Good morning, everyone, and welcome to BBVA First Quarter 2020 Results Presentation. I hope all of you are healthy and safe. I'm Gloria Colfero, Head of Investor Relations, and we have also Onur Ghent, Chief Executive Officer of the Group and Jaime Sanretejara, BBVA Group CFO, participating in this webcast. This time, we're doing it remotely. As in previous quarters, Onur will begin with the presentation of group results and then Jaime will review the business areas.
We will move his slide to the live Q and A session after that. And now I will turn it over to Anur to start with the presentation.
Thank you, Gloria. Good morning to everyone. Welcome and thank you for joining BBVA's Q1 2020 results. We are doing this through the webcast, obviously. So thank you for your flexibility and availability.
I really hope also that you and your families and friends Are all healthy and safe. Let me also express my condolences to the relatives and friends of those who passed away during these hard days. So moving to our presentation. On Slide 3, let me start with The BBA's response to this exceptional environment. I have to say that I'm very proud of our organization.
We are rising up to the challenge in my view. Our purpose, creating opportunities, has become more important than ever in my view in this environment, and we have established Very clear priorities in our response to the crisis. 1st, and you can see that on the left hand side of the page, to protect the health and the safety of our employees, Clients and the community in general, from the very beginning, before the official government measures were put in place, we implemented plans for our employees to work from home. As of today, more than 86,000 employees of BBVA, 95% of our central services and 71% of our network Are working remotely. We have a strong commitment to save lives.
BBA, we have donated 35,000,000 You are also globally for the fighting against COVID. And we have also launched internally several initiatives for our employees to directly contribute to the effort. So more than EUR 1,000,000 in terms of contributions from our employees, which is matched 1 to 1 by BBVA It's also another pool that we have put in place to fight against COVID. Lastly, a clear commitment was also shown by our 300 members Of our BBA top management team globally, we have all given up our bonuses voluntarily for this year. 2nd priority on the at the middle of the page, we have we want we need to make sure that we You provide an essential service to the economies that we operate in.
So a continuity of service is very important, obviously, as a bank. So more than half of our Physical network is open and all of our critical functions, the call centers, treasury desks, operational centers, they are all fully operational. In the sense, we have also more than leveraged our competitive advantage in the digital front, facilitating their access to the bank through digital channels. Our digital and mobile customers, they reached their maximum of 59% and 54% penetration rates, respectively. And again, another is obviously a record 63% of our units sold in March 2020 were sold digitally.
3rd priority on the left hand on the right hand side of the page, it has been to provide financial support to our long standing clients. In this time of crisis, we stayed very close to our clients, Helping them navigate through the crisis, we believe we banks, we are a powerful part of the solution to this crisis, and we will continue to finance the economy. In the sense, the BBVA's total loans have increased by EUR 17,000,000,000 in constant euros in the Q1, and we have put in place Many programs to help and support our clients. Moving to Slide number 4. As highlighted in the previous slide, I would like to remark Very quickly that our leadership in digital has been a huge advantage in this context.
We kept talking about it for many quarters Tirelessly in all these calls as well, but our focus on technology and the effort BBA has been doing over the past many years In building end to end digital products and processes, it has helped us tremendously at this period. Some examples. In Spain, the weekly average of digital transactions, it has increased 32%, weekly averages of pre COVID and post COVID. In the middle of the page, you also can see that the number of visits to my conversation, in Espanol, Our app functionality to chat with your relationship manager increased by 35%. So we are using digital to also enable The physical interaction remotely with our people.
So that's also a very good news to note. And finally, as I mentioned, it's important to note that the digital sales in the group In March, it has reached 63.4%. Moving to Slide number 5. Slide number 5. I would like to emphasize on the slide that in this unprecedented environment, we are delivering a very strong, in our view, pre provision profit.
If you look into the left hand side of the page, operating income has increased 14.1% versus the same quarter of last year, Supported by robust core revenue growth coupled with an increase in net trading income and the reduction in expenses, which I will talk to you in a second. From a pure bottom line perspective though, in the middle of the page, you can see the reported net attributable profit has dropped this quarter to minus €1,792,000,000 It has been negatively affected by 2 very large extraordinary effects. First, the BBVA USA goodwill impairment of minus €2,100,000,000 As you know, the key goodwill amount We have in our books is registered for USA and goes back to 2004, 2009 period where we acquired multiple banks That make up today's BBVA USA. Given the new situation in the USA due to COVID, with the future forecast of lower interest Rates, you have seen the Fed actions in the past few weeks, lower GDP growth expectations. We did an impairment test leading to this non cash, No impact on capital provisioning.
So SEK 2,100,000,000, one of the extraordinary items is coming from this BVA USA goodwill impairment. 2nd extraordinary item relates to the front loaded provisions to cover the expected impact from COVID-nineteen for a gross amount Of €1,460,000,000 for taxes and controlling interests, so after you do the Controlling interests and also the taxes, this leads to an impact post tax of close to €1,000,000,000 in net attributable profit. As you will see in the remainder of the document, we have chosen to be relatively conservative on the front loading of these provisions. Despite the high uncertainty, so we have to see how it comes out, but we believe the provisioning effort for the rest of the quarters will be significantly lower. And again, we will talk about it in a second.
We have chosen to be conservative in front loading the COVID related provisions. So if we exclude BBVA USA goodwill impairment, the net attributable profit, including this extraordinary provisioning impact For the Q1, it was R292 1,000,000. And last on the right hand side of the page, if you exclude both impacts, The net attributable profit of EUR 1,258,000,000, it represents a strong underlying performance With an increase of 6.4% versus the same quarter in 2019. Turning to Slide number 6. In Slide number 6, I would like to highlight here in this page that we have a very powerful and strong bank to navigate through this crisis.
1st, On the left hand side of the page, you see the strong operating income with very low volatility. This has proven our operating income has proven its resilience, Thanks to our diversified business model. As you can see, we have a very strong pre provision profit over RWAs of 3.4% on average since 2008, Well above the 2.2 percent average of our European peer group. Additionally, it's worth to mention that it has remained stable in that period. And our standard deviation of 0.4% versus the 0.9% in the case of our peer group, it gives a clear indication of our Operating profits being much less volatile.
And as you have seen just in the previous page, our operating income performance for 2020, it has started even better than Than these numbers. So our operating income performance in the Q1 and if you look into the track record over the past few years has been extraordinary. 2nd, on the at the middle side of the middle of the page, you see our proven ability to generate capital. As you can see in the chart, since 2,008, We have more than doubled our capital base, generating EUR 23,000,000,000 of capital in CET1, even considering the significant effort done due to Basel The implementation. CET fully loaded ratio, as you can see on the page, has increased from 6.2 in 2008, the previous crisis, to 10.84, The latest number that we have as of March 20.
And with this latest number, we spend 2 25 bps above the minimum required. And 3rd, on the right hand side of the page, you see the liquidity position. We maintain a very comfortable liquidity position in all of our geographies. Our liquidity ratios are well above 100%, which is the minimum required at the group level and in all the subsidiaries. And for the group, the SDR is at 134%, actually 156%, considering the excess liquidity in our subsidiaries And our NFRS ratio is at 120%.
Also our funding structure, it's as you know, we are a retail and commercial bank. So the funding structure is very robust. The LTD ratio remains at approximately 100% in all the subsidiaries with retail and funding. Moving to Slide 7. We consolidated all the numbers in this page.
I'm not going to go through the numbers in this page, but in the coming pages. But still it's a consolidated view of all the critical figures. I should highlight on this page that the first of all, the year over year variations and comparisons, They exclude BBVA USA goodwill impairment in this slide and in the rest of the presentation for apples to apples comparison. But the main highlights for the quarters, again, I'm going to elaborate in the next slides, but main highlights. First, our core revenue year over year growth on the top left, Very robust core revenue growth driven by net interest income and strong fee income generation.
It is also remarkable the activity dynamism in the Q1 With the total gross loan book growing 4.5%, 4.5% growth in activity versus December 2019 in constant euros, Very profitable. New production has arrived in the Q1 into our books. 2nd, on the top right, You see that we report an outstanding operating income. I'm going to talk to it again, an amazing cost income ratio. 3rd, risk indicators at the bottom.
Risk indicators, They have been very much affected by the COVID-nineteen conservative front loaded provisions. Again, I'm going to talk to you about them. Finally, this quarter, some of our metrics at the bottom right, capital, shareholder value creation, profitability, the key numbers that we keep reporting to you every quarter, They have been obviously negatively affected due to this additional impairments of COVID and the market impacts that I will again explain in the coming pages. But one thing to note, excluding the front loaded COVID-nineteen provisions, we have reported an outstanding return on tangible equity of 12.1%, Which is an improvement of 24 bps versus 2019. Moving to Slide number 8.
Again, you see the details of the accounts here. I'm going to go very on this one, because I'm going to talk to you about the details of it in the coming slides. You can clearly see the positive evolution of the core business drivers, Very positive evolution in net interest income, in fees, in net trading income, commissions, gross income and operating income together with expenses. So Every line item above the impairments line has posted very strong figures in our view. At the bottom line, it has been negatively affected by COVID-nineteen, front loaded provisions.
So I mentioned 1,460,000,000 €1,433,000,000 of that has come on the impairments line and €27,000,000 a much lower figure, €27,000,000 on the provisions and other gains and losses line. Combined is again $1,460,000,000 And then if we add the negative impact from BBA USA goodwill impairment of minus SEK 2,100,000,000, the final reported net attributable profit was SEK 1,792,000,000. Let's go into the details. So if you go to Page Slide number 9, once again, we had an excellent quarter in our view in net interest income, 7.5% growth versus Q1 of last year. It is important to note again that this growth has been achieved Despite the lower interest rate environment in some of our core markets.
Also as you see on the top right of the chart, there has been a strong Net fees and commissions growth, up 6.3% versus the same quarter last year. It is worth mentioning under this line item the excellent performance All Spain and USA in both countries, as you know, 2 of our mature markets, we grew double digit in fees. Net trading income in the quarter increased 54.6% versus a year ago, positively impacted by the FX hedges that we have in place Cover for the FX depreciation of emerging economies. All in all, the total revenues grew at double digit 11.4% versus the Q1 of 2019, Supported again by core revenues and also NTI. If you move to slide number 10.
One more quarter, we continue to show positive operating jaws With our expenses growing 2.2%, well below the growth rate in our in the core revenues of 7.2%, well below the blended inflation in our footprint, Which was 5.2%. This jaws notion is a huge management discipline at BBVA. We pay a lot of attention to this In all of our meetings and discussions with the different business units, we continue to perform even in this very complex environment. So in the middle of the page, You see that the operating income at double digit growth of 20.3% in constant euros. By the way, I'd mention it, but this operating income It's the highest in the past 10 years quarterly operating income.
Finally, on the right hand side of the slide, you see again this jaws and efficiency ratio concept. We improved 401 bps. So our cost income, the latest number is 45%, obviously much better than European peer groups as before. If you go to Slide number 11 now, we wanted to spend a little bit time in these pages because I think it would be important for you to understand the provisioning methodology that we have used. But first on the numbers of the risk, Total loan loss provisions for the quarter, dollars 2,600,000,000 We have front loaded dollars 1,430,000,000 as I said a little bit also came in the provisions line, so this Impairments line, dollars 1,430,000,000 related to COVID-nineteen.
So there are 2 impacts Here in this additional extraordinary provisioning, first of all, update of the IFRS 9 macro impact expected from COVID. So we took the latest BBA research estimates on the macro growth. And then as you know, we typically do this in the Q2, but we took it to March and we rerun our IFRS 9 modeling on the macro, It gave us around SEK 1,100,000,000 of macro provisioning. And to a lesser extent, we have also did a management adjustment The macro modeling captures all the systemic risks and the overall growth related figures, but there are certain portfolios And there are certain clients even not factored in the macro adjustment, so we also did another set of management adjustment of EUR 325,000,000 Making the total SEK1 1,430,000,000 of additional provisioning for COVID. Excluding COVID, it's important to note The impairments would have remained almost in line with the previous quarter.
You see the total figures excluding COVID, it's relatively a flat line, which I will explain more in a second. On the top right, you can see the NPLs evolution, so which decreased significantly by SEK 1,300,000,000 versus the same quarter of last year, SEK 7,700,000,000 actually versus last quarter, mainly explained by some specific NPL portfolios. But the underlying Cost of risk and underlying fundamentals is still robust. It's still too early, obviously, but still we are not seeing a major jump to NPLs at the underlying level, at the core business level. Regarding Telesto's asset quality indicators, the cost of risk ratio increases because of the So ordinary provisioning that we did to 2 57 bps.
Excluding this impact, excluding this extraordinary provisioning, cost of risk would have stood 116 bps, again fully aligned with expectations and more or less in line with our business as usual. The NPL ratio at the group, 3.6%, significant decrease versus the 3.8% reported last quarter, Again, due to the decrease of the NPLs plus the activity growth that I mentioned to you in this quarter. Finally, the coverage ratio Obviously, shows a significant improvement close at 86%. Let's talk about this provisioning topic, which is an important topic. So first on page number 12, you see The macro provisioning is based on the BBVA Research growth scenarios and it assumes a smooth out version Of those scenarios.
You see the scenarios on the face, so let's not go into the detail. But they have been severely reduced due to the current crisis, obviously, in all countries. And obviously, needless to say, but it's important to highlight that it has a high degree of uncertainty. In all the countries like the rest of the globe, 2020 will be very negatively affected by the drop in activity, especially in the first half. And GDP hopefully will start rebounding in the second half And continue to recover in 2021.
Obviously, the recovery in 2021 is likely to be driven by a base effect that will be sizable, But not enough to reach the previously forecast level. So even though you would see a very positive figure for 2021 in terms of percentage growth, It's going to be based on a much lower base, so the total growth in the cumulative 2 years would be much less than otherwise. So all in all, we call this the recovery the form of the recovery. It's an incomplete V. It's a V shape, but it's an incomplete one because the second leg is shorter than the first Like for example in Spain, we forecast a fall of a point estimate of minus 8% in 2020 GDP growth, But the range is minus 5.5 to 10.5.
And then in 2021, a recovery in the range of 4.2 to 7.2 as you see in the page and as you see for the rest of Geographies. We took these scenarios, in general, towards the mid range of the range and smooth out the quarterly spikes As recommended by ECB. So we did the smoothing out. And then if you go to Page number Slide number 13, You can see on the slide the breakdown of the impairments and cost of risk by country, differentiating the COVID related this front loaded impairments and the recurrent underlying impairment. So out of the EUR 2,600,000,000 of total impairments, as I mentioned, EUR 1,430,000,000 corresponds to COVID-nineteen front audit provisions.
As explained before, the COVID-nineteen front audit provisions do not only include the updated IFRS 9 macro adjustment, but also some Individual idiosyncratic management adjustments due to again the specific nature of certain portfolios. For example, in the USA, we took a Specific provision for the oil and gas portfolio and we have done similar things for other countries in Mexico, in Turkey, in Argentina in these numbers. So the total of these management adjustments once again is around €350,000,000 of the 1.43 And the rest, EUR 1,100,000,000 is due to the macro adjustments. On the right hand side of the page, this is very important, you see the cost of risk implications. The total impairments imply a total cost of risk of 2.57 bps, an exceptionally high figure based on the front loading that we just done.
And as mentioned before, excluding the COVID impairments, hospital risk would have been 116 bps. And at 116 bps, it's fully aligned with expectations, Slightly worse than last year, but very much in line. And it's still very low because we don't see a major deterioration in the underlying fundamentals yet. You don't see insolvent clients or a boom in 90 days past due, which would have increased NPL in any case, Which is very good news, but obviously it's still too early. So the economic impact is huge.
So we wanted to be conservative in our provisioning for these figures. Going forward though, I think it's important to mention going forward, although uncertainty remains very high, we believe 2020 Full year cost of risk will be significantly below the Q1 levels as the provision front loading made in the Q1 Should not be extrapolated based on the messaging that I did. We have done the full macro and specific provisioning. So we are estimating for the year The cost of risk to be in the range of 150 bps to 180 bps. Again, this is best estimate, a lot of uncertainty around it, But this $257,000,000 which is the annualized cost of risk for the Q1 should not be extrapolated.
And our expectation, our best estimate is 150 bps to 180 bps. Moving to Slide number 14 on capital. Regarding the capital evolution, the capital generation in the Q1 has been impacted by 3 core effects. 1st, the front loading of provisions that we just talked about, it has drained 26 bps. This is obviously in terms of impact, The size of the provisioning versus our relative size of the bank and compared to other banks that we are seeing out there, We are again more on the conservative side and it has drained 26 bps in the quarter.
2nd, a significant increase in RWAs, draining 50 bps of capital. If you look into that 50 bps, 2 thirds roughly are related to the increase in credit risk RWAs. I mentioned the high dynamism of activity in this regard. The loan book has increased, as I mentioned, 4.5% quarter on quarter in constant euros. But it's again very important to note that we have grown in profitable segments As confirmed by our underlying return on tangible equity, our return on tangible equity has increased 24 bps in the quarter at the underlying level.
So we are growing in profitable segments. And as a result, the credit risk RWAs, 2 thirds of that 50 bps. And then 1 third related to the increase of the market RWAs due to the very pronounced rise in volatility in March. And in this regard, the strong spike in market RWAs, in our view, should be reversed in the coming quarters As long as obviously the volatility tensions ease. And third impact in the capital evolution is the market related impact of 47 bps Due to FX depreciation, mainly the Mexican peso and Turkish lira, as you know, which were down 19% and 7%, respectively, in the quarter And also the mark to market of our equity and fixed income portfolios.
All in all, our CET1 Fully load ratio stands at 10.84 at the end of March and stays 225 bps above our regulatory requirement of 8.56 bps, which I will talk in a second a bit more. Having said this and taking into account the positive impact of some of the agreements that we closed that we announced In the case of Allianz, as you know, 2 days ago, we announced this non life insurance partnership with Allianz. It will have a 7 bps impact on capital. The sale of Paraguay, which we have not finally closed yet, but it has been announced last year, as you remember, 6 bps. Also the EBA flexibility for some metrics like the prudent valuation adjustment, 3 bps.
So on a pro form a basis, We are already at 11%. With the Q2 already in mind, we will also foreseeably release some capital Due to the recently announced European Commission measures, the software deductions, the supporting factor on SMEs, it will all help in the capital relief. On this page, at the bottom of the page, it's also worth to mention 2 things, the high quality of our capital ratio. I think it's very important. Our leverage ratio Stands at 6.2% on a fully loaded basis, clearly one of the highest in Europe.
Finally, it's important to note on the Bottom right of the page, which is a bit different than other European banks, we legally had to carry on with the €0.16 dividend payment in April this year. So we paid the last remaining piece of our 2000 results related dividends in April 2020. It creates a 29 bps of CET1 in an otherwise no payment scenario. So this clearly makes a difference versus other European banks Because unlike the general trend of the European industry, our CET1 1st quarter CET1 ratio has not capitalized the positive impact of any dividend cancellation. And for 2020, on the dividends, we are not planning dividend payments until the uncertainty disappears like the other European banks following the ECB recommendation.
Moving to Slide number 15 and thinking about going forward and consistently again with the recently announced supervisory measures, Specifically, the one that allows to partially recover P2R, not only with CET1, but also with AT1 and Tier 2s, The group has decided to adapt its CET1 target and targeting methodology. So as you know, Our CET1 target was 11.50 percent to 12% and it was based on a 225 To 275 bps buffer on top of the CET1 requirement, which was 9.27 at the time. So if you look at the top left Of that page, you see that our requirement was 9.27. We were adding 2.25 to 2.75 bps buffer on top of it, Which was creating our CET1 goal of 11.50% to 12%. Now taking into account the reduction of the CET1 requirement due to this To our methodology that I just mentioned, our requirement has come down from $9.27 to $8.59 So the new requirement It's 859.
And we are basically adopting a new targeting methodology of CET1, which is around the CET1 management buffer. So we maintain and we change our target to 225 to 275 CET1 management buffer. Even the reduction in the requirement, it obviously helps in the total figure, but our focus is on this management buffer number. So we want to maintain This 225 bps to 275 bps buffer. And where are we?
We are at 10.84 bps at the end of March. So we are at Already in the range, 225, at the bottom of the range in these numbers. Also at the bottom of the page, you should See that the new PE2R Tiering maintains the total capital requirements stable, thereby the CET1 reduction is fully offset by higher AT1 and Tier 2 requirements. Accordingly, the AT1 requirement has increased by 28 bps to 178 bps and Tier 2 by 38 bps To 238, but we mostly compensated with our pre existing buffers in these respective areas. So our CET1 management buffer is the new targeting methodology that we would use.
We maintain the old one, 5 to 275 given the new requirement, there is an the implication is 10.84 to 11.34 as you see in the page. Finally, to conclude this section, I would like to highlight a deal we just announced 2 days ago. It's important in my view because In this environment, unprecedented environment, the fact that our teams completed such a complex deal, in my view, is worth to mention. So the non life insurance business, it's Very strategic for BBVA, directly linked to our banking business. As you know, the insurance sector is exposed to And the pace of disruption in our view will be even greater in the future.
Like in banking, all this will require to have the capability to invest And develop innovative products and services for our customers. So therefore, we have found a sound strategic fit in this It combines the experience and the capability of an innovative leading industrial player like Allianz Together with the client's relationship and the distribution network of BBVA, Veristan's economics, fixed price of €277,000,000 A variable compensation on top of that of €100,000,000 Additionally, it allows us to maintain the exposure to a very profitable business. We are maintaining 83% of the profits If you take into account the dividends of the new company and the distribution fees, so very positive deal for BBVA. We estimate that it will positive impact on P and L of around €300,000,000 in the second quarter when we close, apologies, and an improvement of about 7 basis points on capital. Now I turn it over to Jaime for the business areas.
Jaime?
Thank you very much, Onur, and good morning, everybody. I hope you are all well as Also your family and friends. Let me start with Spain. As Onur has already mentioned, the Expectations have been severely reduced due to recurrent health crisis and the lockdown of the economy. BBVA Research is expecting now TFE contraction of around minus 5.5% 10.5% in 2020 and a V shaped recovery to a range of between 4.27.2 for 2021.
In terms of activity, loans have increased by 1% over the quarter, Driven by corporates and CIB, up by 7% in this Q1 due to a number of short term operations and credit lines being drawn down at Q1, in Q1, BBA Spain showed a very strong pre provision profit, up by 10.3% Year on year, thanks to the good performance of core revenues and the higher than expected reduction in operating expenses. We have achieved this strong operating income growth despite the significant decrease in net trading income, which is down by 44%. Overall, core revenues are up by over 5% year on year, driven by strong growth in fees, over 13%, Thanks to the higher asset management and banking services. NII is up by 1.7% year on year, mainly due to the lower cost The high contribution from the ALCO portfolio. The contribution from the commercial activity remained broad We've had versus last year.
Operating expenses went down by minus 4.4% Exceeding expectations. This strength should continue going forward. For 2020, expenses will decrease more than we previously expected. This strong performance of operating income has been more than offset by the higher impairments as we have front loaded EUR 517,000,000 of provisions related to COVID, including, as Onur mentioned, an updated IFRS macro adjustment And calculated accordingly to the current GDPS scenario, especially with the results, I'm taking also into account The mitigating effects coming from the Spanish government guarantee scheme, but also by increasing specific provisions for the sectors most affected by the current environment based on an individual assessment. Our cost of risk ended the quarter at 154 basis points, Increasing the coverage ratio to 66%, that is 6 percentage points more than at the end of the year.
Excluding COVID-nineteen related provisions, cost of risk would have remained at 33 basis points. For 2020, We expect cost of risk to be significantly below Q1 levels. Let's now turn to the U. S. Macro prospects for the Sun Belt have also deteriorated
as
a consequence of COVID. We are now expecting a contraction of around 4.8% in 2020, followed by a gradual recovery in 2021, something around 3.5%. GDP growth expectations for the Sandoz are very much aligned with what we expect for the U. S. As a whole.
Growth has accelerated this quarter in the U. S. To 8%, mainly explained by companies drawing down credit lines. Elaboration production in retail segments has not been affected by the OpEx in Q1. The impact will surely be more noticeable in Q2.
As regards to P and L, the operating income is improving significantly versus the previous quarter, up over 16%, Mainly driven by a very good performance of net revenue income really across the board, both in ALCO and global markets. Fees going up by 13.5 percent with an overall auto behavior, especially those related to CIB And also by a 3.5% decline in OpEx. NII has decreased by 6% quarter on quarter Or 13% year on year. Remember that Q1 last year was the highest in quarterly number in 2019. The fall is mainly explained by the lower contribution from the ALCO portfolio and also the decrease in the customer spread, As you can imagine, negatively impacted by the 2 25 basis points decline in Fed rates.
Going forward, the impact from lower rates should be partially offset by contribution from the new paycheck protection program. The Positive evolution of the pre provision profit has been more than offset by a significant increase in impairments. So we have booked EUR 280,000,000 related to COVID, that's equivalent to 170 basis points of cost risk to reach a coverage level of 140 2%, that is 41 percentage points more. This front loading not only includes the IFRS updated macro impact, But also a higher provision for the oil and gas portfolio based on an individual assessment, assuming an oil price A scenario of between $20.30 per barrel for the next 2 years. Excluding these, fund loading, underlying cost of risk would have stayed around 90 basis points.
For 2020, we expect cost of risk to be significantly below Q1 levels as the provisions from loading should not be extrapolated. Moreover, in the other provisions line, we've also charged EUR 23,000,000 for unfunded commitments in the oil and gas segments. That has been almost fully offset by provisions released in other portfolios. Let's now move to Mexico. In Mexico, GDP growth estimates for 2020 have been revised significantly downwards By BBVA Research, to a range between minus 6% and minus 10% 12%, sorry.
With an expected recovery in 2021, but within a range of Class 2 and Class 4. In terms of activity, loans increased by 8% at the end of the year or 4% including the FX impact, Mainly driven again by corporate clients. BBVAE Mexico has proven again its resiliency, showing a pre provision profit over 6.3 Year on year in constant euros, thanks to 6% growth in revenues and by again being able to maintain positive costs. Revenue growth has been driven, 1st, by NII, growing 4.4% in constant euros. It's Through below loan growth due to the decrease in customer spread, explained mainly by the lower rate levels And growth bias to lower yielding commercial portfolio.
Revenues was also supported by high net traded income, A view mainly to FX gains, but also by the other income line that grew over 80%, favored by higher results in the insurance business. As I said before, positive jaws are maintained with expenses up by 5.5. For 2020, we expect OpEx to perform better than initially expected, and they should be growing big on inflation. This solid operating income growth has allowed us to absorb a significant increase in impairments that almost doubled versus last year due to the front loading of EUR320,000,000 related to COVID. That includes the updated IFRS 9 macro impact, but also specific provisions of those sectors most affected by the crisis.
Cost of risk reached 5.30 basis points And coverage levels, 155%. That is the 19 percentage points more. Excluding this front loading, Q1 cost of risk would have been 311 basis points and aligned with our previous expectations. Again, for 2020, we expect cost of goods to be significantly below Q1 numbers. Now I'll focus on Turkey.
In Turkey, we've adjusted our GDP expectations for 2020 to a range of between minus 3 and plus 2, With the recovery expected in 2021 to a range of between Class III and Class VII. Guarantee BBVA showed high growth in TL loans
over
4.7% quarter on quarter, Many explained, again, by corporate drawings, down short term credit lines, but also by a sound growth in the consumer portfolio, including mortgages. Additionally, foreign currency loans have slightly increased in the quarter, 2.2%, especially due to short term export loans. Moving to the P and L. Q1 results continue to prove guaranteed BBVA's earnings resilience. Strong pre provision profit was able to absorb a significant provision from lobbying due to COVID.
Pre provision profit grew by 48% year on year, That is in constant terms, explained by robust revenue growth and the continued focus on efficiency. NII was up significantly over 30%, mainly explained by excellent commercial dynamics, thanks to the increase in TL loans, But also by a significant improvement in customer spreads, both in TL and in foreign currency, but also by a very good net traded income Due to FX results and gains from security sales, expenses grew slightly above 9%, That is significantly below the 12 months inflation that stood at 13.5% last year, bringing the efficiency ratio to 28.9%. The sound growth in operating income minimized the impact of front loading provisions. Impairments were up by 120% versus Last year in constant euros due to the €169,000,000 related to COVID, including again both The IFRS 9 macro adjustment, but also additional specific provisions for those companies more affected by the current crisis. In the case of Turkey, mainly those are negatively impacted by the currency depreciation.
Coverage levels improved significantly To 86%. Cost of risk jumped to 380 basis points in the quarter, But excluding provisions related to COVID, cost of risk would have been 219 basis points. For 2020, again, we expect the cost of risk to be significantly below Q1 levels. Other provisions also increased versus last year due to higher provisions for contingency risks. And let me finally look at South America.
In Colombia and Peru, we've downgraded our GDP growth expectations for 2020 to a range of between minus 1% to minus 6% in the case of Colombia And of minus 5 to minus 8 for Peru, followed by a V shaped recovery 2021. In Argentina, Newsom Debt Restructuring still underway, isn't it, to have a better picture on the growth outlook. Loan growth accelerates across the board in the parts of the 2 companies rolling down credit lines. Let me give you now some colors on the main countries. In Colombia, Two main highlights.
AI growth at high single digits year on year, again in constant terms, supported by very strong activity growth. But also we also did a strong front loading of COVID-nineteen provisions that increased cost of risk above 400 basis points. Excluding this effect, cost of risk would have been in Colombia at around 200 basis points. In Peru, net attributable profit decreased to €30,000,000 that is a 30% reduction compared to Q1 last year, again in constant euros, affected by The front loading of EUR 42,000,000 of provisions for the COVID outbreak. Again, excluding this effect, Cost of risk, Peru would have to set to that to 137 basis points and below last year levels.
And finally, Argentina, net attributable profit of EUR 8,000,000, that is a 70% reduction compared to the Q1 of 2019, Maybe explain by 2 effects. First of all, a base effect. As you remember, Q1 last year includes a capital gain from Significant capital gain from the sale of Prisma, but also by the increasing impairments related to the sovereign debt portfolio that we've done in this quarter ahead of the debt restructuring in the country. And now back to Onur.
Thank you, Aime. Before concluding, so on the last two pages, Slide 24, let me give you some color on the operating trends that You could expect for the rest of the year. So given the current environment, first on costs, we are going to see real negative growth in expenses in all business areas, Better than expected across the board. It will partially offset the impact on NII and fees, but we are going to be very diligent on costs, obviously, going forward. 2nd, on cost of risk.
We mentioned that already 2020 cost of risk will be significantly below the Q1 in the range between 1 150 bps to 180 bps according to our best estimate, but there is still obviously a lot of uncertainty on this topic. We'll see how it evolves. Finally, on capital. In our base case scenario, we should be close to the upper part of the range by the end of the year, Considering transaction spending to be closed, certain capital relief by the regulators and obviously our track record of capital generation. And the last page, so the conclusion, the key messages.
I would like to reiterate the outstanding operating income growth, Demonstrating resilience as we manage through the crisis. 2nd, risk indicators have been impacted by significant COVID-nineteen provisions front loading, including updated macro scenarios and specific provisions for most affected exposures. 3rd, 3rd, we operate from a position of strength in terms of capital and liquidity to face this crisis. And last, I want to highlight that our priorities continues to be very clear in this context, Protecting the safety and health of our employees, our clients, society in general and support our clients navigate through this crisis as we continue. With this, I conclude the presentation.
Now I give the floor back to Gloria for the Q and A. Gloria?
Thank you. Thank you, Onur. We are now ready to move into the live Q and A session. So first question, please.
The first question today comes from Carlos Cobo of Societe Generale. Carlos, your line is now open.
Hello, good morning. Thank you for the presentation and hope you are all fine and the family. Quick question on capital. It's very clear your new guidance on the target, but you're still Substantially lower than the average this quarter. And I was wondering if there is any plan to rebuild Back to where you were before, theoretically, all this crisis only prove The expected losses, if anything should be or unexpected losses, if anything should be higher than before.
So there is no reason to maintain a long term Capital target below where it was in the before COVID. So clearly understand why the capital relaxation has happened, but When do you plan to reveal how and what's the plan there? What would be the post crisis capital target Of the bank, if it would still be 12%. Also on capital, if you could explain if there are any regulatory headwinds left During the year, you've already booked everything. I know it's a detail, but just to understand all the moving parts.
And I'd like to understand finally volumes in Mexico and Spain. We've seen a lot of corporates going down, like facilities and trade lines. Do you see that as sustainable over the longer term like 2021, 2022 Or they will be leveraged back when they are more comfortable with the cash flows and the macro? Thank you very much.
Thank you, Carlos. On capital, as you have seen in the presentation, Our new target methodology is 225 to 275. We are currently at 225. We intend to go up in that range. Obviously, As you know, as you said also before pre COVID, December 2019 capital As you know, what 1174, which is 247 in terms of the buffer versus the requirement, 247.
We are currently at 225. Our goal and our expectation is by the end of the year, by the way, we will be moving within that range very nicely, and we're going to be towards The upper end of that range. So yes, that's the goal that we have, and we plan to move upwards within the range. The regulatory headwinds for the remainder of the year, as you know, we guided in the end of year presentation that we are Expecting 15 bps. We were expecting 15 bps.
Trims for the low default portfolios And also 5 bps from PD LGD definitions. That 15 bps, given the latest guidance and information that we are getting from ECB, The TRIMs would be delayed minimum 6 months and so on. So they might not be arriving In this year, but we are planning our capital planning is such that we can have them in our Capital planning and we will still again move within the range towards the upper end of that range that we are quoting. Volumes in Spain and Mexico, as you said, you're asking is this sustainable over the long term and what has happened, especially in the month of March, especially in the second half of March, There were these big draws from large corporate clients. Obviously, it was driven by the liquidity needs Of certain large scale clients, it's mainly the CIB, meaning the wholesale large wholesale clients.
We have seen that drain on the draw Has come down dramatically in the month of March. So obviously, it was more a conjectural and it will not continue. And Our expectation is some of that is going to be deleveraged for sure in the coming quarters. Thank you, Carlos.
Thank you, Carlos. Next question, please.
And comes from Benjamin Thomas of RBC. Benjamin, your line is now open.
Hello. Thank you for taking my questions. Firstly, can you say how you think the shape of impairments will look in the coming quarters? If I run the numbers and using the top end of your 2020 guidance for cost of risk, I think it roughly implies impairments in future quarters will be about 30% higher Compared to a kind of 2019 run rate, is that kind of a fair view? And should most of this come in the next quarter?
Or do you think it will be evenly distributed? And then secondly, in your presentation, you noted a lower standard deviation of volatility of earnings versus peers. Just interested in your thoughts on whether you The bank has outperformed peers in this measure when the downturn is a global one rather than just on a local geography basis. Thank you.
Perfecto. Benjamin, thank you for the questions. So on the first one, The provisioning, is it going to be in the next quarter, in the next of the year? Very rough numbers, so that you all have a clear Typically, in a typical quarter and if you look into past year 2019, even before, we do EUR 1 point EUR 1,000,000,000 to EUR 1,100,000,000 provisioning impairments every quarter, okay? That's the baseline.
As you have seen in this quarter, in the Q1 of 2020, we have done the 1.1, which is the regular provisioning, which is Based on our rules, meaning in retail and SME, if you pass the 90 days, you become NPL, you take the provisions. In the wholesale, of course, there are dates and there are days also. But also when you become insolvent, we immediately take the provisioning and so on. Our rules stayed the same. And with those rules, quarterly number came out to be as before, 1.1.
On top of that 1.1 quarterly figure, As you have seen, we have taken a provisioning of 1.43, let's say for simplicity, 1.4. That 1.4 is the additional provisioning That we are taking. And we are guiding for the rest of the year and for the full year to 150 bps to 180 bps as you see, 150 bps to 180 bps. The 150 bps basically assumes And that's what we did a bit different than other European peers. We have really front loaded all the COVID related provisioning into the Q1.
So BRL 1,400,000,000 It's quite a drastic figure compared to our risk weighted assets, compared to our size. So that 1.4 is, in our view, if the macro scenarios Turned out to be as we are projecting in the BBA research numbers that we have shown you, we wouldn't be doing too much additional provisioning and that's 150 bps. If and that's basically a very deep recession in the Q2, in the 3 months actually. So starting with March, April, May, very deep recession and then coming back up slowly. So that's a 1 quarter very deep recession scenario.
And we have taken all of that in the Q1. Now if that dip recession, which feels like it's going to be like that, Turns out to be worse, meaning there is a second wave of the disease curve, there is a third wave of the disease curve. Obviously, the 1.4, the additional provisioning that we have taken is not going to be enough. So if you assume that 1 quarter very low dip is going to continue for 2 quarters rather than 3 months, 6 months, we have to take another 1.4 or so, And that's the 180 bps. So the guidance that we are giving to you is based on what we know now, we have taken all the provisioning in the first quarter.
If it turns out to be worse than what we expect because there are the second waves and the third waves of the disease, And there would be more provisioning, and that would be spread throughout the year. And that would be spread as we see the numbers coming out in terms of the economic curve, we will do the adjustment. I hope I'm clear, but R1.1 billion dollars quarterly regular provisioning, which was the case in the Q1, we took 1.4 on top in the Q1, assuming that there's going to be a deep recession of 3 months, very deep recession of 3 months and then coming back up, which is Curves that we have seen in the presentation, the economic curves, if it turns out to be worse than what we expect within that those ranges that we are discussing, then Then there will be some additional provisioning that will be coming in the Q2 and in the rest of the year. Then your question on volatility, the fact that this is a global and it affects Every country in a systemic way and so on. We have seen and we are seeing clearly, Benjamin, that our diversified business model works Even in a crisis, a systemic crisis like this, the reason being every country is attacking the crisis in a very different way.
The amount of government support, the amount of lockdown periods and the recovery periods and so on, every country is taking a different approach. So the impact to the base is very different because the measures are very different, number 1. Number 2, the starting bases are very different. In certain countries, there's more informality. It's more SMEs.
In some other countries, it's more large companies and less Vulnerable companies, let's say, and so on. In certain countries, the structure of the industry is very different than the other. To cut long story short, what we are seeing in terms of the first signals Every country is living through this in terms of the banking sector fundamentals in a very different way. So with that, I would still say that the diversified business model works.
Thank you, Ben. Next question, please.
The next question comes from Alvaro Serrano from Morgan Stanley. Alvaro, your line is now open.
Thank you very much. Can you hear me properly? Hopefully, you can. Thanks very much for the detail on the provisions. I've got a follow-up there.
Obviously, the visibility range low, as you've mentioned, I'm just curious on your assumptions on unemployment rate, maybe in particular in Spain and any sensitivity you can give us Because obviously acknowledging that there's 19% of the workforce currently on temporary sort of leaves, What's the sensitivity if they don't go back to work or can you color around that? And on payment holidays, can you give us Detail of how many of your mortgage and your mortgage book and consumer books are in payment holidays and what is the underlying assumption on how many of these could default? And just one more question on the procyclicality, the draw drawing up lines. I've seen the U. S.
Your loan book is 8%. You say it's healthy demand, but can you reassure us or talk us Through how you're sure that's healthy demand given the 8% in the U. S, which is obviously It's centered around Texas, a lot of the business and what's going on with the oil price. Can you run us through why you feel comfortable about that? Thank you.
Jaime, if that's okay, I'll take 13, if you take the restructurings in Spain for more, which would be great. So Alvaro, thanks for the questions. Let me start with number 3. Let's go with Spain first and then we will follow-up. On the unemployment, again, we are taking the scenarios published By the EVA Research as the base case, so they publish a range and we took within that range a meaningful point figure.
And then there are many other parameters, as you know, in the provisioning. There's the house prices and many other macro parameters. In terms of unemployment, you might have seen it. The unemployment expectation for BBVA research is around 20% for 2020, 20%, okay? So that is basically somehow not as 20%, but again as a range, it kicks into the modeling as well.
And that 20% feeds through the models in terms of impact on different portfolios and so on, which then makes up the provisioning that We are doing. And as you have seen in Spain, we are increasing the provisioning annualized quarterly provisioning is 154 bps. 154 bps Versus our typical 20% to 25% last year of numbers, it is stressing all those scenarios. For you to know, in our case, 43% of our Spain lending book, 43% is mortgages. 1 third of our book Is what we call impressas and large corporates.
So in terms of the direct impact of that unemployment into different books, Obviously, there will be impact, which is then again taken into account in the modeling. But given the portfolio, mortgage and again large corporates and then presses, We think that 154 bps is quite, quite, quite a conservative figure for the rest of the year. On the U. S, 8% loan book, is it healthy? Where is it coming from and so on?
Texas, yes. I mean, 52% Our deposits is in Texas, so Texas is obviously very important for us. But Texas is not a pure oil and gas economy anymore. I'm sure you have seen it. In 2014 to 2016, where there was a similar in terms of oil prices, when you go back to that period, EBIT exceed maybe now, but more or less the same crisis we have gone through it in Texas.
And Texas still grew, still grew in that period. I think the track record is very good. The reason being Texas economy has changed a lot in the past decade. I mean, it's not just oil and gas anymore. The health care sector is huge.
Technology is now huge in Texas. So in those periods of very low oil prices, excess growing because of the help of other industries, I think is very telling. And lately in the past few years, excess is also being helped by the government policies. There's a huge migration to Texas in terms of individuals because of the new tax Regime in the U. S, because there's no state income tax in Texas and also corporations are moving to Texas.
So the fundamentals of the economy still is there. It's not purely related to oil and gas. But we have taken some additional provisioning, as we mentioned, for oil and gas. Again, we have learned our lesson in the U. S.
And in Texas in that crisis 2014 to 2016. It taught us many things and it taught the clients many things. So for our clients in the oil and gas industry, 90% of their Revenues are hedged against oil price. Everyone have gone through that. And in our case, We are taking a huge collateral because in our case the total exposure at default of oil and gas in the U.
S. Is around SEK 3,000,000,000 SEK 3,000,000,000 So everyone thinks it's much higher, but SEK 3,000,000,000 EAD. And that SEK 3,000,000,000 The reserve base lending that we do within that is very much collateralized. If we take a scenario of 25 The dollars per barrel for 2 years without changing the 2 year scenario, 20 20, 2021, 25 barrels, it continues. It doesn't change.
Even with that scenario, what we see is our LTVs is less than 90%. So we have taken enough collateralization, again, thanks to the crisis that we have gone through in 2014, 2016, and that will help us for that portfolio as well. So I said many things. But number 1, Texas has gone beyond in our view and the numbers clearly show it beyond oil and gas, number 1. And number 2, I think we are very well collateralized.
Our clients have also gone through this. And despite the $25 per barrel for 2 years, We have taken all that provisioning, by the way, in the Q1. If it happens like that, the full provisioning is done in the Q1 of this year. Jaime, do you want to help me with the mortgage one in Spain?
Yes, sure. And let me add to your previous answer that The U. S. Numbers also include the New York branch. There we have lines to the top U.
S. Corporates And some of those trends explain the significant increase that we've seen in the U. S.
Okay.
Let me try to answer the question around payment holidays. As you know, we have 2 different sets Of programs, first of all, the Spanish government moratorium that applies to both mortgages and consumer loans, But this only applies to vulnerable clients, and this is a quite restrictive definition. Clients need to meet a number of conditions at the same time. And the weight of these vulnerable debtors in DDA's long stock is very low. On top of this, as you know and through the Spanish Banking Association, we've established a sector agreement To which, of course, BBVA has adhered to, to complement the measures adopted by the government.
Under this agreement, PPVA Spain will allow individual consumers affected by COVID to defer loan payments For up to 6 months for consumer loans and up to 12 months for mortgages instead of the 3 months announced by By the government. So I think that the moratorium is quite flexible in the approach. But what is important, I think, is the government moratorium will affect a narrow number of clients. It's too soon to really have a clear picture on the extent of the use of these measures. So far in Spain, it hasn't been that large.
And it's even more difficult to try to answer your second question, how many of these We'll eventually default. What I would like to say is that, as you know, in general, Cost of risk in Spain and PDs and LGDs due to the very large The portfolio that we have are very much driven not only by unemployment, but also to real estate prices. But as you also know, and we've been discussing this over the last 6 years, the Spanish household has been deleveraging since the start of the previous crisis, since 2010. So we have a very resilient household. We can average debt that has now reached The European average and which in general hold a significant equity in their houses.
And as you know, house ownership ratios are very high in Spain, much higher than the EU average. So I would expect For NPL ratios to be Quite below the numbers that we've reached in previous crisis. And this will also apply to the commercial sector. As you know, Their average debt is now even below the European average by over 5%. So I think the Spanish economy, the private sector as a whole enters this crisis in a very resilient situation that will definitely help cost of risk wise.
Thank you. Thank you, Alvaro, for your questions. Next question, please.
The next question comes from Jose Abad from Goldman Sachs. Jose, your line is now open.
Hello. Good morning. Thank you very much. Thank you, Figueroa, for the presentation. So I have 3 questions, if possible.
So the first one is, I assume that You're spreading out your expected losses over a couple of years given the impact this year from a number of the measures So you discussed, so you guided for between 150, 180 bps of cost of risk this year. Should we assume a similar number for next year. Also, the second is about whether you are incorporating in your analysis The potential positive impact in terms of actually a lower PD from the government guarantees, particularly in Spain. And the last one is on OpEx. So you mentioned that you are targeting Real negative growth in OpEx.
Could you please elaborate a bit more on this? So it is actually I presume you are not expecting inflation, Already high inflation. So I presume you are targeting here actually negative actually nominal growth in OpEx. The question is whether you think this is actually socially and politically acceptable
in the current context. Thank you very much.
Thank you, Jose, for the questions. So let's do very quick. Number 1, because I want to get all the questions and we don't want to run out of time. Expect loss was 150 bps to 180 bps. About 2021 and afterwards, we don't know, Jose, it's too early to tell.
But as you know, what we are doing is we are Front loading even the future years with some smoothing out. The smoothing out is basically taking out the impact of certain quarters. But we are front loading All the future provisioning in this new modeling, so some of it because of that smoothing might trickle down to 2021. My expectation is it's not going to be as high in 2021 if the disease curve, the health situation Doesn't turn out to be much worse than what we currently see. The second one, lower PDs, are we taking into account the government guarantees?
The answer is yes. You see it in the numbers. There is a huge provisioning we do in Spain. Because of the PD impact of those government guarantees, it's around €80,000,000 roughly, if I remember correctly. So it's not as huge of an impact in the provisioning, but yes, we are taking them into account.
OpEx, you say real negative growth because we are operating in many different countries. That's why we said real negative growth. And to highlight the fact that this is going to be a clear discipline for us going forward, the reason is Argentina as we still have a very high inflation, And we want Argentina to grow much lower than inflation in costs. That's the reason why we said yield growth. But in the case of Spain, for example, Our current goal is we are going to be less than 5%, meaning our cost Reduction is going to be more than 5%, which is quite an aggressive figure as compared to previous years.
We have always done Minus 4% 2 years ago, minus 3%, minus 2.4% in 2019. This year, we're going to do more than minus 5%. So can we do it? We think we can. We think we can, because there is the variable compensation part.
There is a natural impact on the cost base, less travel, Less training, a bit and so on, all of that, when we model it, we are expecting minus 5%. So in the case of Spain, because the inflation is going to be nil or even maybe negative this year, we are expecting obviously a much lower figure. I gave you Spain figures, but it is true for many other countries. Whatever the inflation is, even in high inflation countries, we are going to do much better than that. Thank you, Jose.
Thank you, Anur. Thank you, Jose, for your questions. Next question, please.
The next question comes from Mario Ropero of Fidentus. Mario, your line is now open.
Hi, good morning. Yes. My first question is, you said you're expecting 6 bps from the sale of Paraguay. I'm assuming that this should happen in the short term. So with this, I'm also considering that you should have taken the bulk of the COVID-nineteen impact in light of what we know today.
You should have taken that impact in the Q1. So are you basically expecting the CET1 ratio To be close to 11% in the Q2, considering how things have done today. And my second question is, please could you comment on how Mats, you want to go how much TENCER 3 You plan to take. And related to this, if you can make some comments on your expectations for NII in Spain? Thank you.
How much Mario, you said how much what? Sorry, I missed the question, the second question.
TENCO III funds.
TLTRO, Is it? Sorry, I'm having difficulty in hearing you. TLTRO.
Yes, TLTRO refund, yes. Okay.
Perfect. TLTRO, Jaime, it's your topic, so take it. On the first one, are we going to be above 11% at the end of the second quarter? We don't know. We don't know.
But what I'm telling you is because the second quarter is too short and You might see some again, not as much as in the Q1 because we have done a lot of front loading, but we have to watch the macro, watch the situation and so on. So there's a lot of uncertainty there. What I can tell you is we are going to be going up in that range. We gave 225 to 275. Our expectation is every quarter, we are going to go up within that range.
You said 6 bps from sale of Paraguay, it's going to happen in the Q2. Again, that's the expectation. If it happens, It's definitely going to help to get to that 11 number that you are mentioning. But hopefully, it will be done because given the situation, It is our expectation is it will be completed in the Q2, but you never know. So given the high uncertainty, I'm not going to answer whether we are going to be at 11 because it's kind of a commitment.
But what I can tell you is we are going to continue to go up in every quarter given where we are and if things turn up to be as we expect them today. On TLTRO, Jaime?
Yes. So as you guys know, we can borrow now 50% of the Standing eligible loans, before it was only 30%. So that means that we can draw Instead of the former EUR 21 billion, an amount of EUR 35 billion, that is EUR 14 billion additional That we will hope to draw in June. As you know, we drew SEK 7,000,000,000 In December, an additional SEK 7,000,000,000 in March. We were expecting to draw SEK 7,000,000,000 in June, but this number has now Change to EUR 21,000,000.
The net contribution will be EUR 14,000,000,000 as we will repay back EUR 7,000,000,000 that we have outstanding. This will this amount this additional amount plus the better remuneration that We will have because as you know, we can obtain up to minus 75 basis points if we grow the eligible portfolio. The eligible portfolio remains flat between April 2020 March 2021 means that we expect to have an additional A positive contribution in NII in Spain of roughly EUR 150,000,000 That will be evenly distributed in 2020 2021.
Thank you. Thank you, Mario. Next question please.
The next question comes from Ignacio Rajeia of Exane BNP. Ignacio, your line is now open.
Yes. Hi, good morning, everyone. Thanks for the presentation. Just have two questions. 1, if I just look to your macro scenarios, Mexico growth Looks like the weakest of all your footprint.
So how do you think that will impact operating trends? How do we see Mexico in 2020? The second one, the recent changes from the European Commission in IT intangibles deductions from capital, You plan to change your strategy regarding Opus and CapEx and how that and whether that is behind The negative real growth in costs. Thanks.
Thanks, Ignacio. Second one, Jaime, you take it. On the first one, Yes, it's a wide range. It's a negative range, 6% to 12% negative, mainly because of the fact that it's, as you know, very relatively informal economy in In Mexico and the government support program in terms of size is a little bit less than other countries. So that's one of the reasons driving that negativity.
But as you know, our bank in Mexico is in our view and again, I keep saying it every quarter, it's like our baby. So Maybe we are a bit subjective, but I think I'm not because of the numbers that we see. We have the strongest bank in the country. We have the strongest bank in the country in terms of size, scale, In terms of customer franchise and so on. So the operating trends, obviously net interest income will be affected a little bit.
Net fee income will be affected because the payment systems is very important for us. The payment system revenues in Mexico, it might be a bit on the lower side, obviously. But we do think that given the franchise that we have in Mexico, we will do really well in the country. On the second one,
Jaime? Well, as you know, we're deducting 40 A little over 45 basis points, almost 50 basis points in CET1 due to intangibles. But the evolution of both OpEx and CapEx has nothing to do with this. The EBA Still needs to issue its regulatory standards until that happens. There's Still not clear certainty on what's going to be the CET1 uplift from this regulation.
The evolution of OpEx and CapEx is explained by what Onur has said. In general, personnel expenses are on the low side because of lower valuable compensation across the board. But also general expenses are behaving Very well, less travel, less discussionary expenses in general. And also CapEx amounts will Probably go down this year versus last. All these measures are already helping in Q1 numbers And will help additionally as the year go by.
Thank you. Thank you, Nacho. Next question, please.
The next question comes from Andrea Filtri of Mediobanca. Andrea, your line is now open.
Yes, good morning and thank you for taking my questions. I have got one on capital and one on emerging markets. On capital, we hear loud and clear the changes in the Target. But can I ask you what is the lowest level that optically you would be prepared to report If the evolution of the crisis went south from here and could you quantify in bulk The benefits from the regulatory relaxation that has been made over the past period, including Yes, Adir, 2 days ago from European Commission? And secondly, on emerging markets, Your provisions have seemed largely focused on developed markets.
Even if There is an oil and gas exposure in emerging markets that you have included in your upfronting. Yes, emerging markets seems to be badly hit by COVID as well and with little government responses. How are you picturing your emerging markets to manage the COVID-nineteen crisis? And why are there such low provisions upfronting in Mexico despite the large downturn? Thank you.
Thank you, Andrea. Let's just jump into it. So the capital on the capital, What is the lowest level that you would be going to? As I mentioned, we have a clear goal because of market and so on. Maybe that can be A bit lower, you can see lower figures, but our goal is 225 to 275.
That's where we feel that we will feel comfortable. We are at the 225,000,000 already within the range and we are guiding you that we would be moving up within the range. That's where we would feel comfortable. We wouldn't feel Comfortable with any other figure. Let me say it very clearly.
On the regulatory adjustment, yes, we will get some help. Again, I hope it was clear to all of you who are watching this. We were very conservative In our calculations of provisioning, again, as compared to others that we have seen in the past few days weeks, especially the European banks, Very conservative also in the capital calculation or capital planning in the sense that we haven't taken any Of the potential regulatory levers that were Kind of mentioned, but not fully finalized. We haven't taken any of that. We haven't taken the prudent valuation Guidance, because it's not finalized, it has to be first published in by ECE and so on.
So that's going to, for example, bring us when it's published and we are expecting it in the Q2, 3 bps, It is not included in the current figures. Yesterday's EC decisions, the SME supporting factors and software deduction, they are going to help us In a very important way, the software deduction, the impact on CET1 today or the full deduction that we are doing is 46 bps today. Obviously, we don't know how much of that we can release, but and it will depend on the final details Of the statement that will be coming out, the details will be worked out. But soon enough, we will recover some part of that SEK 46,000,000. Some part will be driven by the final guideline.
SME supporting factors, similarly, 5 to 9 bps we will get when it's publicized and finalized. All of that will be coming. Hopefully, some of that is going to be coming in the Q2 and in the coming quarters, but we haven't put any of that into our Current March 2020 figures, unless we see it written and done, we decided to be on the conservative side. Dan, emerging markets.
Onur, let me add to this that not only that, additionally, in Q1 numbers, There's no benefit from market risk In the flexibility on the multiplier that the supervisor has given, as well on IFRS 9 phasing, our 1084 is fully, fully loaded, okay, as opposed to what other banks have done.
And then you mentioned I meant what other banks have done, but as compared to some other banks, very quickly, I mean, there are very few very important levers That we haven't tapped into or we are different than others. First of all, the dividends. Many other banks have canceled their 2019 dividends. In our case, given the fact that we did complete our general assembly on March 13, we had to legally pay it. And that's a 29 bps difference Versus some other banks who chose not to pay any dividends for 2019 results.
The COVID provisioning, we did mention it. Again, We did compare what we have been doing with the announcement of different European banks. We are clearly on the conservative side of the provisioning. We think it is well worth To be conservative in these days, in our calculation compared to some other banks that we have looked into as compared to our RWAs, That's another 15, 20 bps of a difference in terms of conservatism. Then we have had a high growth As compared to others, if you look into our lending growth in the Q1, we grew EBIT higher.
I would reiterate this topic that Alvaro, you also asked, The profitability of that new production that we are doing is really good. I mean, the risk adjusted returns, which is our key management metric for to manage Stability of new capital deployed, we are seeing 3 times more, 3 times more profitability in at new production. So we have grown a bit more than others. That additional growth is another 10 bps or so. As Jaime mentioned, many other banks have used some regulatory flexibilities.
We haven't. The market risk multiplier was not applicable to us in any case. The TRIM reversions, we haven't done any of that because, again, all the new things, we haven't done any of that either. Because again, we want to be on the conservative side, EBIT, and we don't do things until they are fully finalized. All of this It's around 65, 70 bps of a difference versus some other banks.
And then the key difference of that Decline that we have realized 90 bps versus that 70 bps that I explained is the market impact because of the Equity portfolio that we have and because of the foreign exchange devaluations that we have seen in other countries. But if crisis The health crisis and the economic crisis don't deteriorate any further. We do think that those effects Might reverse or not go any worse. So that impact will not be there. And then our organic capital generation is going to help us.
So very long answer to a short question, but I think it's important. Then on the emerging markets, we do think that there are multiple drivers On the pro and on the con of the development of these economies. What we see, as you say, is that the response Some of the emerging economies might be a bit different than developed economies, but the extent of the dip that we are seeing in different emerging economies It's also softer than what you see in some of the developed countries. So our expectation is they might come back out of the crisis Much faster than some of the developed economies, given also the approach that they have taken, the countries have taken at the initial stages of this health crisis. And then the fundamentals of those economies are still They are all emerging economies with a lot of growth potential.
And if you look into our core countries of emerging economies, We are actually seeing some very good dynamics in the case of Mexico and Turkey, Mexico being very close to U. S, Turkey being very close to Europe. As supply chains being redrafted because of this crisis, the importance of supply chain for our industrial clients, they tell us this, It's becoming so important, proximity would matter more. Mexico and Turkey will benefit from that trend. So there are many drivers, many dynamics, pros and cons also.
Again, there are some negatives as well. But on the balance, We are still very positive on what might be happening. And finally, more importantly actually, in these countries or emerging economies, In our view, again, based on numbers, not subjective, based on numbers, we have the best banks. And relativity matters in these situations. We are seeing it in the numbers.
Flight to quality is happening in many countries. So we will also benefit from that as a bank.
Thank
you. Yes, thank you, Andrea. Next question, please.
The next question comes from Sophie Peterson of JPMorgan. Sophie, your line is now open.
Yes. Hi. Yuri Saffi from JPMorgan. So I was wondering if you could give us an update on your FX That's the DVD and also your FX hedging policy. Then I if you could So make a comment on the Spanish government guaranteed lending.
How much of the ICO lending have you taken up? And what kind of ROEs Are you making on this type of lending? And then my final question would be on payment holidays outside of Spain. What kind of level of payment holidays do you see in the U. S.
And Mexico and Turkey and South America, please? Thank you.
Perfect. Excluding policy, do you want to start, Jaime?
Yes, sure. We currently have hedged Around 100% of the expected results coming out of Mexico for 2020 And roughly 50% of the results are coming expected results coming from Turkey. Regarding CET1's excess hedges, we currently have 75% Of Mexican CET1 excess hedged and 52% in the case of the Turkish lira. These two numbers leave us a sensitivity of around minus 3 basis points for every 10% depreciation For the Mexican peso and the Turkish lira, and we have a minus 1% And minus one basis points sensitivity for the Peru and SOL.
And Sophie, on the second and the third questions on the Spanish government lending, the ROEs, first of all, that whole program is very strictly managed. We can only lend to our core clients and every bank can lend to their own clients. You cannot go to a new client, number 1. And number 2, you have to go with the prices before the crisis. So the pricing policy is also partially controlled in the sense that You cannot go beyond the usual prices of pre COVID.
It's not clearly strictly defined, but I think the messaging is very clear in the program. To cut the long story short, so the returns are very high because we are maintaining the spreads and there is a government guarantee which help On the risk adjusted returns, because the government guarantee helps on the risk weights. So it's very high because of the pricing policy and because All the ROEs, but the pricing again is managed in such a way that the customer doesn't pay much more than what he was paying before. On the payment holidays in other countries, it is happening everywhere. It is happening everywhere.
In certain cases, it is government It's guided and directed as in the case of Spain, there's the mortgage moratorium, as you know. And then beyond that, the sector has come up with additional measures to help the customers. But our policy in general is the same in every single country, which is we try to restructure as much as possible In the context of if this is going to be a V shape as we are projecting, the payment capacity of customers will come back up If things continue to be as we are projecting, which implies that if there is not a major issue in the Credibility of the customer. So if there is no solvency potential issues, we try to restructure.
Thank you. Thank you, Sophie. We are running out of time. So probably we have time for the very last question.
Because we took the presentation a bit long, Gloria, if you like, we can continue for the ones who can stay until 11:15, okay?
That's perfect. Next question, please.
The next question comes from Stefan Yudhalaikov of Citigroup.
Hi, guys. Good morning. A couple of questions. So just coming back on an earlier question on the payment holidays, Could you tell us what's the percent of default that you expect when you came up with your provisioning for this quarter? Is it 10%, 20%, 30%, some color on that would be very useful.
And the second question is on the 150 basis points to 180 basis points guidance for 2020. Can you provide us with a breakdown by country, especially interested in Mexico, U. S. And Turkey and Spain, obviously? Thank you.
Thank you, Stefan. Very quickly, on the first one, the payment holidays, what are we expecting? It's in the numbers in the sense That we already put that into this extraordinary provisioning. So we are basically more than doubling every single portfolio more or less. It changes from one portfolio to another.
I'm giving you a general number. But as you know, our typical provisioning is around 110 bps And we have taken 257. It's multiple. The multiple that we are looking into there is basically on average applied To all the portfolios. And as you have seen in for example, you're asking certain countries, the Mexico number, The cost of risk implied with the provisioning that we are taking is 5 30 bps.
5 30 bps Is the cost of risk. So but any NPL, any delinquency, you take it, you multiply by that multiple of 257 divided by 116 more or less. On the 150 bps to 180 bps, the breakdown by country, as I mentioned, this is a broader guidance. Given the huge uncertainty of the evolution in countries, we don't want to mislead you at all. So that's why we have chosen to do that.
Obviously, we have done our work at the country level. And that's why the provisioning you see in that table that we provided. But for the forecast of the future going forward, what I can tell you is what we said throughout the presentation, which is take the 1st quarter numbers As front loaded provisioning and expect in every single country that we are going to be below that, that's what we will be guiding you for different countries, Significantly below. That 257, as I said, is going to in our view, as it stands, will come down 250, 208. Thank you, Stefan.
Thank you, Stefan. Next question, please.
The next question comes from Ignacio Sareros from UBS. Ignacio, your line is now open.
Yes, hi. Good morning. Thank you for the presentation. I have Three questions on capital. If you can share with us what kind of RWA inflation are you factoring in your tier and guidance From the Q1 number, if you can remind us the percentage of FX lending you have on the main emerging market economies And if you can give us a flavor of the capital sensitivity to the bond portfolio in the main countries as well for 100 basis points increase of the deal.
What is the third question? Sorry, I missed it again.
Yes. The CET1 sensitivity to the OCI portfolio, the debt OCI portfolio in the main countries for 100 basis points increase of the yields.
You have it in the appendix, but the third one, the OCI portfolio, I leave it to you, Jaime. On the percentage of FX lending, let me give you very precisely the figures. Obviously, it is higher in Turkey, in Peru. So in terms of total lending, 36% of the portfolio in Turkey is FX in Argentina 19 percent in Peru 34% Mexico 17% Colombia 3%. Okay.
So that's the percentage of FX lending. The debt OCI portfolio, Jaime? Jaime?
Yes, sorry, I didn't press the right button. It's I'll give you the number in Spain. It's 100 basis points decrease will affect 13 Basis points, the CET1 ratio in Spain. As you know, the Spanish sovereign is the most relevant ALCO portfolio that we have.
Ignacio, the Q1 is the Spanish sovereign. Again, the 100 bps is 13 100 bps in the curve is 13 bps in capital. On the RWA inflation, Jaime, anything to add? I don't provide guidance, Ignacio. That's the thing.
Correct. That's what I was going to say.
Because there is also markets in there and the credit RWAs are also affected by the growth. Our expectation is the boost that we have seen in the Q1 obviously cannot be extrapolated because of the dynamics that we have talked about. But we don't provide guidance on RWAs because we have to see how it moves along. As long as it's profitable and our key clients, we will continue to grow, but it's not going to be as Large as the Q1. See, let's go.
We are late, but yes, Gloria?
Yes. Thank you, Natra. Next question, please.
The next question comes from Benjie Creelan Sood of Jefferies. Benjie, your line is now open.
Yes, good morning, everyone. A couple of questions from me. You've just touched on it, but just going back to the 4.5% loan growth We saw in the Q1. I mean perhaps you could give us an update on how that has trended through April. And related to that, I I mean, I'm guessing a lot of that growth came through in the latter part of 1Q.
So do you expect any Latent uplift or benefit to revenues to come through from that growth in 2Q numbers? And the second question Is on capital, I know you've given us the sensitivities, but perhaps you could just break out the 47 basis Negative impact from FX and mark to market this quarter, just the different components of that 47 basis points in 1Q. Thank you.
Very good, Benjie. Very quickly, first of all, the growth, the 4.5% that was mentioned 4 points sake, what was mentioned is 1 third came in January, February, 2 thirds came in March, as you say, and towards the latter part of March, as we mentioned, Because of the liquidity draws of different clients, are we going to see some benefit from this in the Q2? Obviously, yes. There are so many other moving parts in the accounts, But that piece particularly is going to help, obviously. Are we seeing some stabilization in that number?
Are we seeing some, Again, normalization in that number, the answer is absolutely yes. In those 2 weeks, for example, from our large Very large CIB clients, which are very healthy and very credible clients, let's say, we have seen Let me just give you a segment of the total growth, a €7,000,000,000 of increase. That €7,000,000,000 of increase for that same sub segment of very large clients It's less than SEK1 1,000,000,000 in the month of March. So there's clearly some stabilization in that draw. On the breakdown of the FX impact, so it's 18 bps came from FX, Mainly Mexican peso, but 18 bps from FX.
Equity was 16 bps. As you know, we have an equity portfolio mainly in Telefonica. Had an impact on that one. And fixed income was 13 bps, mainly the Spanish sovereign. Okay, next one.
Thank you, Benjie. Next one, please.
The next question comes from Fernando Hilda Santobanza from Barclays. Fernanda, your line is now open.
Hi, hello. Thank you for taking my question. Just a question on the U. S. What is the current book value after these goodwill depreciation that we have seen?
Thank you. That's it.
It's €185,000,000,000 185,000,000 So we started 2,007 with €9,200,000,000 Now we are At 1.85. And the total goodwill that we have in all of the books is around 2.7. So most of it is the remaining is the U. S. Still.
Yes. Next one.
Thank you, Fernando.
The current book value is EUR 8,100,000,000 For U. S.
Okay. But I thought you were asking the goodwill. In any case, yes, you have the numbers. Perfect. Britta?
Next question please, Operator?
The next question comes from Barreta Smith of Autonomous. Bertha Smith, your line is now open. Yes.
Hi there. Thank you very much. Just one question, please. In line with some of the other banks, you managed now a CET1 buffer and not the MDA buffer. Can you explain a little bit as to why that is?
Your 81 shortfall is not very large, but of course, numbers are going to change a bit depending on RWA both this year. And maybe you can also give us an insight as to whether you have got any intention to fix that this year, the AT1 shortfall? Thank you.
See, the 81 shortfall is €575,000,000 when the markets are open in terms of also pricing. Our intention is to cover that, yes. Depends on the market a little bit. CET1 and MDA, yes. We have chosen CET1 management buffer because It's more in the eyes of everyone, but obviously, we keep an eye on MDA as well.
Given the fact that we can finance ourselves in AT1 and Tier 2, we thought The MDA buffer expressed in CET1 management buffer terms is a better way to approach this. That's why you have the CET1, Because we can access the markets in AT1 and T2. Okay. Next one?
Thank you. Thank you, Britta. Next one?
The next one comes from Marta Romero of Bank of America. Marta, your line is now open.
Thank you very much and thank you very much for the presentation and answering so clearly to all the answers. I've got a couple of quick ones on Turkey and Mexico. The first one on Turkey, what do you think of the continuous regulatory interference there? How are you going to be managing your new asset ratio target? Are you buying more bonds?
Are you giving more loans? And are you going to be very proactive on the new credit guarantee fund? And the second one on Mexico, I know it's Taz, but it would be very helpful if you have a rough estimate of the potential impact on regulatory capital if Mexico were to lose its investment grade rating. Thank you.
I leave the second to you. On the first one on the Turkish, what do we think about the continuous regulatory pressure? It comes in different shapes and forms, Marta, but we are an emerging Bank as well and we do operate in many emerging markets. So we do see different versions of regulatory scrutiny and regulatory rules In every single country, we have that's who we think we are. We do manage emerging market banks in many countries.
So we will manage it through as long as the regulatory topics, as long as it is for the benefit of the country, as long as it helps The growth of the country, actually, we are all pro for that. We do exist with the countries that we are operating in. So as long as the regulatory rules Helping the growth of the economy in general, we are fine with it because we will benefit it in the long term. In the context of the asset ratio, It's kind of an anti liquidity measure, to be fair. We are not that far off from the 100% that the government is putting on the table.
So we have multiple levers To achieve the 100%, our expectation is because it's going to start as you know to kick in as of May 1, Our expectation is we will be within that 100% range because we were not that far off as the policy is implemented as of May. Jaime, on the second one?
Yes. In general, as you know, we have a lot of internal models in In Mexico, especially for the corporate portfolio. So it's the internal rating, the one that applies to calculate PDs and LGS and so RWAs. As you also know, we have regulatory equivalents in Mexico. So Local currency sovereign bonds exposure has 0 are waiting.
The foreign currency bond portfolio is the one that it will be affected. But in order for it To increase from 50%, the current 50% risk weighting to 100%, we will need an additional Reduction of between 1 and 3 notches by 2 of the 3 rating agencies. So it's something that still is, I think, far away. And the APAC will not be that relevant.
Thank you. I'm afraid we are now just Running out of time, so we need to end it here. Thank you very much for participating in this call. And let me remind you that, of course, the entire IR team will remain available to answer Any questions you might have? So, Onur, I don't know if you would like to close?
Thank you to everyone. Stay safe. Stay healthy. See you next quarter. Thank you to everyone.
Bye bye.