Good morning, everyone, and welcome to the second quarter 2018 results presentation of BBVA. I am Gloria Couceiro, Head of Investor Relations, and here with me today is Carlos Torres Vila, Chief Executive Officer of the Group, and Jaime Sáenz de Tejada, BBVA Group CFO. As usual, Carlos will begin with the presentation of Group's results. Jaime will review the business areas. We will move straight to the live Q&A session after that. As always, we would appreciate all the participants to try to make the calls from the landlines and avoid using the speakerphone. I will hand over the call to Carlos.
Thank you, Gloria. Good morning, everyone, and welcome to BBVA's second quarter 2018 results audio webcast. We started the year with a very strong first quarter. We continue with very strong results in the second, despite all that has been happening, the turmoil that we have seen in the global markets, lots of political changes, uncertainties around the world in many countries, starting in Europe with the events in Italy, the impact they have had on the periphery spreads, and many other places in Argentina, changes in government in Spain itself, in Peru, recent elections in Mexico, in Turkey, in Colombia. Many events. Once again, the resilience of our diversified portfolio has helped us outperform in this environment. We have recorded a net attributable profit of EUR 1,309 million in the quarter, posting an 18% increase versus the second quarter of last year.
In parallel, we continue to maintain solid capital position. Our fully loaded core equity Tier 1 ratio, this time decreased by seven basis points impacted by the volatility in the markets, but stands at 11.4%, well above our target. This figure includes, of course, the full impact of IFRS 9 first-time implementation, as well as the updated impact of 55 basis points of corporate operations. Both the disposal of BBVA Chile, which is not yet booked, but the transaction has already closed July 6th, and also the sale of the real estate assets to Cerberus, which is to close in the coming quarter, the third quarter. The key highlights for the second quarter are firstly, the strong growth in core revenues. NII plus fees are growing above 10% versus the same quarter last year. Secondly, continued improvement in efficiency. This is on the back of cost control efforts.
Our efficiency ratio once again improves, this time by more than 80 basis points in the year to 49.2%. We have, again, positive jaws in all of our businesses. Third, the trend in digital sales and digital customers, once again, outstanding. Digital sales were 39% of the total units we sold year to date. That was 22% a year ago. This 39% of units represents 29% in terms of value. The number of mobile active customers exceeded 20 million, with yearly growth rate of 43%. We have sustained rates of growth in excess of 40% for many years, and it just continues at the same rate. Risk indicators, they continue to be very sound. NPL ratio of 4.4%. That's down 47 basis points versus the second quarter of 2017. Coverage ratio is stable at 71%.
Actually, it's up by 19 basis points, a very low cost of risk of 82 basis points, down another 11 versus one year ago. In terms of capital, I already mentioned our strong position, 11.4 above our target, despite the 7 basis points decrease in the quarter. By the way, 5 basis points of those 7 are truly from the quarterly evolution. The other 2 come from an update on the impact of the corporate transactions in the pro forma calculation. Finally, we maintain our focus on creating value for the shareholder. ROE in the quarter was 11.7%. Return on tangible equity, 14.3%, and our tangible book value per share increased in the quarter despite quite adverse market movements, and has increased by 4.2% year to date, including dividends.
As mentioned, results were strong in the quarter with net interest income and fees and commissions growing at 10% or more in constant euros. NTI contribution, on the other hand, was lower this quarter, as was other income, which includes a higher contribution than last year to the Single Resolution Fund. In aggregate, gross income grows 5.8%, while costs once again were contained, increasing 2.7%, well below the growth in revenues, also well below the growth in the inflation rate in our footprint. As a result of this, pre-provision profit was EUR 3 billion, growing at a rate of 9%. Below that, impairments were quite low this quarter, 12% lower than last year. Provisions also came down very significantly, both because of lower restructuring costs in Spain, and also some capital gains we booked in Mexico.
In Mexico in the sale of a building, nearly EUR 40 million coming from that. Net attributable profit, as I mentioned before, grew 18% versus the second quarter of 2017 in current euros or 38% in constant euros. In the first six months, a similarly strong set of results. Net profit EUR 2.6 billion, growing 15%, 30% growth in constant euros. Excellent trends in core revenues, growing year-on-year in all of the countries with NTI growth impacted by the evolution of the markets. Also because last year we had the gains of the sale of CNCB. The jaws are positive, costs growth contained at 2.9% below inflation, and finally, low impairments as an important lever of earnings growth. Looking at the breakdown of our revenues, NII growth accelerated up 9.6% versus a year ago to EUR 4.4 billion.
We have an impressive evolution in net fees and commissions, +13.1% versus the same quarter last year, mainly driven by Spain, but also Turkey and Mexico. NTI, on the other hand, was lower in the quarter due to lower sales from the ALCO portfolio and also due to worse performance in our global markets results because of the market movements. In total, revenues are up 5.8%, and they're flat versus the first quarter as we had the Single Resolution Fund contribution this quarter, and that was only partially offset by the dividends coming from Telefónica. In summary, strong core revenues in the quarter, but with lower NTI. One more quarter, we maintain positive operating jaws. It is very satisfying indeed to see how our expenses are growing well below the growth rate in revenues for so many quarters now.
That's despite the high inflation, despite the currency devaluations that have a pass-through effect on costs. So far, in 2018, costs grew 2.9% versus last year. That's well below the 9.8% growth in core revenues. Also below the inflation rate in our footprint, which was 5.1% in the last 12 months, ex Venezuela. If we looked at the figures on a quarterly basis, they look even better than this. The efficiency ratio improves year-to-date by 82 basis points to 49.2. If we were to track the cost to income without NTI, the improvement is more than 210 basis points. I have often reiterated our commitment to improving efficiency in the context of our transformation, and once again, I believe our track record shows well how high this stands as a priority for management across the group.
The improvement in efficiency is common to all business areas, with costs growing well below core revenues in all of the countries, also below or near inflation, except in South America. I would highlight particularly the case of Spain, where costs continue to go down, 4.6% drop year-on-year. Also Mexico, costs are growing well below inflation there, 4.4% growth versus 5.7% inflation in the last 12 months. In summary, we have maintained our focus on efficiency and being more efficient, and we are seeing the positive impact of our transformation efforts, our push to digital. We had an excellent quarter in this respect. I'm very happy with the effort and the commitment across the group. We have been mentioning this. I made a point of it last quarter.
You might recall that a large part of our efforts and our improvements in efficiency have to do with our push to digitize the business, not only to drive efficiency, but also to increase sales. Digital sales keep growing at a fast pace in all of the geographies to very significant levels. Almost 39% of all the units sold in the first half were sold digitally. That is up from 22.4% a year ago and up from a level of 14.6% in 2016. For the first time, as you can see, this quarter we're including what we call internally the PRV, the product relative value, which is a proxy for the economic value measured as a percentage of digital sales over total sales. As you can see, this metric shows the same outstanding trend going up, showing that we're pushing digital sales very successfully everywhere.
The strong growth is consistent across markets. Digital sales represent, for example, in Spain, 42% of units, 33% in PRV in value. In Mexico, for example, in units 33%, in value 26%. In some places, it's quite remarkable, like in Turkey, also in the U.S., where the percentage of PRV is actually above the percentage of units sold. In South America, we have also more than doubled the percentage or the weight of digital sales in units with a high 51%. In this case, the figure is very influenced by the high growth in units sold of very small ticket microinsurance products, not only in Colombia but also in Peru. If we look at the PRV, the percentage of 20% better reflects the economics of the products that we sell digitally in that region. Overall, very good news everywhere.
This exponential growth in digital sales has a lot to do with us actively promoting that all of our products are available DIY for purchase through digital. For our customers every quarter, I share with you on this call some examples of the impact of our work in this regard. You might recall that last time I talked about the express personal loan in the U.S. that had 50% increases in total production, that, by the way, have been sustained, actually increased further in the second quarter. I also talked about the Click & Pay in Spain for small businesses that had 33% growth. This time I'm showing the digital account opening in Mexico, where we have multiplied the accounts opened by three times the accounts in just one year, as we have improved the funnel and the onboarding experience.
In addition to that active promotion of DIY, we're also driving sales through acquiring new customers and growing in the open market, which is a big opportunity for us. Through simple end-to-end fully digital processes in various products, we can capture that opportunity. One good example here is the recent launch in mid-June of an online scoring tool in Peru, which allows BBVA to acquire credit card customers in the open market, and soon, also consumer loans. The number of clients that we have acquired digitally has multiplied by two in less than a month. Once again, we see how enabling and promoting digital sales drives significant added volumes to the traditional business.
Finally, we're putting value-added solutions in the hands of our customers every quarter with a focus on advice, on smart interactions, with tools and solutions to help our customers achieve peace of mind, to achieve their life goals, proactively offering them more personalized content, better suited products to them, better suited experiences, and we have many examples every quarter. Some recent ones are the BBVA One View in Spain, which is a digital advisory banking solutions for companies. Basically, we're offering a multibank account information for companies, payment initiation services as well from one single point of access. BBVA Valora View, also in Spain. This is an app with which you can search for a home, either you want to buy or rent.
You can see properties for sale or for rent as you're walking in the street just by pointing the phone to the buildings, as if you were fetching Pokémon, and you can access all the info on the properties as you walk the street. Or the Payroll Advance Alert in Colombia, helping customers avoid overdrafts, and many other such examples. In addition to higher sales volumes, digital also drives increased customer engagement. It drives migration to more efficient channels. Over the last two years, we have seen how transactions through the mobile phone have grown very significantly, even doubling in many regions like in Spain, as a result of the higher engagement and the added convenience to our customers. Total customer transactions are growing there. On the other hand, total customer transactions in branches are declining, and they're declining at double-digit rates in that period.
Overall, the transaction numbers do grow, which is, we think, a good thing. It's reflective of more customer interactions. While a branch customer might visit the branch once a month, a mobile customer uses the app every couple of days or even more. The cost to serve the mobile transactionality is, of course, extremely low, particularly as we process most of the volume in the cloud, so we get the best of both worlds. I said earlier that we're putting new solutions in our customers' hands every quarter. To achieve this fast cycle, we have embraced agile at scale. We have now more than 7,000 people working this way in agile, and this is growing by the week. We have built and are deploying a global software development platform that allows global delivery of solutions.
Our different banks in the various countries can quickly create their own local apps by reusing components from a global library. An example of how this works in practice, which we presented a couple of months ago to the press, is our new global mobile banking application, GloMo, with 75% reutilization of components. That has allowed half the time to market, 30% less FTEs in development, 40% lower development costs. We have just launched the new apps this way in Mexico and Uruguay. Peru will be coming soon. They have all benefited from each other's developments. In the case of Uruguay particularly, we didn't even have a mobile app before, nor a very significant engineering team there, and we were able to create one app in record time just by reusing what had been developed elsewhere. This is really the way that big technology companies work.
They develop the best solutions for the clients at a global scale. We believe that this will differentiate us versus local competitors in each of our markets. We're also working on developing tools for our relationship managers that will help them understand the needs of the clients better, will make them more productive by freeing them up from administrative tasks. This is what we call the digital workplace, which includes functionality such as a complete 360 view of the client, the ability to communicate with clients digitally, to send them business proposals or signing documents. This digital workplace has already allowed us to increase the number of leads that are managed by relationship managers by 29% in Mexico and in Spain. Underpinning the growth in digital businesses and sales is the continuing digitization of our customer base. Digital customers are up 26% versus a year ago.
To 25 million clients. You can notice the accelerated growth rate. This represents a 46% penetration. We expect to reach the 50% tipping point over the course of the next few months. This is our goal for 2018. We have already reached the 50% tipping point in six of the countries, Spain, Turkey, U.S., Argentina, Venezuela, and Chile. On the mobile side, mobile active customers grew more than 6 million, up by 43%. We have a penetration of 38%. You can see here also an accelerated growth rate. Here also, we expect to reach the tipping point, the 50% penetration sometime next year in 2019. We have maintained leading positions in the Net Promoter Score across our footprint, number one positions in six countries, number two in two others. We continue to invest in delivering the best solutions to our customers.
Clear example of this is our mobile banking app in Spain, rated number one in the world by Forrester in the last global report that they have published. Forrester has also considered our app in Spain as the best in Europe in 2018, and this is for the second consecutive year. By the way, the app of Garanti Bank, our bank in Turkey, is in the number two European position. As you can see from the last few slides, our push to digital continues strong. It's having a big positive impact on our costs, on our revenues, and also on the appreciation of our customers, which will drive further business. Moving back to the rest of the quarterly numbers, our risk indicators continue to be very sound. We have seen lower impairments. Impairments are down 12.2% versus last year.
They're also decreasing 2.3% in the quarter, with sustained low cost of risk of 0.82%. Also lower NPLs by EUR 2.8 billion less versus last year. We have other operations that we have announced and not booked, like another EUR 1 billion gross book value property development portfolio, loan portfolio that will close in the third quarter and will reduce NPLs by a further EUR 600 million. Our NPL ratio decreased to 4.4%, down 47 basis points. Coverage at 71%. Overall, excellent and improving risk profile and asset quality. Capital position is also strong, well above our target. Core equity Tier 1 fully loaded ratio pro forma reaches 11.4%, including the impacts of the sale of Chile, and the real estate, as well as the full impact of IFRS 9, as I said. In the quarter, our results added 36 basis points. We reserved 18 basis points for dividends and 81 basis points for coupons.
We have seen an increase in risk-weighted assets measured in constant EUR. That detracts 5 basis points. Finally, the quarter has been negatively affected by market-related impacts that are included in the others bucket for a total of -18 basis points there. This includes the mark to market of the Telefónica stake. In the quarter, the Telefónica share fell by 9%. Also, the mark to market of the fixed income portfolios, the held-to-collect and sale portfolios, because of the movement in sovereign spreads. Also the FX impact, with the major effect coming from the appreciation of the US dollar due to our exposure to risk-weighted assets in $. The depreciation on the other side of the emerging market currencies, the effect has been limited because of our prudent FX policy.
The sensitivity of our capital ratio to a 10% depreciation of the TRY in Turkey or of the MXN in Mexico, remains quite limited at around 2 basis points for that 10% depreciation. In the case of the Argentine pesos, is less than 1 basis point. All in all, the fully loaded ratio has slightly decreased by 5 basis points during the quarter. Then on top of that, we have updated the impact from corporate transactions from 57 basis points, which we had estimated last quarter, to 55 basis points now. This explains a further 2 basis points decrease in the pro forma that we reported a quarter ago. I would once again like to highlight the high quality of our capital. You know well we remain as the bank with the highest density of risk-weighted assets, 52%, the highest fully loaded leverage ratio, 6.4%, among our European peer group.
Also, we have already covered the AT1 and T2 buckets on a fully loaded and phased-in basis. Lastly, we received our MREL requirement last May from the Single Resolution Board, and this will be binding from January of 2020. We would already comply with the requirement. Our funding plan also ensures fulfillment in 2020. Finally, I'd like to highlight that during the second quarter, we have successfully issued our inaugural green bond, 1 billion of senior non-preferred. This was the largest financial green bond in the eurozone and the first senior non-preferred green bond issued by a Spanish bank. Chile, although not registered this quarter, I'd like to briefly comment on the sale of the bank there in Chile. This closed July 6th, so it will be recorded in the third quarter. Total consideration was $2.2 billion with impressive ratios of 2.3 times book value and 20.7 times earnings.
Capital gains EUR 640 million. Significant positive impact on core equity, 50 basis points. The sale, by the way, excludes the auto financing business, so Grupo Forum, which is the leading company in the country, and which generates 36% of our total unit results in Chile with outstanding evolution, growing 19% net profit year-on-year in the first half. To close off the quarterly overview, our return metrics. Our tangible book value per share increased by 4.2% in the first half of the year, including dividends. This was despite market conditions, which took their toll on some of our assets. Profitability ratios also improved in the year. ROE in the semester was 11.7%, and return on tangible equity 14.3%. We remain focused on creating value for the shareholder with good performance in a difficult environment, but we have higher aspirations.
Now let me turn it over to Jaime for an overview of the business areas. Jaime?
Thank you, Carlos, and good morning, everybody. Let's start with Spain. We remain confident on the macro outlook, and we expect GDP to grow close to 3% in 2018, and around 2.5% next year. In the first half, net attributable profit grew over 19% versus last year, driven by core revenue growth, cost reductions, and lower impairments. Core revenue grew by 1.5% on a year-on-year basis, accelerating the trend initiated at the end of last year, thanks to the excellent evolution of fees that grow over 8% and above our guidance of mid-single digit growth. This growth rate is supported by the increase in mutual fund volumes and retail banking fees. Costs continue to behave well. They go down by over 4%, further improving the efficiency ratio in the first half of the year to 53.9% as of June. Impairments are decreasing by over 40% on a year-on-year basis.
As asset quality metrics continue to improve, NPLs are down by close to EUR 700 million during the first half, and cost of risk stands at 21 basis points as of June, evolving better than expected. We now expect 2018 cost of risk to be clearly below 30 basis points. Regarding NII, in the first six months of the year, it decreased by EUR 28 million, explained by the lower contribution from the TLTRO. As you already know, in 2017, we accrue for 18 months. That was about EUR 36 million per quarter, versus 12 months in 2018, equivalent to EUR 24 million per quarter. The underlying business remains stable versus last year in a context of subdued loan growth, where interest rate hikes have been postponed, but also with lower wholesale funding costs than expected.
As of June, loans continue to go down by 1.5% versus last year, given the continued deleverage in the residential mortgage and public sector portfolios. Total loans grew in the quarter by 1.6%, driven by loans to consumers and very small businesses, the most profitable segments. On the other hand, commercial loan growth remains subdued. This better mix allows for the lending deal and the customer spread to remain flat. Let's turn now to real estate. Regarding our exposure to the real estate sector, as you already know, the agreement with Cerberus signed last November will allow us to reduce almost entirely our exposure to real estate in own assets. We continue to expect the closing of this transaction to take place at the end of Q3. Regarding developer loans, we expect to continue reducing our exposure further through portfolio sales.
Another example is the sale of Descentra developer loan portfolio, a EUR 1 billion gross exposure transaction. This transaction was announced last June, but as Carlos has already mentioned, its impacts will be accounted for in the second half after the closing. Regarding the P&L, net losses continue to decrease. They were only EUR 9 million in Q2, and now expect to beat our guidance of EUR 100 million net losses for 2018, which compares with a net loss of over half a billion EUR in 2017, helping to boost BBVA's profitability in Spain. Let's now turn to the U.S. We continue to have sound macro expectations for the Sunbelt. GDP will grow by 3.8% in 2018 and by 3.7% in 2019. That's again a one full percentage point above the U.S. as a whole. In the first half, net attributable profit grows by over 50% versus last year in constant terms.
The main driver is the NII that grows at double digits in line with guidance and supported by an acceleration of loan growth and a continued improvement in the customer spread. The loan book rebounds by 4% versus last year, and we keep on progressing towards a more profitable loan mix as our focus continues to be the consumer book, which grows close to 18% on a year-on-year basis. The customer spread continues to increase 11 basis points this quarter, benefiting from the better loan mix and higher rates, offsetting the increase in the cost of deposits as competition intensifies. As you know, we continue to have a positive sensitivity to higher rates, as NII goes up by 6% for every parallel increase in the curve of 100 basis points. We continue to enjoy positive operating jaws and widening. Okay, I have to apologize for this interruption.
Let's continue with the U.S. In terms of expenses, we continue to enjoy positive operating jaws and widening, with revenues growing at 10.7% and expenses at 5.6%, and efficiency improving by 240 basis points in the last 6 months. Loan loss provisions are down by over 38% on a year-on-year basis, positively impacted by the recovery of provisions from hurricanes Harvey and Irma, and in the commercial portfolios, and a positive IFRS 9 micro adjustments. Therefore, cost of risk remains at low levels, 23 basis points year to date. That leads us to improve our cost of risk guidance that we now expect to be in the low 40s. All in all, very strong numbers, generating double-digit returns in the U.S. as we continue to advance in the transformation of our retail franchise. Let's move now to Mexico.
In Mexico, BBVA Research has revised upwards the GDP growth forecast for the country to 2.6% in 2018, thanks to stronger than expected incoming data, mainly driven by manufacturing and services. For 2019, we expect Mexico to grow at around 2%. Once again, and despite uncertainties related to NAFTA and the general elections that took place in July, Bancomer results continue to show sustained growth in all P&L lines, with the bottom line growing at over 20%. If we exclude the capital gains from some real estate assets in the first half, that Carlos has already mentioned, that generated around EUR 60 million in the first half, the bottom line growth would have been 15% on a year-on-year basis, clearly above our guidance, supported by the good performance of the core revenues, control expenses, and significantly lower impairments.
NII grows around 8%, in line with our expectations, supported by activity and higher contributions from the securities portfolios. Loan growth accelerated to 8.6% on a year-on-year basis, thanks to the stronger performance of the commercial segments. This quarter, there were large tickets from both corporates and mid-size companies, anticipating rollovers from the second half. Additionally, retail loans continued to show a solid and stable growth, 6% in the case of the consumer book, and 7% in the case of the mortgage portfolio. This loan growth bias to commercial segments, in addition to higher cost of deposit, explains the slight decrease in the customer spread quarter on quarter. We have strong growth in fee and commissions in Mexico, over 8% versus the first half of last year, and above our mid-single digit guidance, and supported both by the CIB and asset management businesses.
Operating jaws continues to improve, with OpEx growing below inflation. This reflects our success in implementing the digital strategy in Mexico. The cost-to-income ratio continues to improve, now at 33%, despite already being best in class. Impairments on financial assets decreased by over 6%, as loan growth has been higher in the commercial portfolios that have lower provisioning requirements, but also better retail NPL dynamics. The cost of risk decreased to 293 basis points as of June, which makes us believe that we will finish the year with a cost of risk below 320 basis points, better than initially expected. These solid results leads us to also review upwards our bottom line growth guidance. We now expect the net attributable profit to grow at double digits in 2018. Let's focus now in Turkey.
BBVA Research expects growth to moderate to levels between 3.5% and 4% in 2018, after growing above 7% in 2017, due to tighter monetary conditions. After the elections, we believe that controlling inflation should be the top priority of the new administration, and the anti-inflationary strategy should be comprehensive, including tighter monetary and fiscal policies. In the current volatile environment, once again, Garanti continues to show its resiliency, with net attributable profit in the first half growing at over 25% versus last year in constant euros, thanks to a strong core revenue growth and the focus on cost controls. NII is up by 18% versus last year, mainly explained by loan growth and a successful customer spread management. Loan growth was supported by the Turkish lira loan portfolio that grows at double digits, while the foreign currency loan book decrease accelerated to -8.4% on a year-on-year basis.
We expect a slowdown in the Turkish lira loan book growth in the second half, and further reductions in the FX loan book. The excellent price management allows the customer spread to go up by 26 basis points in the quarter, despite higher funding cost. Having said this, we expect it to decrease in the second half of 2018. This will be offset by higher CPI linkers income, as the reference rate used to calculate its contribution to NII will increase to 14% from July 1st. It was 10% in June. Net fees are up by over 30% on a year-on-year basis, showing solid growth across the board. Good evolution of expenses, growing below average inflation. Garanti continues implementing its new service model, Garanti Plus, now in over 600 branches. That is bearing fruits, improving efficiency, customer experience, and employee satisfaction.
In terms of asset quality, the NPL ratio increased by 75 basis points quarter on quarter to 4.5% due to some large tickets in the commercial portfolio and the lack of NPL sales in the quarter. The NPL ratio in retail portfolios remained stable. Cost of risk went up to 123 basis points year-to-date, above our initial expectations, impacted by the negative macro adjustments and some large ticket provisions. We now expect cost of risk to be around 150 basis points at the end of the year, with quarterly volatility linked to the macro. Finally, South America. Growth evolves unevenly across the region. Chile, Colombia, and Peru GDP growth estimates are revised upwards, while Argentina is reduced. All in all, GDP growth forecast for BBVA's footprint in the region is revised to 1.8% for 2018.
The bottom line grows by over 30% on a year-on-year basis, driven mainly by Colombia and Argentina. Core revenues are growing in the mid-teens, supported by double-digit growth in lending, with retail segments as the main growth driver. Customer spreads are improving across the board, especially in Argentina, on the back of the increase in interest rates. Fees are also behaving well, growing at over 12% versus last year. We continue to have positive jaws in the region, with efficiency improving by more than 200 basis points in the last six months to 43%. Finally, loan loss provision in the first half were better than expected due to the positive IFRS macro adjustment and some releases in Peru. The year-on-year comparison, if you remember, is impacted by a provision from a big ticket in Colombia that we did in the first half of last year.
Cost of risk is better than initially expected, decreasing to 130 basis points in the first half of 2018. For the second half of the year, after closing the sale of BBVA Chile, we now expect cost of risk to increase to around 160 basis points, as Chile had a lower cost of risk than the region average. Now back to Carlos for some final remarks.
Thank you, Jaime. My final remarks are just to reiterate the high quality set of results this quarter, supported by core revenues, supported by lower impairments. We are seeing the clear impact of our push to digital, both on revenue growth, also on cost efficiency improvements, and that we deliver on profitability and value creation despite the market uncertainties. Overall, we continue to be focused on shareholder value. Thank you very much for your attention. Now I give the floor to Gloria for the Q&A.
Thank you, Carlos. We are now ready to move into the live Q&A session. First question, please.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star one on your telephone keypad. Please be informed that in order to assure audio quality, we recommend that all questions are asked from landlines. Thank you. Our first question, Gloria, comes from Alvaro Serrano of Morgan Stanley. Alvaro, your line is now open.
Hi. Good morning. Thanks for doing the call early and putting out the results early, first of all. Second, two questions. First of all, on NII in Spain, you've seen better loan growth, but I wondered if that loan growth, if we look over the next few quarters and into next year, is that loan growth and the mix change going to be enough to grow the NII, given there's not going to be any rate hikes, most likely this year or next year? Are you going to be able to grow the NII in Spain, is the first question. The second question is on Turkey. Could you maybe talk us through how you see the general environment there, and in particular, the outlook on provisions?
In the quarter, if you look at the Garanti, the local disclosure, it looks like provisions were up more than what you've reported. Maybe a clarification there. Also, your partners until now, Doğuş Group, are restructuring their debt, apparently. Could you reassure us that there's no material exposures or what the exposures of the group are to Doğuş? Thank you.
Thank you, Alvaro. On NII in Spain, as you say, rates have not been coming up, given the environment we have right now, what we expect for the second half is to have an NII which will be around the same levels as what we have seen in the first quarter. Loan growth will depend on the evolution, mostly of the corporate and CIB portfolios, which has been muted in the first half. After the last meeting of the ECB, we no longer expect the EURIBOR rates to rise in the second half. We have had good new production in many segments, including mortgage, consumer, very small business. Really, the evolution of the overall loan portfolio will depend more on the corporate and CIB, which is more uncertain. In Turkey, we mentioned in the past that the economy was growing too much.
It was the fastest growing economy last year, it was growing quite a bit at the beginning of this year as well. 7.5% growth rates. Given some of the imbalances having to do with the current account deficit that has continued to grow, that really was asking for tighter policy on the fiscal and the monetary side. You have to recall, though, that this was coming from the events in '16, the need to fight potential recession. Really, the economy overheated given the stimulus, really what's required is what Jaime said, strong focus on inflation, so that it can be really reconducive to a situation which Turkey can bring out its full potential, which it's a large one, given how vibrant that economy is, how young, dynamic, really what we require right now is tighter policies on both sides.
That's what we expect will be happening. As it regards our position there, well, we have taken already many measures in the past quarters, are really very well prepared for the situation. We have done many things, reduced the weight of our foreign currency loan portfolio. It represents now about 22% of the total asset size. We have increased also the weight over the linkers, the CPI linkers in the portfolio, the ALCO portfolio, to 50% from 37%, three, four years ago. This is, as we have seen this quarter, a very natural hedge. We will continue to see that hedge in our NIMs in the coming quarters. We have diversified our funding sources. We have extended maturities of those funding sources, especially in the foreign currency side.
We have applied provisioning levels that have been very prudent, anticipating many of the effects that are now passing through, including the exposures to the corporates, including the names that you mentioned, which are not very significant in our case, although we don't want to comment on particular names. Overall, provisioning levels, as Jaime mentioned, will be coming up. Certainly, given the situation in Turkey. They will be coming up from the current levels of 120, 123 basis points. They will be coming up more to 150 for the year as NPLs continue to grow in the situation. We're, as I say, well prepared. The economy should be redirected to lower growth levels, more the 3.5% levels. That should tame inflation, that should tame the current account deficit, that should provide a more sustainable growth later on.
Sorry, you're increasing the CPI assumption to 14% from July. Did I understand correctly during the call?
Yes, Alvaro, that's the case.
Thank you very much.
The difference between the cost of risk in local terms versus consolidated, it is only the FX hedging of the US dollar provisions, that in the case of Garanti, is accounted in the provision line, while in the case of the group, is accounted on the net trading income line. I just want to clarify the guidance of NII in Spain, what we expect is an NII in the second half that will be more or less the same as what we were able to obtain in Spain in the first half.
Thank you very much.
Okay, thank you, Alvaro. Next question, please.
Next on the question queue is from Sofie Peterzens of J.P. Morgan. Please go ahead, Sofie.
Yeah. Hi, here is Sofie Peterzens from J.P. Morgan. I had a question on your excess capital, 11.4% pro forma now, very strong organic capital generation. How should we think about excess capital going forward, given that now you start to be properly above 11%? How do you plan to deploy it, increase payout, or M&A, or how should we think about it? My second question would be around Forum in Chile. You still have the consumer bank in Chile. What are your plans going forward? Should we expect over time that this business will be sold as well? Do you think you can achieve better valuation multiples for this business, given that it is the more profitable business? Thank you.
Thank you. Thank you for your questions. Regarding the capital position, I would summarize it as I did in prior quarters, we are in a good place here. What we strive to do, and we'll continue to strive to do, is to finance our profitable growth going forward, the profitable growth of our balance sheet, while providing attractive remuneration to our shareholders. That's really the guide we will continue to follow. This quarter, the ratio came down for the effects that I mentioned, 7 basis points decrease. Going forward, this is how we will continue to manage. As I say, we are in a good place. Regarding Chile, there is no changes with regards to our plans with Forum. We have sold the bank. We have sold it for what we believe are attractive multiples for us, given what I mentioned.
For Forum, we continue to own that asset, continue to manage it, and continues to provide the profits that I mentioned.
Thank you, Sofie.
Okay. That's very clear. Thanks.
Thank you, Sofie. Next question, please.
Our next question on the line, Gloria, comes from Andrea Filtri, Andrea of Mediobanca. Adria, please go ahead.
Yes, good morning, all. You have revised the loan loss provision guidance in a number of geographies. Could you update it also for the group? When you look into 2019 and 2020, how much of the 2018 changes would you carry forward? Thank you.
As you know, we don't give guidance beyond the year. I'm afraid you're going to have to wait a couple of quarters before getting more info on that. Sorry.
Okay. Thank you, Andrea. Next question, please.
Our next question on the line comes from Marta Sanchez of Bank of America, Merrill Lynch. Please go ahead, Marta.
Good morning. I've got a couple of questions on volumes in Spain and Mexico. In Mexico, we see an acceleration in local currency, to just about 7%, if I'm not wrong. How much of that is because of the dollar effect? What's the size of your dollar book in Mexico? In Spain, how much of the volumes that we've seen in the quarter are one-offs? Stuff that is purely driven by seasonality, public sector commitments, and so on. Thank you.
Okay. As you say, the loan growth accelerated significantly in Mexico in the quarter, especially driven by some commercial transactions. We believe that we will continue to behave well in the second half of the year, especially in the retail portfolios. Not necessarily the commercial book will behave as it had in the second quarter. There were some transactions that were brought forward, that I don't think will be repeated. In the case of Spain, loan growth was very strong in the second quarter. There was one particular one-off transaction with the Social Security that always takes place in the second quarter of the year. We see strong dynamics in the retail portfolios, as Carlos has mentioned. Loan production in mortgages almost 37% on a quarter-on-quarter basis. Very good performance also on the consumer and very small companies segment.
Where we have a little bit more volatility is in the public sector, that behaved well in the second quarter, but on a year-on-year basis is clearly deleveraging a lot. With the caveat of both the public sector and the corporate segment, we think that we could be very close to our guidance here. I forgot to answer on the percentage of U.S. dollar loans in Mexico. They represent 16% of the overall loan portfolio in the country.
Thank you very much.
Thank you, Marta. Next question, please.
Our next question on the line comes from Carlos Peixoto of CaixaBank. Carlos, please go ahead.
Hello, good morning. My first question would be on the evolution of cost of risk for Mexico, and my apologies if you have already mentioned this before. I was wondering how you see the second half of the year evolving, particularly considering some of the challenges that the NAFTA agreement might still pose, and so on. At the same time, on the same chapter, I was wondering if you could comment on how you're seeing activity on lending volumes and so on evolving, whether you're witnessing some postponement of investments given some of the political uncertainty in this NAFTA event. Basically, how do you see these first days after the elections evolving business-wise? Thank you very much.
Well, Jaime alluded to the activity and lending volumes in Mexico already. Regarding the cost of risk, we have seen great performance the first half of the year, with very low cost of risk in this first half, below 300 basis points. That implies that we have lower provisioning expectations for the entire year. We expect the cost of risk for Mexico to be below the 320 basis points. This comes from lower provisioning needs, both from the mix, but also lower provisioning needs in retail. We have better consumer NPL dynamics in Mexico. Really, the situation now is one of higher confidence. We noticed that as well. Jaime mentioned that we had some good growth in commercial portfolios, and really, the lower growth we had seen the first few months of the year has picked up a bit in May and June.
Regarding the outcome of the elections, well, it seems that the uncertainties that we had coming into them have cleared, which is really what we expected after July 1st, independent of who would have won. With this clear win by the new president-elect, and the policies that are coming out of the new future government of Mexico, confidence is growing in the country, and we're looking quite good, I think, in Mexico.
Thank you, Carlos. Next question, please.
Our next question on the line, Gloria, comes from Carlos Cobo of Société Générale. Carlos, please go ahead.
Yes. Hello. Thank you for the presentation. Just a couple of questions on Turkey. First of all, it's kind of the same thing. On the first hand, we've seen other peers in Turkey kind of breaking a little bit more on Turkish the loan book, being more flattish in the quarter. You keep a nice growth trend that means that, or kind of implies that you are comfortable with the macro dynamics despite the uncertainty. In terms of your strategy for the subsidiary, if you remain committed with Turkey, could you consider buying out the minorities at this level? Obviously, if you're comfortable with revenue prospects and cost of risk resiliency, the stock is probably at a too cheap to no valuation. Obviously, the macro uncertainty is high, but the opportunity for you over the long term could be there.
Would like to understand your view there. The second one on the CPI linkers. Could you elaborate on the long-term risk to roll those linkers? Is there any chance that it could affect fiscal deficit in the country, and the government would be forced to stop issuing this type of debt, or you see that as kind of an instrument that will be there for you to continue rolling that portfolio? Thank you.
Thank you. Just to be clear, in Turkey, we have been very prudent in our loan growth, especially in the foreign currency loan growth, which carries now, I think it's an 8% drop from a year ago, and about a 6% drop, or almost a 6% drop since the beginning of the year in foreign currency loans, as I say. Although, of course, you might see the nominal growth because of the devaluation of the lira, you have a revaluation of the exposures in foreign currency. The lira book had been growing, and is growing at about 15%, and that had to do with the Credit Guarantee Fund. Our overall position in Turkey has been, for a while now, quite prudent and continues to be quite prudent, seeing what the macro was doing.
Regarding the linkers, it is a very effective hedging strategy to maintain good NII in the context of inflation that has had some volatility, and we don't see any long-term risk to that. Regarding our exposure to Turkey, we're comfortable with our stake right now, which as you know, is 49.85%, with a book value of EUR 4.4 billion.
Thank you, Carlos. Next question, please.
Our next question comes from Britta Schmidt of Autonomous Research. Britta, please go ahead.
Yeah. Hi there. I also have a question with regards to Turkey. Could you give us any indication, or do you have any feeling for what the sensitivity of the provisions would be to changes in the macro assumptions under IFRS 9, to give us an idea as to what the volatility could look like? Maybe you can also remind us of what the workings are with regards to RWA changes in case of a sovereign downgrade. Just one clarification, if you could give us the amount of the one-off in Mexico from what I believe was a real estate sale. Thank you.
The guidance in terms of cost of risk to be around 150 basis points in Turkey for 2018. That includes the IFRS 9 macro adjustments that we foresee right now. We don't provide sensitivity around those numbers. You can guess, given what has happened and the impact that we're incorporating for the second half, you can find a bit what the impact of the macro has been on our estimates for the cost of risk. Regarding risk-weighted assets and the one-off on Mexico, I give it back to Jaime.
On sovereign ratings, it will not have any further downgrades, will not have any impacts on our Turkish lira sovereign portfolio. As you know, Turkey has a regulatory equivalence with the SSM, it will not have any impact. In the case of the dollar exposure, we will need to be impacted, a further rating reduction of between four and five notches in order to be impacted. Our current weighting is 100% of all US dollar foreign sovereign exposure, and it will go to 150% in case of that four or five-notch downgrade. In the case of the one-off, as Carlos mentioned, the positive impact in Mexico was EUR 40 million from the sale of a building, Montes Urales, in the half, it was EUR 60 million.
Thank you. Thank you, Britta. Next question, please.
Our next question online comes from Ignacio Ulargui from Deutsche Bank. Ignacio, please go ahead.
Have two questions. One on costs in Mexico. You have done a very good performance in the first half of the year. How do you see that going forward into the second half? What could be the benefits that you get out of the investments done in the past few years there? Regarding fees in Spain, whether you could provide us an update on the outlook for fees in Spain. Thanks.
Okay. Cost in Mexico, as you say, it is performing extremely well, clearly growing below inflation. As opposed to many other competitors, which are just starting an investment phase, we did so four years ago. We completely refurnished all our branch network. We invested in technology. That has been paying off. We truly believe that we can continue to sustain a growth rate below inflation growing going forward, even if bancarization levels continue to increase and we continue to see very strong top-line growth. In the case of fee in Spain. Fees in Spain have behaved very well during the half. I think that is a trend that already started last year that we are accelerating this year. Clearly, mutual and pension funds asset volumes are a key component of this good behavior. We have been growing our market share here for the last almost year and a half.
It's true that entries in the second quarter were not as positive as they were in previous quarter. Even so, we were able to gain market share in the second quarter alone. We were also very good at defending the average fee, which actually went up by 1 basis point. If volatility of markets allowing, well, I truly believe that that good behavior will continue going forward. What is even more impressive, I think, is the good behavior of services fees in Spain, especially account maintenance fees that are behaving extremely well. This all these has allow us to offset our first half of the year, which has not been as positive in the CIB side. All in all, good, strong behavior across the board with maybe the only exception of the CIB business.
I would like to add on the Mexico evolution of costs. I think Jaime has been very clear that we will continue to have good news regarding cost containment versus inflation because of the investment we've done, because of technology, because of the push to digital, and also because we continue to find opportunity to improve our operations there, as we, in fact, are doing everywhere. I mentioned last quarter that we have the TMP, the transformation of our production model, which is quite a significant project that, in Mexico, has already identified significant initiatives to further reduce costs by streamlining processes, basically. All of those are the reasons why we're able to sustain this lower cost versus inflation, and we will continue to do that even as inflation continues to come down in Mexico.
Thank you very much.
Thank you, Nacho. Next question, please.
Our next question comes from Mario Ropero of Fidentiis. Mario, please go ahead.
Hello, good morning. My first question is on the mortgage book. You seem to continue underperforming peers here, pretty much everybody in Spain. I wonder whether you think that your peers may be taking too much risk on board in this product line. Also when do you expect well, this book to stabilize. My second question is, given the fact that you're increasing again a lot demand accounts in Spain this quarter, if you could please, again, update the NII sensitivity to rates in Spain. Thank you.
Okay. On the mortgage portfolio, it is true that we lost some market share on a year-on-year basis in Spain in this product, around 30 basis points. You must not forget that we are the leader in the market, with a market share of 15.6%. We've tried to be conservative in terms of spreads. Our front book deals have remained way above our back book spreads, that has been our strategy. It's true that we implemented a new methodology to price loans, especially to low-risk clients. This has allowed new production to increase by 37%. This quarter still not able to offset maturities, that means that we still believe that this portfolio will continue to deleverage during the rest of the year, but at lower rates from the ones we saw last year. Hopefully, this portfolio will stop deleveraging next year.
It's been a difficult call in the past few years to guesstimate how this portfolio was going to behave.
I think the math has a lot to do with it. What we are seeing is record production since the last few quarters, and it continues to go up very significantly quarter on quarter, as you say, 37% in this quarter. We have more than a 50% increase in the average of the 2018 versus 2017 so far. We have still very high levels of repayment. As Jaime was mentioning, we have a high share in mortgages. Our share of repayments is larger than the newcomers, the other players that are growing fast in mortgages. It's just the math, that we are producing at very high levels with good market share, but our customers are also repaying their loans. Given the low interest rate environment, they don't have much place to put their money, so they repay their mortgage.
That will be continuing with low rates. We will continue to produce as we're doing. At some point, that will turn.
Following on what Carlos has just said, you can see that also on the DDA amounts. They increased significantly this quarter by over 5%, which now represent a huge proportion of our retail funding sources. Our NII sensitivity remains more or less the same in Spain. We do believe that 100 basis points increase in the curve will allow our NII to grow on a 12 months forward-looking basis around 15%. It's true that as DDA balances increase, probably betas will also. We currently expect that around 40% of these balances will probably move over to time deposit as rates go up. I think the sensitivity will be small in the first 25, 50 basis points, and it will increase further as rates go up.
Thank you, Mario. I think there are no more questions, thank you very much for joining this call. As you know, the entire IR team will remain available in case you have further questions.
Thank you, everyone, and for those of you going on vacation, have a good holiday. Thank you. Bye-bye.
Thank you.