Good morning, everyone, and welcome to the Q2 2018 Results Presentation of BBVA. I am Gloria Causero, Head of Investor Relations, and here with me today is Carlos Torres Villa, Chief Executive Officer of the group and Jaime Sanitejada, BBVA Group CFO. Cowen. As usual, Carlos will begin with the presentation of group's results and then Jaime will review the business areas. We will move straight to the live Q and A session after that.
Cowen. As always, we would appreciate all the participants to try to make the calls from the landlines and avoid using the speakerphone. Now I will hand over the call to Carlos.
Coco. Thank you, Gloria. Good morning, everyone, and welcome to BBVA's Q2 2018 results audio webcast. We started the year with very strong Q1. And now again, 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, Co.
But once again, the resilience of our diversified portfolio has helped us outperform in this environment. We have recorded a net Coco. At Suraburo will profit of €1309,000,000 in the quarter, posting an 18% increase versus the Q2 of last year. In parallel, we continue to maintain solid capital position. Our fully loaded core equity Tier 1 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 6. And also the sale of the real estate assets to Cerberus, which is to close in the coming quarter, Q3. The key highlights Coe. For the Q2, 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 stand by more than 80 basis points in the year to 49.2%, and we have 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. And this 39% of units represents 29% in terms of value.
The number of mobile active customers exceeded 20,000,000 with yearly growth rates 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 Co. The Q2 of 2017, coverage ratio stable at 71%, actually it's up by 19 basis points and very low cost of risk of 82 11.4 above our target despite the 7 bps decrease in the quarter.
By the way, 5 bps 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 form a 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 Coe. 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 The growth in inflation I mean, the inflation rate in our footprint. As a result of this, pre provision profit was €3,000,000,000 Growing at a rate of 9%. Below that, impairments were quite low this quarter, 12% lower than last year And provisions also came down very significantly, both because of lower restructuring costs in Spain and also some capital gains we booked in Co in Mexico, sorry, in Mexico in the sale of a building, nearly €40,000,000 coming from that.
Net attributable profit, as I mentioned before, grew 18% versus the Q2 of 'seventeen in current euros or 38% Coe. In constant euros, the 1st 6 months, similarly strong set of results, net profit $2,600,000,000 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, But the jaws are positive, costs growth contained at 2.9% below inflation and finally lower 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 €4,400,000,000 we have an impressive evolution in net fees and commissions plus 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% Under flat versus the Q1 as we had the single resolution fund contribution this quarter And that was only partially offset by the dividends coming from Telefonica. In summary, Strong core revenues in the quarter, but with lower NTI. One more quarter, we maintained Coelho. 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.
And 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. And if we look 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%. And if we were to track the cost of income without NTI, The improvement is more than 2 10 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 continue to go down, 4.6% drop year on year. Also Mexico, costs are growing well below inflation there, 4 point 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 are pushed to digital. We had an excellent quarter in this respect and very happy with the effort and the commitment across the group.
And we have been mentioning this. I made a point of it last quarter. You might recall that a large part of Coe. 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 were sold digitally that is up from 22.4% a year ago and up from a level of internally the PRB, the product relative value, which is a proxy for the economic value Coe, measured as a percentage of digital sales over total sales. And as you can see, this metric shows the same outstanding trend going up, Showing that we are 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% And 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%. But 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% reflects better reflects the economics of the products We sell digitally in that region.
Overall, very good news everywhere. And this is 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 the 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 Q2.
I also talked about the click and pay in Spain Co. For small businesses that had 33% growth. Now this time I'm showing the digital account opening in Mexico where we have multiplied The accounts opened by 3 times the accounts in just 1 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 So 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 2 in less than a month. And 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 the focus on advice, on smart interactions, With tools and solutions to help our customers achieve peace of mind, to achieve their life goals, We're actively offering them content, more personalized content, better suited products to them, better suited experiences. And we have many examples every quarter. Some recent ones are the BBVA OneView in Spain, which is a digital advisory banking solutions for companies.
So basically, we're offering a multi bank account information for companies, payment initiation services as well from one single point of access. BBVA Baloravio also in Spain with it this is an app with which you can search for a home Either you want to buy or rent. So you can see properties for sale or for rent as you're walking in the street just by pointing the phone to the buildings, So as if you were fetching Pokemons and you can access all the info on the properties as you walk the street. Or the payroll advance to learn in Colombia, helping customers avoid overdrafts and many other such examples. In addition to higher sales volumes, digital also drives increased customer engagement.
Cauffier. It drives migration to more efficient channels. Over the last 2 years, we have seen how transactions to the mobile phone I've 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. So total customer transactions are growing there. But 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. So while a branch customer might visit the branch once a month, A mobile customer uses the app every couple of days or even more. And 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 are 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. And we have built and are deploying a global software development platform that allows global delivery of solutions. So our different banks in the various countries can quickly create their own apps, their own local apps by reusing components From 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 And 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 And they have all benefited from each other's developments.
In the case of Uruguay particularly, we didn't even have a mobile app before Coe, 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 And 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, we'll 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 view, 360 view of the client, the ability to communicate with clients digitally to send them business Proposals or signing documents and this digital workplace has already allowed us to increase the number of leads that are managed by Co.
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 25,000,000 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.
So this is our goal for 2018. We have already reached The 50% tipping point in 6 of the countries: Spain, Turkey, U. S, Argentina, Venezuela and Chile. On the mobile side, mobile active customers grew more than 6,000,000, up by 43%, sorry, and we have a penetration of 38%. So you can see here also an accelerated growth rate.
And here also we expect to reach the tipping point of the 50% penetration sometime next year in 2019. We have maintained leading positions in the Net Promoter Score across our footprint, number 1 positions in 6 countries, number 2 in 2 others. We continue to invest in delivering the best solutions to our customers. A clear example of this is our mobile banking app in Spain, rated number 1 in the world by Forrester In the last global report that they have published, Forrester has also considered that app in Spain as the best Coeuf in Europe for in 2018 and this is for the 2nd consecutive year. And by the way, the app of Guaranty Bank, our bank in Turkey Coe is in the number 2 European position.
So as you can see from the last few slides, our push to digital continues strong, is having a big positive impact on our cost, on our revenues and also on the appreciation of our customers, which will drive further business. Now moving back to the rest of the quarterly numbers, our risk indicators continue to be very sound. Co. We have seen lower impairments. Impairments are down 12%, 12.2% versus last year.
They're also decreasing 2.3% in the quarter With sustained low cost of risk of 0.82 percent, also lower NPLs by $2,800,000,000 less versus last year. And we have other operations that we have announced and not booked like another €1,000,000,000 gross book value property development portfolio, loan portfolio that will close in the Q3 and will reduce NPLs by a further $600,000,000 Our NPL ratio decreased to 4.4%, down 47 basis points coverage at 71. So 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 form a 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 for dividends and 81 coupons. We have seen affected by market related impacts that aren't included in the others bucket for a total of minus 18 there. This includes the mark to market of the Telefonica stake. In the quarter, the Telefonica share fell by 9%.
Also the mark to market of the fixed income portfolios that help to collect and sell portfolios Because of the movements in sovereign spreads, also the FX impact with the major effect coming from the appreciation of the U. S. Dollar Due to our exposure to risk weighted assets in dollars, 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 ratio capital ratio to a 10% Appreciation of the Lira in Turkey or the peso. In Mexico, it's quite limited, remains quite limited at around 2 basis points for that 10% depreciation. And in the case of the Argentine pesos, it's less than one basis point.
All in all, the ratio, the fully loaded ratio has slightly decreased by 5 basis points during the quarter and then on top of that we have updated the impact from corporate transactions from 57%, which we had Estimated last quarter to 55 now, so this explains a further 2 basis points decrease in the pro form a 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 Co. And lastly, we received our environmental 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 Q2, we have successfully issued our inaugural green bond, dollars 1,000,000,000 of senior non preferred. This was the largest financial green bond in the Eurozone and the 1st senior non preferred green bond issued by Spanish Bank. Chile, although not registered this quarter, I'd like to briefly comment on the sale of the bank there in Chile, disclosed July 6.
So it will be recorded in the Q3. Total consideration was $2,200,000,000 with impressive ratios of 2.3x book value And 20.7 times earnings. Capital gains €640,000,000 significant positive impact on core equity, 50 basis points. The sale by the way excludes the auto financing business, so Forum, Group of Forum, which is the leading company in the country Which generates 36% of our total unit results in Chile with outstanding evolution growing 19% net profit Coates. 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, and 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%. So 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, accelerating the trend initiated at the end of last year. Thanks to the excellent evolution of fees 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 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 1st 6 months of the year, It decreased by €28,000,000 explained by the lower contribution from the TLTRO.
As you already know in 2017, we accrue for That was about €36,000,000 per quarter versus 12 months in 2018 equivalent to €24,000,000 per quarter. Because 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, percent driven by loans to consumers and very small businesses, the most profitable segments. On the other hand, commercial loan growth remains This better mix allows for the lending deal and the customers 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 owned 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 the Sintra developer loan portfolio, a €1,000,000,000 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 and L, net losses continue to decrease.
They were only $9,000,000 in Q2 And now we expect to beat our guidance of $100,000,000 net losses for 2018, which compares with a net loss of over Co. €500,000,000 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 Sand Boat.
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% Co.
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 Co. 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 you know, we continue to have a positive sensitivity to higher rates Caupe, as NII goes up by 6% for every parallel increase in the curve of 100 basis points. 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 2 40 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 Kauffman, in the commercial portfolios and a positive IFRS 9 macro adjustments.
Therefore, cost of REITs remains at low levels, Co. 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 Coeufour retail franchise.
Let's move now to Mexico. In Mexico, BBVA Research has revised supports the GDP growth Forecast for the country to 2.6% in 2018, thanks to stronger than expected incoming data, Kauffman, 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, Banco Mer results continued to show Co. Sustained growth in all P and L lines with the bottom line growing at over 20%.
If we exclude the capital gains 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 midsized companies, Anticipating rollovers from the second half. Additionally, retail loans continue 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 on growth bias to commercial segments in addition to higher cost of deposit explains a 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 3 20 basis points better than initially expected. These solid results This leads us to also review upwards our bottom line growth guidance. We now expect the net attributable profit to grow at double digits Co. Let's focus now in Turkey. BBVA Research expects growth to moderate to levels between 3.5% 4% in 2018 after growing above 7% The priority of the new administration and the anti inflationary strategy should be comprehensive including tighter monetary and fiscal policies.
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 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 twenty eighteen.
This will be offset by higher CPI linkers income as the reference rate used to calculate its contribution to NII 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. Guaranty continues implementing its new service model, Guaranty Plus, now in over 600 branches. That is bearing fruits, improving efficiency, customer experience and employee satisfaction. And finally, in terms of asset quality, the NPL ratio increased by 75 basis points quarter on quarter to 4.5% Corleos 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 And finally, South America. Growth evolves unevenly across the region. Chile, Colombia and Peru GDP growth our revised supports, 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. Co. Core revenues are growing in the mid teens supported by double digit growth in lending Coe. 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 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 decade in Colombia that we did in first half of last year. Co. Cost of risk is better than initially expected, decreasing to 130 basis points in the first half of twenty eighteen. For the second half of the year and 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.
Coco. And now back to Carlos for some final remarks.
Thank you, Jaime. My final remarks are just to reiterate The high quality sales 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 and A.
Thank you, Carlos. We are now ready to move into the live calling for Q and A session. So first question, please.
Ladies and gentlemen, the Q and A session starts Coe. Thank you. So our first question, Gloria, comes from Alvaro Serrano of Morgan Stanley.
The call early and putting out the results early, first of all. And 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 with given there's not Any rate hikes most likely this year or next year? Are you going to be able to grow the NII in Spain is First question. And the second question is on Turkey.
Could you maybe just 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 guarantee, The local disclosure, it looks like provisions were up more than what you've reported, so maybe a clarification there. And also Your partners until now Douglass Group are restructuring their debt apparently. So could you reassure us There's no material exposures or what the exposures of the group are to DOGUS.
Thank you.
Thank you, Alvaro. On AII in Spain, as you say, rates have not been coming up. And given the environment we have right now, What we expect for the second half is to have an AII, which will be around the same levels as what we have seen in the Q1. Loan growth will depend on the evolution mostly of the corporate and CIB portfolios, which has been muted in the first half. And 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, But really the evolution of the overall loan portfolio will depend more on the corporate and CIB, which is more uncertain. Now in Turkey, We mentioned in the past that the economy was growing too much. It was growing it was the fastest growing economy last year. It was growing quite a bit at the beginning of this year as well, 7%, 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 2016 and the need to fight potential recession, But really the economy overheated given the stimulus and really what's required is what Jaime said, Strong focus on inflation, so that It can be really reconduced to a situation in which Turkey can bring out Its full potential, which is it's a large one given how vibrant that economy is, how young, dynamic And 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 and are really very, very well prepared For the situation, we have done many things, reduce the weight of our foreign currency loan portfolio. Coe. It represents now about 22% of the total asset size.
We have increased also the Coe. Wait over the linkers, the CPI linkers in the portfolio, the ALCO portfolio to 50% from 37% 3, 4 years ago. And 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. And 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. So overall, provisioning levels, Jaime mentioned, will be coming up, Certainly given the situation in Turkey, they will be coming up from the current levels of 120, 123 Co. Basis points that will be coming up more to 150 for the year as NPLs continue to grow in this situation, but we're as I say well prepared. The economy should be directed to lower growth levels more the 3%, 3.5% levels That should tame inflation, that should tame the current account deficit and that should provide a more sustainable growth later on.
So and 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. And the difference between the cost of risk in Local terms versus console, it's only the FX hedging of the U. S. Dollar provisions That in the case of guarantee 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 It's 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. Thank you, Alvaro. Next question, please.
Next on the question queue is from Sophie Peterson of JPMorgan. Please go ahead, Sophie.
Yeah. Hi. Here is Sophie Petter says from JPMorgan. So I had a question on your excess capital, 11.4% pre form a now very Strong organic capital generation. How should we think about kind of excess capital going forward given that now you start To be properly above 11%, how do you plan to deploy it, increase cost payout or M and A or how should we think about it?
And my second question would be around Forum in Chile. You still have The consumer bank indeed, but what are your plans going forward? Should we expect over time that This business will be sold as well. And do you think you can achieve better valuation multiples for this business given that it is a 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. And 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, and that's really the guide we will continue to follow. This quarter, the ratio came down For the effects that I mentioned, saw 7 bps decrease, but going forward this is how we will continue to manage.
And as I say, we are in a good place. Regarding Chile, there is no changes with regards to our plans with Forum. So we have sold the bank. We have sold it for what we believe are attractive multiples for us, given how the Yes, given what I mentioned. And then for Forum, we continue to own that asset, continue to manage it and continues to provide The profits that I mentioned.
Thank you, Sophie.
Okay. That's very clear. Thanks.
Thank you, Sophie. Next question, please.
Our next question on the line, Gloria, comes from Adria Gulte of Mediobanca.
Coe. Yes, good morning all. You have revised the loan loss provision guidance in a number of geographies. Could you update it And when you look into 2019 2020, how much of Co. The 2018 changes would you carry forward?
Thank you.
As you know, we don't give Guidance beyond the year, so I'm afraid you're going to have to wait a couple of quarters
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? So And what's the size of your dollar book in Mexico?
And in Spain, how much Of the volumes that we've seen in the quarter are one offs, so stuff that is purely driven by seasonality, 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. Cofu. 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 Q2 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. And what where we have a little bit more of 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. So 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.
Next question on the line comes from Carlos Pesotto of CaixaBank. Carlos, please go ahead.
Hello, good morning. My first question would be on the evolution of cost of from Mexico and sorry and my apologies if you have already mentioned this before. But I was wondering how do you see the second half of the year Evolving, particularly considering some of the challenges that NAFTA agreement might still pose and so on. At the same time, I was wondering 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 postponements of investments given some of the political uncertainty in this NAFTA events or basically How do you see this first phase of the new after the elections evolving business wise? Thank you very much.
Well, Jaime alluded to the activity in lending volumes in Mexico already. Regarding the cost of risk, we have seen great performance in the first half of the year with Very low cost of risk in this first half, below 300 basis points. And that implies that we have Lower provisioning expectations for the entire year. So we expect the cost of risk for Mexico to be Below the 3 20 basis points. And this comes from lower provisioning needs both from the mix, but also lower provisioning needs in retail.
So we have better consumer NPL dynamics in Mexico. And 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 1st couple of the 1st few months of the year has picked up a bit in May June. And 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 1, independent of who would have won.
And 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 Colas Cabo of Societe Generale. Carlos, please go ahead.
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 All the peers in Turkey kind of breaking a little bit more on Turkish lira, the loan book in the quarter.
But you keep kind of a nice growth trend that means that or kind of implies that you are comfortable With the macro dynamics despite the uncertainty. So in terms of your Strategy for the subsidiary, I mean, if you remain committed with Turkey, could you consider buying out the minorities At this level, because I mean, obviously, if you're comfortable with revenue prospects and cost of risk, resiliency, the stock is probably at Obviously, the market uncertainty is high, but the opportunity for you over the long term could be there. So Coe. I would like to understand your view there. And the second one on the CPI linkers.
Could you elaborate on the long term Risk to roll those linkers, I mean, is there any chance that it could affect fiscal deficit in the country and government would be forced To stop issuing this type of debt or you see that is kind of an instrument that will be there for you to continue rolling that portfolio? Thank you.
Thank you. So 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 We're almost a 6% drop since the beginning of the year and for an increase in loan as I say. Although of course you might see the nominal growth Because of the devaluation of the Lida, so you have a revaluation of the exposures in foreign currency. The Lida book had been growing and is growing at about 15% And that had to do with the credit guarantee fund. But 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 risks to that. Regarding our exposure to Turkey, we are comfortable with our stake Coe, which as you know is 49%, 85% with a book value of €4,400,000,000
Thank you, Carlos. Ko. Next question please.
Our next question comes from Britta Schmidt of Autonomous Research. Britta, please go ahead.
Yes, 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 And maybe you can also remind us of what the workings are with regards to RWA changes in case And then just one clarification, if you could give us the amount of the one off in Mexico from what I believe was the real estate sale? Thank you.
So 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, But we don't provide sensitivity around those numbers. But 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'll give it back to Jaime.
Okay. On sovereign ratings, it will not have any further downgrades, will Not having impacts on Turkey's Lira Sovereign Portfolio. As you know, we have the regulatory equivalents. Turkey has the regulatory equivalents with the SSM, so it will not have any impact. In the case of the dollar exposure, We will need to be impacted further rating reduction of between 45 notches In order to be impacted, current weighting is 100% of all U.
S. Dollar foreign Certain exposure and it will go to 150% in case of that 4 or 5 notch downgrade. In the case of the one off, as Carlos mentioned, the positive impact in Mexico was €40,000,000 from the sale of a building, Montesurales. And in the half, it was €60,000,000
Thank you. Thank you, Brida. Next question, please.
Our next question online comes from Ignacio Laguis from Deutsche Bank. Ignacio, please go ahead.
Hi. Good morning, everyone. Yes, I have two questions. 1 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?
And What could be the benefits that you get out of the investments done in the past few years? And regarding fees in Spain, whether you could provide us
Okay. Cost in Mexico, as you say, It's performing extremely well, clearly growing below inflation Coe. As opposed to many other competitors, which are just starting an investment phase, we did so 4 years ago, we completely refurnished all our brands network. We invested in technology And that has been paying off. So we truly believe that we can continue to sustain A growth rate below inflation going forward, even If bankerization levels continue to increase and we continue to see very strong top line growth.
In the case of Finn Spain, Finn Spain have behaved very well during the half. I think that's a trend that already started last year that we are accelerating this year. Clearly, mutual and pension funds asset volumes Coco. We've been growing our market share here for the last Caucoma, almost a year and a half. It's true that entries in the second quarter were not as positive as they were in previous quarter, but Even so, we were able to gain market share in the 2nd quarter alone.
We were also very good At defending the average fee, which actually went up by 1 basis points. If volatility of markets allowing, I truly believe that, That good behavior will continue going forward. But 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. That all this has allowed us to offset our first half of the year, which has not been as positive in the CIB side. So all in all, good strong behavior across the board with mainly with maybe the only exception of the
Coe. 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. So I mentioned last quarter that we have Co. 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.
So 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 Come down in Mexico.
Thank you very much.
Thank you, Nacho. Next question, please.
Our next question comes from Mario Rippero of Edentes. 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. So I wonder whether you think that your peers may be taking too much risk on board in this product line? And also when do you expect this book to stabilize?
And then 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
Okay. On the mortgage portfolio, it is true that we lost some market Co. On a year on year basis in Spain in this product around 30 basis points, but You must not forget that we are the leader in the market with a market share of 15.6%. We Try to be conservative in terms of spreads. Our front book deals have remained way above Our back book spreads and that has been our strategy.
It's true that we Coe. I implemented a new methodology to price loans, especially to low risk clients.
This has allowed
new production to increase by 37%. And this quarter still not able To offset maturities and that means that we still believe that this portfolio will continue to deleverage During the rest of the year, but at lower rates that from the ones we saw last year, Hopefully, this portfolio will stop deleveraging next year, but it's been a difficult call The past few years to guesstimate how this portfolio was going to behave. I think
the math has a lot to do with it. Because 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 And we have more than a 50% increase in the average of the 2018 versus 2017 so far. But then we have still very high levels of repayment. And as Jaime was mentioned, 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.
So 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, but we will continue to produce as we're doing. So at some point, I will turn.
And following on what Carlos Acier 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 our as DDBA balances Increase probably betas will also. And we currently expect that Around 40% of these balances will probably move over to time deposits 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.
Cauca. Thank you, Mario. I think there are no more questions. So thank you very much for joining this call. And as you know, the entire IR team will remain available in case you have further questions.
Thank you, everyone.