautious in developments in this regard.

The next question is from Britta Schmidt from Autonomous Research.

I've got 2 questions, please. One is on costs. Costs in Mexico and Brazil were higher and they are expected to be higher due to investments, but the run rate is still below the initially guided run rate according to the local guidance. I think in Mexico, the guidance was 10% to 12%, excluding the deposit insurance funds, and the growth was around 8%. Should we expect that the growth side is going to accelerate throughout the year? Or is there a better underlying cost development in these 2 divisions? And then, secondly, with regards to funding costs, what's the outlook for the net interest income development in the Corporate Centre, bearing in mind more TLAC eligible issuance to come. And then lastly, one clarification, could you give us the volume of the term funding scheme drawn down in the U.K., please?

Okay. You mentioned costs in Mexico and Brazil. We guide you a significant investment plan in Mexico that is going on. While we guide to around 10% or close to 10%, we are a bit below. But well, a figure close to 10% continues to be the accurate one for our investment, given what is going on in our investments in Mexico. You mentioned also Brazil. Brazil, the main driver has been the labor agreement. The labor agreement, if I remember well, was in the line of 10%, was based on past inflation and deflation at the time when we were -- when the banks in Brazil, the commercial banks, reached an agreement with the unions, was in September was based on the inflation at the time. That, if I remember well, the salaries went up by 10%, and this is what is reflected on our Brazilian cost. We do not expect the cost in Brazil on a like-for-like basis. We refer substantially off inflation in the country. The funding in Corporate Centre, did you want to elaborate on this, José?

The special funds scheme in U.K. kind of amount to around GBP 8 billion to GBP 9 billion in our bank in the U.K.

Corporate Centre.

And the Corporate Centre, TLAC instruments. Well, the -- our plan to issue TLAC-eligible instruments was shown to all of you in January. We are in line to meet those targets. Obviously, there are some uncertainties about the grandfathering of senior debt, whether it's going to be from -- already afflicting existing issuances or there's going to be a cutoff date, whether it's going to be [2.5 of 2.5]. So there's some uncertainties about that, but in general terms, our TLAC amount should be somewhere in the region of EUR 20 billion to EUR 30 billion. We are very much in line to reach that. The average cost of senior non-preferred relative to senior is 50 basis points higher on average. And the -- and our plans are to reach the 1.5% 81 and to keep the 2% Tier 2 contributions that we already have at the moment.

The next question comes from Carlos García from Kepler Cheuvreux.

Three quick questions. On Brazil, could you detail what part of NII on commissions is what you would call market related to understand what is the sensitivity there? Secondly, on the U.S. consumer business, could you give us an idea of the size of the pure subprime portfolio? How is it performing, given that in the sector, delinquencies are going up? If I'm correctly understood your presentations in the past, you were moving towards lower FICO on this subprime part. And thirdly, a marginal question on capital. Do you -- when I look at your Pillar 2 requirement, it is very similar to other banks, which have a very different profiles in terms of emerging market exposures or exposure real estate? Do you think there will be, at some point, a differentiation between the different banks? As you mentioned, your franchise is much more stable and predictable?

Third question about Brazil, how big is the NII? How much is affected NII and fee income by market-driven activities? Nothing particular here, yes. So we have very good developments on the -- but the cash improved the most. And I've been telling quarter after quarter the quality of franchise in Brazil has been improving the last couple of years. And what we are showing by division, by -- internally, the performance of retail in Brazil is -- has been very good. In relation with the SCUSA subprime portfolio, no particular change here. The portfolio is 20 -- around EUR 20 billion or a little -- around EUR 20 billion is the traditional business. You said -- or I understood poorly that we were heading into lower FICO. We were heading into higher FICO, on average, in our underwriting. And there has not been particular changes there, and we expect, going forward, due to this underwriting of higher FICO on average to have a lower cost of risk. Capital requirements. You elaborated on -- if I understood you well that having exposure to emerging markets, our capital requirements will be higher than other competitors. I will say the stress tests show exactly the opposite of what you were saying, yes. So when we go into the stress test, naturally, we take this higher volatility in emerging market [industries] we introduced at the end. Our potential -- the potential impact of stress test in our -- the impact in our capital is much lower than the majority of our competitors, so we have a case to have aspirations or -- on lower capital requirements due to this and due to the fact that our density between risk-weighted assets and assets are much higher. It's almost, in some cases, double than the majority of our competitors.

The next question comes from Carlos Peixoto from BPI.

Most of my questions have already been answered, so just a couple of follow-up questions. On the tax front, you already mentioned that you expect the taxes to come down at a group level to around 31%, 32%. I was wondering how much of that should -- or how much will be the effect coming out of Brazil, given that the tax rate this quarter was quite high? Should we expect it to come down over the coming quarters as well? The other question had to do with the U.K. You mentioned the GBP 25 million related with banking reform costs. Should we expect further costs related with this in -- over coming quarters, or how you see costs evolving, basically, throughout the year?

Well, Brazil -- naturally, the tax rate in Brazil has a significant effect. If I will remember well, the tax rate in Brazil this quarter was particularly high, north of 40%, if I remember well. So in the guidance I gave you, naturally includes some normalization, if I would say, of the tax rate in Brazil. And in U.K., banking reform costs, the GBP 25 million we have in the [country]. We expect to continue to have some costs, naturally, coming from the banking reform out of -- we spent the whole year, a lower rate and the one we show in the first quarter in the costs growth in the U.K. than the one we show in the first quarter, yes.

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

Just 2 quick questions for me. First of all, just to follow-up on the TLTRO II funding, can you just confirm what your total usage now is, and perhaps, how that is split between Spain, Portugal and the consumer unit? And then, secondly, just on Spain, on the ALCO portfolio, is it possible to get an update on the average size, yield and duration of the portfolio in Spain?

The total TLTRO that we have for the group is slightly north of around EUR 30 billion. And the slightly -- ALCO portfolio in Spain is around EUR 20 billion. Average maturity, less than 3 years; and the yield, slightly less than 2%.

Our last question for today is from Javier Bernat from GVC Gaesco.

My questions have already been answered, but I would proceed. If you could give us some guidance about the trend of risk-weighted assets, if you think the 4% growth of the first quarter will keep on for the rest of the year. And -- well, there's another follow-up question regarding Mexico. Do you expect -- what do you expect about interest rates? It seems like the consensus is it -- that will decline from, let's say, 11% to around 9%. So what is your view on this?

Risk-weighted assets growth, we do not -- we expect what we've been guiding you 3%, 4%. This is the kind of growth we expect. Although, as I said, this is a combination of emerging markets growing faster, much faster and mature markets being relatively flattish, so there's more growth in mature markets. I refer to the loan book, naturally. In Mexico, interest rate, we expect -- our expectation is to go slightly up. Inflation went up. Still, some room to increase the rates in Mexico but not that much.

There are 6.5% now. Market expects between 1 and 2 movements of 25 basis points, so it will end up the year at between 6.75% or 7%. That's what the market expects, and we tend to be aligned with that.

I think we need to leave it here. Obviously, the entire IR team is at your disposal for any follow-up. Thanks, all.