Hello. Good morning, and welcome to CaixaBank's results presentation for the second quarter of 2020. With us today is the usual management team of the CEO, Gonzalo Gortázar, and the CFO, Javier Pano. In terms of format, we will do our best to keep the presentation within 30 minutes, and around 45 minutes of Q&A will follow after that. If you're new to this presentation, you should see the instructions on the screen. Without further ado, let me hand it over to the CEO, Gonzalo Gortázar.
Thank you, Eddie. Good morning, everybody. You've set the time limit, so I'm going to try and be disciplined and see we can get soon to the Q&A, which is obviously where most of the interesting stuff tends to be discussed. Summary of the quarter and of this moment in time, a few ideas. One, which I think is very important, but sometimes people forget, is we are gaining market share. The second quarter has been very good from that point of view. The first quarter was also very good. Gaining market share, we'll see those numbers in some more detail, but clearly long-term savings is a very important part of our core business. 53 basis points in pensions, mutual funds, and life insurance over the last 6 months, not bad.
Obviously, this quarter has been marked by lending to businesses, 82 basis points of market share gain. I think it's also important, and you'll see some slides how May has been obviously a better month than April, and June a better month than May, and actually July, in terms of activity, a better month than June. We're seeing a fairly strong rebound of activity post the lockdown, which is obviously a fairly good sign. We have been with our clients and with the society in terms of providing them with two most important products they needed, liquidity through ICO loans and payment moratoria. You have there our figures, 6.4% of the loan book, that includes Portugal as well, and approximately EUR 11 billion in the quarter outstanding at the end of the period. A very significant increase of credit with the state guarantees.
Cost targets, we've been working on that for quite some time. We've been gradually reducing the level of cost we feel we can operate at. Now we're announcing reduction for this year to more than 2% in terms of reduction. We'll have costs shrinking by 2% or more, or that's what we're seeing, hopefully more than two. We also wanted to give you a glimpse into 2021 because I feel the market is a bit confused sometimes what it is just COVID related because there's less activity and what it is structural. Most of this reduction this year is structural. For 2021, we plan further cost reductions, which means that we would be having cost savings of over EUR 300 million compared to our initial targets in the strategic plan.
Finally, obviously, we took a very large charge, and compared to what I've seen from competitors, a much larger charge than many others. I have to say, this is a front-loading decision from a position of strength that is going to allow us to have a much better second half in terms of provisions and hence in terms of bottom line as well. This is EUR 809 million, as you can see. It increases our coverage ratio to 63%, which obviously indicates how much we're already reserved for future issues. Core Equity Tier 1, we're providing for full transparency, both with and without the impact of the transitional IFRS 9. Obviously, it's been a quarter in which we have grown a lot, and that has had a small impact on capital.
Because with the transitional IFRS 9, this big charge, which is really equivalent to capital, is there to stand for future losses, is not fully deducted, so that we have an extra almost 50 basis points of capital on CET1 basis. Those are the highlights, really. It was a good activity, coming up strongly, gaining market share, quite important because now we're all focused on costs and provisions, but when we come out, we're going to be even more of a leader in this market. That is something that is sustained over time, and then big exercise in costs and provisions. We also announced yesterday a transaction in which we're selling 29% of our merchant acquiring subsidiary to Global Payments. This is a business that I think you know, but most of the investor community is not that familiar with.
This is a joint venture that has now successfully worked for the last 10 years. Actually, during these 10 years, we have had a very productive relationship with Global Payments. Global Payments is well-known as a very large company, a specialized technology payment provider. We have agreed, given the way this business is evolving, which is more and more into the technological world, software development, et cetera, that it was more logical for Global Payments to own a larger stake, 80% versus our 20%. At the same time, we have agreed to keep everything equal in terms of the way we run the business, and both us and Global Payments are very satisfied with the results and the fact that actually we have worked together nicely for the last 10 years. Being with Global Payments allow us to compete in this space.
We could not compete in this space without Global Payments. Our competitors in this space tend to be new companies like Adyen or Stripe, others, rather than traditional banks. We are able to compete with them thanks to this alliance with Global Payments. We want to make sure we keep it. That's why we have kept 20% stake. Actually, the modus operandi, with management, et cetera, everything is going to stay the same. On the other hand, we obviously owned a very highly valued business. You see that sale price, EUR 493 million over net income loss of EUR 14 million, one four. That means a 35x multiple, which obviously indicates we are crystallizing value from a business that otherwise market really is not properly valuing.
At the same time, keeping all the good elements of this strategic alliance, which will continue to grow and will continue to facilitate, to provide cutting-edge solutions, the payment point to our merchant customers. Moving on to what we've done. I'd say gain market share, activity rebound, cost management, and risks. Market share. You see the numbers, I think they speak by themselves. Life insurance, mutual funds, pension funds, long-term savings, all the juicy liability side funds are doing very well. These are not easy figures to achieve in six months. We've been delivering this for year after year, but we are accelerating. My thesis is, in this crisis, because of where we are, and because we are in good shape, we're going to be able to accelerate market share growth organically. Similarly, on credit and business lending, you have all the figures.
Figures for performing loans, for customer funding, it's been an extraordinary period. Based on the figures that all the banks have reported, obviously everybody's done more, but we've done more than more. It's very rewarding and satisfying. Not just on the asset side, clearly on every aspect of what we do. In terms of the recovery, we have changed the macro outlook. I'll discuss that later when we talk about risks. Clearly, we have a big fall this year. We're expecting 14% and an important recovery next year. You see that the base case that we had before was obviously much more optimistic, and that's why we have come up with a much larger estimate of provisions. By being very hard on our macro assumptions. Important enough, what you see during these months is a very strong recovery.
First of all, on the payment side, you see how particularly hotel, restaurants, leisure, et cetera, came down to close sort of lockdown after mid-March. They have recovered to -13%. The sectors that are more affected are obviously affected, but they are now at -13%. It's not that they stay at -50% or -60%. Obviously, the overall level of activity in payments is now already above the same period of last year. New mortgage lending, consumer lending, you also see how rapidly after the trough in April things are improving equally in terms of net inflows. We're not yet at the level of January, February. Certainly, in terms of net inflows we had in January, February, would have been the record exceptional quarter for us. We're getting closer to those levels, and I have to say activity in July continues this trend.
It's again an improvement on June. I think it's quite relevant. We have some uncertainty, obviously, around the whole evolution of the pandemic and the economy, et cetera, but figures suggest that the world, and certainly Spain, is coming back to activity and knowing how to live with this terrible situation. Loan moratoria. I mentioned the numbers at the beginning. I would emphasize only that we feel pretty good that this portfolio is going to be in a vast majority paying. Actually, in July, we have also already seen some of these moratoria starting to pay because the principal stays, but the interest does not, and for mortgages, that's a significant payment. By the end of the month, a vast majority of all the moratoria that have now started to have to pay are actually performing.
We'll continue to see that trend on particularly the mortgage book evolving well with those loans to value, et cetera, and government guaranteed loans. We've done a lot. We've done what we had to do. We feel that the guarantee that we have has protected us to be active here, with proper analysis, obviously, we'll have to see how this develops over the next 12 months, depending on the overall economic recovery. Digital increase in activity from digital clients. You see the trend is pretty clear, but in the last six months, it has accelerated, with 64.7% of our clients being digital. Number of daily connections is up by 30%, where it used to be up by 15%, 20%. Basically, it's a trend that is reinforced, accelerated.
We have seen now significant increase in mobile payment, in enrollment in mobile phones, all trends that are actually positive for us. Big success of our new fund platform, Ocean, and Smart Money, the robo-advisor, which is also increasing the digital transactions there. Big performance of inTouch, where we have these 1.4 million clients. That is certainly a business where we want to keep growing because the statistics in terms of productivity and revenue per client are improving and are comparing well, I would say, better than the traditional retail network. We launched imagin. You know that this is now a digital platform that offers financial and non-financial products, where enrollment is much easier. Onboarding is very simple. You register with your mobile and your email. That means the barriers to get into being client of a bank disappears when you are a client of imagin.
On top of being client of imagin, you have, obviously, the ability to, at some point, be offered financial services through the bank at imagin. We have now 2.6 million of our clients in imagin. Obviously, a glimpse into the future. There's a lot of things we can do here. We've launched imaginShop, imaginMusic, Games, Planet, with a very focused green mindset against particularly use of plastic, et cetera. This is going to be, no question, a good tool for us to increase the loyalty of our young clients, retain them, and also attract many others. Obviously, we'll be updating you as time goes by.
Costs, I mentioned it at the beginning, we expect to reduce at least by 2% costs this year, and we expect to have next year a cost base that is lower than the cost base that we had last year in 2019. How do we get to those EUR 300 million cost savings? They are in personnel expenses. They are general, depreciation, personnel. Obviously, we did a restructuring. We managed to get more people to leave the bank than was the initial expectation. We reached, on the other hand, a pre-agreement a couple of days ago, which implies wage containment for 2019, 2020, and 2021, 0% increases. This obviously helps. On the general side, we are actively working on many dimensions, IT operations, facility, renegotiation of supplier contracts, and obviously, quite a few other things, marketing, communication.
As you can see in this page, I won't elaborate in detail, at least now, in order not to extend myself too much time. NPL, you see how the coverage is increased to 63% and how we've come out with this figure. On the bottom, you have, I guess, full transparency of what we're doing. We have three cases, three scenarios, base, upside, adverse. Obviously, the base is the one with 60% probability, and the other is 20% each. The base scenario is a very tough one. It's one where GDP falls this year by 14% and recovers by 11% next year, and similar levels in Portugal, as you can see. Today, the GDP figure was published. It's -22% year-on-year. Actually, what's embedded in these base case scenario is -27%.
Obviously, it's just one quarter, but gives you an indication that this is a pretty tough base scenario, obviously much more negative than what we had at the first quarter presentation. We wanted to be fairly clear with everybody. We want to be pessimistic about what's going to happen, and at the same time, provide for it. That's exactly what we've done. We have, obviously, upside case, which I would say today on the GDP number is much closer to what the numbers we had today, -12%. Obviously, we'll have to see how things evolve. We consider it the upside scenario, and an adverse scenario where we have a -17% and a recovery of only 10%, so a 7% gap between one year and the other.
On this basis, without considering any long-term scenario, without any sweetening of this, we have come out with this COVID provision, EUR 1,155. At the same time, we've estimated what we expect for the rest of the year, and what we expect for the rest of the year is what we expected at the end of first quarter, 60 basis points-90 basis points. Obviously, with the figures on the first quarter, we were closer to 60. With these figures, we're closer to 90 basis points. We'll see what eventually happens because we've gone, I think, very tough on the macro expectations for this year. On that basis, this cost of risk already in the first half without annualizing is 53 basis points. From 53 basis points, as you can see, we are going to move to somewhere between 60 basis points and 90 basis points.
It means that for the second half, we need to do seven basis points-37 basis points. Whether you want to be more optimistic or less optimistic within this range, it's clear that we're going to have a significant reduction in loan loss provisions in the second half if the numbers of the economy that we are using, which are pretty tough, are actually materialized. There is a big exercise of front-loading prudence embedded in this charge, and we feel we want to deal with this problem. We didn't want this problem, obviously, but this problem is there. We want to deal with it soon, and that's what we're doing. I think we've said it at all times that we wanted to put this behind as soon as it can.
It's not going to be entirely behind after this semester, according to the models, it is fully provided for. We all know the reality means that we're going to have increased NPLs, et cetera, particularly the end of the year and into 2021. Our models are suggesting that we are going to be able to cope with this with the provisions that we have made. Obviously, therefore, the rest of the year should be a much better year from the point of view of provisions. Certainly, we expect 2021 to be more of the same. We expect the cost of risk to peak this year. That is the way we're approaching this situation. That's really it. Javier, if you want to take it from here.
Okay. Thank you very much, Gonzalo. Good morning. We have added a lot of extra information to this second quarter presentation. Thus, I will try to focus on the most relevant aspects. Let's have a look to the evolution of the loan book. Well, as already commented, record loan book growth up 6.9% year-to-date. You may see in the right-hand side chart that the main contributor being guaranteed government loans, EUR 10.6 billion year-to-date, but also mainly in the first quarter, EUR 4.8 billion from lending to other businesses. As expected, there's deleveraging in mortgages, but also in the second quarter with much slower new loan production. Also, the consumer loan book with some deleveraging. An overview on our ALCO portfolio, a slight decline to EUR 33.8 billion.
We have taken some profits in parts of the portfolio, taking advantage of the sharp tightening of sovereign spreads.
You have here all the metrics, the yield maturity almost unchanged, and maturity profile, also sovereign exposure across different countries that remains broadly unchanged. On the liability side, on our customers' funds, probably the most remarkable here is that this second quarter, we have recovered approximately 2/3 of the negative mark to market impact we had in our AUMs. On top of this, we have had inflows, as you may see, EUR 900 million year-to-date. I would say that the pace of those inflows, as you saw before, gradually gaining pace. Also, as is happening across the industry, a large increase of on-balance sheet deposits. What we're observing is that many government-backed loans are accumulating cash and parking cash in sight accounts. On the right-hand side chart, you see the evolution of our AUMs.
In the second quarter, the average AUMs are already in line with the average of last year. By the end of the second quarter, we were already higher, 1% higher, and as recent as July 15th, up by 2%. These markets permitting bode well for the evolution of AUM revenues in coming quarters. With this, let me shift to an overview of our income statement. Here, I would only remark that our core revenues, despite current circumstances, are down by 1.8% year-on-year. At the same time, as commented, our recurring cost expenses have declined strongly year-on-year by 3.9%. As a consequence, our core operating income for the first half of the year compared to last year, it's up by 2.6%.
Thus, keeping operating leverage below the line, the provisions already commented with a strong front-loading of provisions that are expected for the whole year. With this, our net income ends the second quarter at EUR 115 million. A few words on BPI. BPI continues to do well in terms of business volumes. I would remark here mainly that the loan book continues to progress, up by 2.4% year-to-date. Net interest income, as a consequence, is performing well, up by 7.8% year-on-year, which is a very good performance. COVID related, we have also a moratoria program in Portugal, in this case, affecting also businesses. We have EUR 2.6 billion of businesses in Portugal with a moratoria program. Also there is a reserve build, COVID related, of EUR 48 million year-to-date, EUR 31 million in the second quarter.
As a consequence, we have an impairment loss in the second quarter in Portugal of EUR 33 million, resulting in a net attributable profit of EUR 30 million. Let me now briefly comment on different lines of the P&L. NII, up by 2.1% quarter-on-quarter. The main contributor being our ALCO-related activities. Remember that we increased the size of the ALCO portfolio late in the first quarter. We are absorbing extra cash by doing so. This second quarter, we have a lower contribution from what we could call a client NII. We have, in terms of the back book yield, a reduction. The back book yield now standing at 198 basis points, down by 17 basis points. In this case, mainly there is a mix effect as we are incorporating lower yielding new production to the book.
On fees, we are down quarter-on-quarter by 7.5% and year-on-year 4.4%. You may see clearly in the central chart, the positive evolution of fees monthly. You may see that by June, we are already at the levels we were in June last year. As CEO has commented, this trend is continuing, and we are seeing very positive momentum in our fee revenues. What has happened in the second quarter is that in recurrent banking fees, we are down year-on-year by approximately 14%, the same levels quarter-on-quarter here, impacted mainly by e-payment fees. You see that this part of the business has been down by approximately 30% quarter-on-quarter. In asset management, we are already flat year-on-year, as we saw with stabilizing average volumes.
In insurance distribution, although it was a segment that was affected during the lockdown, we are seeing a strong recovery on this business as people is looking for, let's say, protection in general terms. We have had, second quarter and first quarter of the year in CIB and everything related to corporate banking. In the right-hand side chart, you see the evolution of our insurance revenues. I would remark here what the evolution of life risk, EUR 141 million in the second quarter, better than the second quarter last year. In this business also, we have quite an upbeat view on the future evolution. On costs, I would here focus on the year-on-year evolution, down by 3.9%, mainly due to evolution of personnel costs, as we are having the synergies year-on-year from the restructuring implemented last year.
Also quarter-on-quarter costs are down by 2.6% as we have, you know, implemented other cost-saving initiatives. As a consequence, and as commented before, we have a clear operating income improvement as core revenues. The loss in core revenues or what we have lost in core revenues is much less than cost savings. Reiterating that we are envisaging for this year, or we are formally revising our target for the evolution of cost to grow by less. Sorry, to be negative by more than 2%. Final words on the P&L on loan loss provisions here. Gonzalo has already elaborated, but I would only add that as we have revised our, updated our macro models, assigning those weightings into different scenarios. Also, in this case, we have considered customer forbearance and other liquidity measures. All this is being taken into account.
As a consequence, in the second quarter, we have a full front-loading of the impact of all IFRS 9 macro adjustments in loan loss provisions. This results in this EUR 755 million extra COVID-related charge. Here you have the evolution, sorry, the breakdown across different stages, and also segments. There is an increase in stage three. This is resulting because also we are estimating, in our scenarios, a negative evolution of real estate prices, and as a consequence, we are further providing for higher loss given default. Well, as commented with this, we are front-loading this situation, and as we expect for total cost of risk to be closer to the guidance given last quarter, closer to the upper bound. We are expecting clearly on this front to have lower loan loss charges in the second half of the year.
Let me now shift to the balance sheet. A few words on NPL formation. You may see that it has been very moderate, only EUR 200 million in the quarter. You may see that the NPL ratio, mainly because of the denominator effect, is down to 3.5%. Far, no impacts on this front, and the coverage that, as commented, has increased markedly by eight percentage points year-to-date. In slide 25, we have plenty of details on our loan book. We have the distribution of guaranteed government loans across different segments. 4.5% of our loan book is with government guarantee. Together with the important percentage of loans with a mortgage warranty, that now stands at 50.2%, and this, also with other warranties we have in the loan book, results into 50% of our loan book that is collateralized one way or another.
On the right-hand side, you have the sensitivity analysis or assessment we have made of our loan book to COVID. Those sectors that we assess that are highly impacted continue to be 10% of our loan book. You have the details of the different sectors, but also we disclose the level of warranties we have in each one. As an example, in tourism and leisure, EUR 8.4 billion exposure with collateral for at least 55% of our exposure. In the following slide, also plenty of details about the situation of moratorias. Here, the summary is that as of the end of June, 95% are performing. You have the breakdown across different stages for individuals and for businesses. 86% of the moratoria in Spain is with a mortgage warranty, with very low average LTVs of 54%. Actually, only a couple of percentage points above the average of the whole book.
With data as recent of a few days ago, 61% of those loans in moratoria are being billed, 100% of those will be billed in October, 95% of those that are being billed are paying completely their installments. The bulk of the moratoria will already have expired during the second quarter of 2021. You have all the details also on the breakdown of the LTVs of mortgages under moratoria. Finally, or close to finally from my side, on liquidity, well, we had a full take-up of the TLTRO facilities, close to EUR 50 billion. This places our total liquid assets to more than EUR 100 billion, EUR 107 billion. Our liquidity metrics are extremely comfortable, as you may see.
Here, I would only add that we took advantage of market conditions to issue a senior preferred EUR 1 billion bond for MREL purposes mainly. In this case, it was a social bond, very well received, as I said, by the market. Finally, on solvency, we ended the first quarter with a CET1 ratio at ex transitional IFRS 9 at 11.87%. This quarter, we have organic capital generation of 8 basis points, of which 15 basis points come from the quick fix in CRR 2.5. This is the supporting factors for SMEs and infrastructure. As you know, we are accruing dividend. This is having a negative impact of 3 basis points. We have other impacts of minus 11 basis points, ending the quarter with ex transitional IFRS 9 CET1 ratio at 11.81%.
On top of this, as you know, we have a transitional impact from IFRS 9 adding 48 basis points, and let's say that the regulatory CET1 ratio closes the quarter at 12.29%. In this slide, I could only like to add that our MREL position by the end of the quarter stands at 23.29% above our requirements. Finally, from my side, just to wrap up, first half of the year with a difficult environment, but where our core revenues show resilience. We are making an upgrade on our cost guidance, clearly, and also looking into 2021 on this front. We have front-loaded cost of risk in this first half of the year. With all this, we have strong ambition to deliver positive 2020 core operating ratios. Thank you very much, and we are ready for questions.
Thank you, Javier.
Good day.
Operator.
As a reminder, to ask a question, you can press star and one on your telephone. The first question comes from the line of Francisco Riquel. Please go ahead.
Yes, thank you very much for the presentation. Two questions from me. First, on asset quality. I appreciate the front-loading of provisions after updating the expected loss models and the new macro scenario, but I wonder what is the peak NPL ratio in this cycle derived from your models, and any color on the PDs for the main loan categories? Then on the LGD, relative to the 55% coverage ratio on NPLs reported pre-crisis in 2019, do you think that the new NPLs from this crisis will require a higher or lower coverage ratio after all, given all the guarantees that you are having and the ICO guarantees in particular, or the mix of the NPL inflows? Then the second question, I appreciate the guidance on costs, just missing some indications on revenues, and I want to ask about NII in particular.
You were previously guiding for a slight fall this year in NII. On corporate loan growth looks stronger. You will also have the TLTRO benefit. Just want to hear if you feel more optimistic on the NII for the year or if you are still cautious with retail lending in the second half of the year or any other headwind that we might expect. Thank you.
Thank you, Paco, and I'll let Javier deal with the second question on asset quality. Obviously, we have given you reference that this year we do not expect NPL to be above 5%. Clearly in June, we have had a reduction, and given what we're seeing, I have to say the figures from July are really good. Oh, I wasn't speaking with my phone on or with my micro on. Okay. Sorry. I'll start again. NPLs, we expect to close below 5% this year, clearly, but we expect NPLs to grow into 2021. At this stage, we're not, I think, venturing with a number, but certainly, in terms of the effective losses for us, given the system of guarantees that is available, it's going to be obviously different for all that part of the portfolio, and certainly that's clearly a positive.
On revenues and NII, I think, Javier, it's better for you to answer.
Okay. Hi, Paco. Well, on net interest income, we have, as always, plenty of moving parts. Volumes is clearly a positive. We expanded the ALCO portfolio. The loan book is doing well. On the other hand, it's at lower yields. Clearly the new production of government-guaranteed loans has much tighter spreads than the back book. I would say that you need to take this into account. I would say that going forward, the main question mark for me here is, which is the evolution of our consumer loan book, to what extent we are able to stabilize this and even increasing or growing again. You saw that in the first half, or mainly in the second quarter, we have obviously had some deleveraging. I think that this is a very important aspect for us.
Another one is the extraordinary amount of liquidity we're holding. You see that mainly SMEs, large corporates are accumulating cash, and well on this front, although as you know, we are passing on negative rates to some of large corporates and other players, it's not always possible. This is having a cost. With this, we keep with the view that NII is going to have a negative evolution this year, but hopefully, or at least our estimate is that, as we have done better in the second quarter compared to the first quarter, that this, let's say, at this pace can be maintained, that following two quarters, also we are able to do better than the first quarter. This is our main ambition.
We say clearly that our ambition is for positive jaws, as we are having now a cost target for cost growth to be negative by at least 2%. The implicit guidance we are giving for core revenues is better than - 2%. I would say that this is probably where we are, and in this front, obviously, with all the uncertainties we have, but we had quite a bit mainly here on the evolution of fees. We see a very positive momentum in different areas and also in our insurance business that we are observing that, as I commented in the presentation, the demand for, let's say, protection in the current environment is there, and we see a very positive evolution in June and July of this business. I don't know if I am missing something, Eddie.
Paco, have we answered all your questions?
Thank you.
Okay.
Yes. Thank you very much.
Thank you, Paco. Okay, operator, let's move on to the next one, please.
Ignacio Ulargui from Exane BNP. Please go ahead.
Hi, this is Nacho. Thanks very much for taking the questions. I have two questions. The first one. On the fee income side, you plan a bit of a change in the strategy at the beginning of the year that was postponed due to the COVID-19. How soon should we see the change in that pure banking fees and becoming a bit more sort of keen to pay what clients pay for the services that they receive? How that could impact fee income into 2020 and 2021? The second one on capital.
If you could walk us a bit about the different moving parts and whether you have so there is any type of one-off in that 11 basis points of market related negative in the quarter, and what could be the buildup that we could expect once you see that profitability is going to recover in the second half as lower provisions take place? Thanks.
Thank you, Nacho. I answer to the first one. We had planned for this fee structure change to come be effective on the 1st of April. We decided to postpone for six months because it was the hardest part of the confinement or the lockdown, and it will now be effective in October. You should see an impact on the fourth quarter and into 2021. As you know, the structure of the fee means higher fees for clients that are not relational.
Whether this will result in higher fees because clients are staying non-relational and pay a higher fee, or from higher activity and profits because clients become relational and they buy more product from us. Obviously, the second one is going to be more profitable for us, both short and long term. We are going to make a big effort in making sure that these clients buy other products from us, because as I think we are an entity in which this works well, given our sort of universe of products and services, particularly with a very strong insurance business that we have. Also, I think that is going to provide a support for revenues. Whether it's fees or insurance or others, we'll have to see. It will have an impact. It will be starting October. Second question on capital, Javier, maybe.
Hi, Ignacio. Well, on capital, it's a quarter with low, let's say, profitability, first thing. Organic capital generation is very low. On top of this, we have grown a lot our loan book. It's true that the main loan growth is coming from government-guaranteed loans. Despite this, there is capital consumption on this front. Other parts of the business, mainly on corporates and SMEs, we have also loan growth other than government-guaranteed loans. We are accruing dividend. As you say, in the capital ladder, we have this - 11 basis points. This is not actually market related, but we have positive markets from the ALCO that is approximately around 4 basis points. We have other things. Amongst those, we have a situation where we are not being able to transfer dividends from VidaCaixa to the parent company.
Let's say that the capital in VidaCaixa is increasing. You know that this is risk-weighted at 370% as we are having an increase of risk-weighted assets because of this. This is having a negative impact. We have a negative impact also from pension liabilities, mainly in Portugal. We are revaluing as always, as every quarter, but this quarter, let's say credit spreads have tightened, the liability part of the equation is having a negative impact. We have an increase of risk-weighted assets related to markets. We have increased some hedges in some parts of our exposures. We have an increase in intangibles in terms of, well, this is software that has been booked as intangible and is deducted.
We have a small increase of tax losses carried forward as the profitability of the bank now is going to be lower this year than we have to deduct part of this from capital. Those are, as you see, there are many little things here and there. Actually, not all markets, but I would point out precisely this effect from VidaCaixa, as long as insurance companies are not being able to pay dividends. Thank you, Nacho.
Okay, Nacho, I hope we've answered your questions. Operator, let's move on to the next one, please.
Adrian Cighi from Credit Suisse, please go ahead.
Hi there. This is Adrian from Credit Suisse. Thank you for taking my questions. Just a few follow-ups on capital and one on cost of risk, please. On the capital, you've increased the transitional by 30 basis points quarter-on-quarter, but remained flat on a fully loaded basis. Can you remind us if the 11.5% target is fully loaded or transitional? In terms of capital returns, how you're still considering returning the excess capital above which level and over what timeline? Also, if you can maybe give us an estimate of where you see credit risk migration, and potentially other headwinds, including regulatory coming in the next 12 months. On the cost of risk, you briefly touched on the 2021 cost of risk in your opening remarks. Do you expect the cost of risk to remain elevated into 2021?
Alternatively, should we see the 2020 front-loading as a 2020 front-loading, and expect a similar level of front-loading in 2021? Should we expect a sort of move towards a more normalized level? Thank you.
Thank you, Adrian. I would clearly say on cost of risk, and with the caveat that there's uncertainty as to how things evolve with these scenarios, we expect the cost of 2021 to clearly be below 2020 and have the cost of risk peak in 2020. I don't think we will have a 2021 where we will go back to levels of 2019. There should be a significant reduction. That's what we are doing by front-loading through IFRS 9. If it works, we've all have not seen IFRS 9 in a crisis up until now, but clearly, this is what we're doing now. If not for IFRS 9, we would not have provided much at this stage. We're providing for the problems that would arise later on in the year and into 2021. Yes, there should be a clear step down in 2021.
In terms of capital, Javier will surely add, but our objective was to come down to 11.5%. In practice, it's ex transitional IFRS 9. We expect also that transitional IFRS 9 and fully loaded view will converge over time. This quarter, because we're making this very large provision, obviously there's a bigger gap between the two. Had we made a lower provision, which obviously we could have, then we will have higher levels of capital and a smaller fully loaded and a smaller sort of range between one figure and the other. We said when we change our payout ratio policy for this year, that it would be not more than 30% for fiscal year 2020 to be paid in 2021.
That we expect that if, as a result, we ended up having capital levels above 12%, we will look to return these to shareholders, not in 2020 obviously, but in 2021, and subject to the overall economic situation having been normalized. We stake by that plan. Obviously, this is a possibility, and it's a possibility that is not that far apart. We have to decide, and given the current valuation levels, obviously buybacks are an option to be considered. For the time being, this is not something that we are discussing. This is a 2021 discussion. I think there was something else, Javier.
Yes. There was something on credit risk migration and what are our expectations for credit risk migration.
Well, there was also another question about other potential regulatory impacts. Well, you know that we had all the TRIM processes that were, let's say, stopped during this situation. According to ECB, the TRIM decisions will resume in September or October. We had on this front, pending the decision on our low-default portfolio. As you know, as of today, we don't have visibility if the potential impact of this may be in 2020 or in 2021 actually. In any case, those potential impact of this decision is already embedded in our solvency target. In this 11.5%. Further elaborating on this gap between transitional IFRS 9 and fully loaded, as Gonzalo was commenting, this is going to narrow quite fast. Because you know that we have this kind of capital forbearance mainly for those provisions that are still in Stage 1 and Stage 2.
Once these provisions are, let's say, for real and are for Stage 3, then automatically this IFRS 9 allowance shrinks quite fast. You should expect this to narrow quite fast. Regarding this weighted asset inflation for credit migration, is something that is not happening yet. We are estimating that the impact will be moderate. We are estimating we're in the same position than in the first quarter. On this, I remember commenting that, well, first thing, we have approximately EUR 50 billion, slightly below EUR 50 billion, of risk-weighted assets coming from, let's say, exposure at default that is in advanced models. We are estimating that credit migration may result into a risk-weighted asset inflation of probably around 5% of this. As you see, EUR 2 billion-3 billion of risk-weighted assets. That is something that is manageable. Thank you.
Perfect. Thank you very much. Can I just ask a follow-up question on the CET1 outlook? Can you remind us of the software intangible benefit for later this year?
Yes.
Yeah, Adrian, on the software intangibles-
Software. Sorry. Yes.
Yeah.
Sorry. I could not understand the question. You mean the quick fix for software intangibles, which could be the impact. It's approximately according to today's, let's say, term sheet or definitions, will be approximately 10 basis points.
Thank you very much.
That's 10 basis points, Adrian. Okay? Thank you, Adrian. Let's move on to the next one.
Thank you.
please.
Carlos Cobo from Société Générale , please go ahead.
Hi. Thank you. Thank you for the presentation. Carlos from Soc Gen. I'd like to ask about the state-guaranteed loans, the ICO loans, and I'll explain basically what's the question about. It was surprising to see that some competitors didn't use them, and that those loans were reallocated to the rest of the Spanish banks. I remember that you also received part of that. Why do you think those peers aren't using the guarantees? Who, if you can say that, is it the foreign competitors, foreign banks mainly in Spain, or who hasn't used them? That is kind of combined with the other two questions. What's your expected default rate? At the end, you are adding risk to the portfolio.
We've heard some regulators in, I think it was the U.K., that say that the default rates in this type of lending is going to be substantial as well. Eventually, even if they don't consume a lot of capital, they do increase the expected loss of the overall bank the moment that you start to grow the exposure. What's your thoughts on that, on expected losses in this portfolio, even when you have the protection from the government, the book is growing? I'm not challenging the idea that obviously you are protecting yourself, and it's very good for the liquidity position as it is, but I want to understand the extra risk that you are adding. Finally, if it is not so much about expected loss, as you said, the corporate sector is piling up in liquidity and cash in your balance sheet.
How should we think about lending demand next year? Do you see a fair chance of this expansion in lending being reimbursed for CaixaBank? Because if eventually this is just a liquidity cushion in the corporate sector, part of that should eventually be reimbursed if the corporates are not investing, right? That is kind of the whole question. Lastly, if you could touch on the bargaining agreement with the unions, if that's going to allow you to stop that 2% wage inflation that you historically have. Thank you very much.
Thank you. Thank you, Carlos. There's quite a few points in terms of the ICO loans. I don't want to speak for others. I think, in the end, the ICO loans shares have been reassigned in a way that have reflected the activity and the demand that each financial institution has had. The initial allocation was based on market share, but the reality is market share is only an element. We have used a good part of it, but we still have free capacity. I think that's good that this is still open. We're still seeing some new requests for ICO loans, 200, 300 a week, but it's come down from the sort of big numbers, and I think it will continue.
We have these new ICO loans that have been approved up to eight years for CapEx and transformation of companies and other lines that come from the European Investment Bank and other lines that will be also associated to the next generation pack that the EU agreed for 2021. All this gives us the ability to think that we will see if, particularly if this money is coming and there is a strong push for a recovery, that we will see growth maybe in some other segments, certainly in greening the economy, digitalization projects, et cetera. I think there's going to be, if the public measures work, there's going to be demand associated to the recovery. Therefore, we'll see sort of closing a chapter of demand associated to staying liquid, while the lockdown into something different is probably not going to be immediate.
We may have a couple of quarters of lower level of activity. On the other hand, the mortgage and the consumer lending clearly is picking up. You saw our numbers on that. This is the overall sort of background. The exact numbers that put into that at this stage are difficult, because we really need more clarity. With respect to the collective bargaining agreement, it's been agreed a couple of days ago, and I think it's a good agreement because not reaching an agreement was complex. We need our people, our people need us. We want our people to be motivated. We want our people to be productive. At the same time, we have achieved a number of things that are relevant. We have achieved an increase of 0% for three years, 2019, 2020, 2021, and an increase at 0.75 and 1% for 2022 and 2023.
For a five-year period, it's obviously a fairly low increase. We have managed to achieve a number of things, and these famous triennials. We have reduced the number from four to three. We have suspended part of the plus convenio, the extra payments for a couple of years. We have reduced some other sort of perks that made less sense. I think as always, when you reach a compromise, you don't get everything you want. It's been a reasonable compromise, and it's a compromise that helps us give us stability on this front, and help us also, I think, clearly reduce the pace of salary increases, and hence reduces that problem you mentioned. I would say this is probably a first in these processes. Obviously, the current environment didn't allow for anything else. We would not have settled for anything less than this.
Now we have a good environment, and I think an environment that is consistent with allowing us to manage this crisis, become more efficient, and obviously obtain cost savings that we need to do, and what we have explained would be over EUR 300 million next year. There was a couple of further questions, Javier, I believe.
Well, you were asking about loan demand next year. Unfortunately, this is a difficult question for us. Well, we have our scenarios. If we believe in our micro scenarios, it's going to be sound credit demand. With GDP growing over 10%, I imagine, I don't know what exactly is in the models of our research department. Behind this, we should have much better loan demand than this year, although this year has been supported by government-guaranteed loans. Unfortunately, it's too early to tell you. You had a question on the default rate on, let's say, ICO loans, that in other countries, it's supposed to be substantial in equivalent schemes. We don't think this will be the case. Actually, we have been lending to borrowers with whom we already have risk. Borrowers that we know well, so we have exposure with.
We had the breakdown even by sectors very detailed in our presentation. We think that there will be some defaults, but we don't share this view that you mentioned in other jurisdictions. At least, it's my opinion.
Thank you.
Okay. Thank you. Okay, Carlos.
You don't expect the part of this liquidity to be Sorry. Yeah. I'll follow up later. Thank you.
Can we move on to the next one, please?
Mario Ropero from Fidentiis, please go ahead.
Hello, good morning. My first question is, since you are assuming a macro scenario similar to the worst case of the Bank of Spain 2020, but a much better macro recovery in 2021, is there a way you can give a bit of a cost of risk sensitivity to different GDP growth recovery scenarios in 2021? My second question is, could you please tell us a bit about the drivers behind the strong growth in life insurance income contribution in the first half, despite life business volumes doing generally poor in the sectors? Is it simply because the MyBox product is working super or any other insight you can give? Finally, if I may, just to clarify, Gonzalo, you said that the cost savings are structural, and that means that 2021 costs will be below 2020. Can we assume that? Thank you.
I couldn't hear. I couldn't hear the last question.
The last question was asking whether 2021 costs will be below 2020. That's not the case.
No, it's below-
Below 2019, Mario.
All right. Got it. Thank you.
Okay. Then the other two questions, there was a cost of risk sensitivity and the insurance resilience of revenues.
If I may? Okay. On cost of risk, our view is that clearly, loan loss provisions in 2021 will be lower than in 2020. This, clearly. It's true that, as you say, there is a strong recovery forecasted for next year, for 2021, but the loan loss provision cycle is not exactly the same. The peak, actually, the peak in non-performings probably will be precisely in 2021. As we have front-loaded, at least according to our models, all this COVID-related impact, we think that provisions for 2021 will be a little bit lower than in 2020. On fees, I would say recurring banking fees, you saw that are approximately down by 15%, quarter-on-quarter and year-on-year. In this, there is a strong impact from e-payments, everything related to credit cards, et cetera, and merchant acquiring. This is recovering fast, as you saw.
This is a clear positive, and you are observing that week by week, we are doing better on this front. We had a slowdown in some fees, wire transfers, et cetera, because activity in general was more subdued during the lockdown, but this is also gaining pace, clearly. In AUMs, well, first good news is that we are having inflows. We have had inflows year-to-date. This means that our clients are confident with the advice we are giving here or receiving from us. We are seeing very positive momentum on this front. Also, we are observing a very good month of July so far on this business. Markets permitting, I would say that looks better for the rest of the year. We had very strong first half in CIB. Probably this pace is not sustainable in this front.
This is part of our business, not the major part, as you know, but so far in the first half has helped us to cushion negative evolution in other parts. Everything related to insurance. Here, we need to distinguish between non-life, which is usually fees, and this was affected markedly during the lockdown, but at the same time, now we are seeing a very strong recovery. I mentioned it in my presentation, but there is a general feeling amongst our customers for the need of further protection after what has happened in recent months. We think that we will do well on this front, with Adeslas, the largest health insurance company in Spain. By distributing those products, we think that we will be clearly improving in coming months and quarters. On life risk, you mentioned MyBox.
Well, MyBox is doing extremely well. We are so happy. Actually, we had a very big view for this product and this business, life risk, for 2020. Unfortunately, it's not that positive. Our view is that we may end the year with this line having at least a small positive. At least flat. I would say even slightly positive. It's in the same pack with what I commented before, about protection. All those kind of things are now, let's say, very well received by customers, and we think that we are the best prepared for it, and will do very well. Thank you, Mario.
Okay, Mario, I hope that answers your question. Regarding sensitivity to GDP, we have that information in our annual report. It's around 5 basis points per point of GDP. That's more or less what has actually happened. Obviously, it's not linear, that's public information we can share with you.
Thank you.
Okay. Thanks, Mario. Let's move on to the next one then.
Sofie Peterzéns from JPMorgan, please go ahead.
Hi, here is Sofie from JPMorgan. My first question would be around money laundering risks in BFA in Angola. A couple of weeks ago, there were some press headlines around the former vice president at BFA who had been warning the regulator about money laundering risks in the bank. My question would be, how do you think about money laundering risks in BFA in Angola? How are you taking this into consideration, and what have you done to improve any AML checks there? My second question would be around your assumptions on real estate prices in Spain. You mentioned that you forecast around minus 14% decline in GDP, but how should we think about the impact on real estate prices?
What kind of real estate price assumptions have you assumed? Then my final question would be on payment holidays in Spain. Could you just remind us, how long are they for consumer products? How long are they for businesses, and how long are they for mortgages? When should we expect these to roll off? Thank you.
Thank you, Sofie. AML and BFA in Angola, we are a financial investor in BFA since, actually, the moment we took control of BPI, we do not participate in management, in any executive positions. There have been resignation about one particular issue. We have fully supported the fact that the regulator should need to be informed, the regulator in Angola is conducting an investigation. We'll have to see before we have an outcome from that point of view. There's no involvement from us. Obviously, on the other hand, we at BPI have reviewed all procedures where we controlled, we're very confident that BPI on AML matters has complied and continues to comply with all relevant regulations. The question on moratoria, maybe very quickly, we're talking about for consumer is a six-month moratoria, with three months of payment and principal moratoria.
Sorry, interest and principal, then three months of just interest being paid. In the case of mortgages, it's 12 months. Again, the first three months is principal and interest, the last nine months is a moratoria of only principal, you have to pay interest. There are not really any significant business moratoria granted in Spain. The situation is slightly different in Portugal. Maybe, Javier, you want to complete and take the other question?
Yes. You had a question on our assumptions on real estate prices. You have all the details in the annex of the presentation in slide 32. As I commented, we are considering a negative impact in real estate prices in 2020 of 5.6% and - 2.3% in 2021. Precisely because of this is why part of the reserve built for COVID is also going to Stage 3, as there is a larger loss given default because of you have a loss in the value of collateral. This is the main assumption. In Portugal, it's slightly better. It's - 4.1% and - 2.6% for 2020 and 2021 respectively. Thank you, Sofie.
Okay, Sofie. Thank you very much. I hope that answers your questions. Let's move on to the next one, please then. Operator.
Andrea Filtri from Mediobanca. Please go ahead.
Yes, good morning. Just very brief. What is the BPI drawdown on PPA in Q2, and how much is left? Are you seeing any slowdown in the recovery of activity in the latest days, given the pickup in COVID cases? Thank you.
Yes, maybe I take the second question. At a national level, there's no slowdown, but there is some slowdown at the particular areas where the incidence is higher in Spain. Overall, the numbers are not changing, but when you get an area that is fairly affected, you see some reduction of the level of activity and particularly of payment activity. All in all, at this stage, we're seeing a very good month of July, but there will obviously be changes region by region. With respect to the PPA in Banco BPI.
Yes. The PPA left in BPI stands at EUR 124 million, what has been left in the second quarter is EUR 23 million. What has been used, sorry?
Thank you.
The wrong word.
Okay, Andrea.
Thank you very much.
Let's move on to the next one then.
Ignacio Cerezo from UBS. Please go ahead.
Hello, good morning, thank you for the presentation. Couple of things actually from me. The first one is on the ICO loans. If you can give us the all-in lending to you, once we have already incorporated the fee you pay to the government. Then in terms of the asset quality, also related to ICO, I think Javier mentioned that there is a big amount of these loans which are going to the sectors which will expect a higher impact. Are you being able to roll back existing back book under the guarantee as well, or is incremental credit you're giving to those companies? Thank you.
Hi, Ignacio. The all-in yield is approximately 1.4%, the cost of the guarantee is approximately 30 basis points for a gross yield of 1.7%. This is more or less the average. It's mainly incremental lending. It's incremental lending. Money is fungible, and over time will tell, no? As of today, it's incremental lending.
Obviously, there is some impact if someone is having a maturity in six months, it is taking the opportunity to raise cash now, and have cash to attend that maturity. As Javier was saying, money is fungible, and clearly, there is positive impact. I want to emphasize ICO loans. Let me just make sure that you understand what we have done. We have our clients classified according to the risk pre-COVID, then we had our areas or sectors in which they operate, and have indication of risk post-COVID. You have a matrix where you have clients that are low risk and are in low-risk sectors. They go into motorway and probably get a loan without an ICO guarantee.
You have the opposite, clients that were high risk and are in high risk sectors, they probably will not get support, or they will only get support after a proper detailed analysis where, clearly we come with a solution that defends our position and helps the situation. You have, obviously, all the clients in the middle, and depending on what kind of risk they had pre-COVID and what kind of risk they are at in post-COVID, we will act one way or the other. This is not a free-for-all. We had the mandate by law to analyze properly the credit quality of who was asking for loans, and we've done that. Obviously, we understand that there will be loan losses associated to that. I think we have done things properly.
Our market share in ICO loans, in terms of volumes, based on the last numbers published, is 13%, one-third. Sorry, not one-third, one-three. Which is actually below our market share on overall business lending. We've been careful. We've done what we had to do, but we have been careful as well. I think we're not going to see these becoming a large part of our problem. There will be losses, there's no question. I think they will be manageable.
Thank you very much.
Thanks, Ignacio. Let's move on to the next one, please.
Britta Schmidt from Autonomous Research. Please go ahead.
Yeah. There are three questions from me, please. The first one will be, how do you define the core operating jaws? With regards to your comment of a revenue drop of not more than 2%, what will be included in there? If I piece it together, would it imply that you expect fee growth for 2020? The second question would be on capital. Do you have any intention of applying the prudential filter in your CET1? Lastly, what are you thinking about in terms of M&A? There's been a lot of talk in the press about potential M&A in Spain, with some companies perhaps struggling a little bit more. You said you were growing your market share organically, but would you have any interest in participating in M&A, or would this be a definite no?
Javier, maybe you start with the first two.
Hi, Britta. Our core operating revenues and costs, I think that are very well-defined. On core revenues, it's NII plus fees, plus premia from life risk, plus equity granted from SegurCaixa Adeslas. This is core revenues. Operating costs are the operating costs. When we say that we are aiming for positive operating jaws is that if we have, let's say, -2% in costs, then we will have at least -1.9% or 1.8% or 7% or -1% in revenues. This is the definition. I think that we have been quite transparent on this in the past. On the prudential filters, I imagine that you are referring to the OCI in terms of ALCO portfolios, et cetera. Initially, we are not planning to use them. If this is the question.
Thank you, Javier. Britta, in terms of M&A, our position has not changed. We like what we're doing on a standalone basis. Actually, what we have done in these six months in terms of market share gains give us a further confidence that there's a lot we can do on our own. We see actually a very big crisis like this one, and we see that we are liquid with good capital levels, that we have front-loaded provisions, gaining market share, and I see a great opportunity for us. That is the base case. As always, I said, if there are opportunities at some point that come to us, our duty to shareholders is to analyze them, and we would do so. Our central scenario is to continue the way we are, and we like it.
It's not that we see what it's coming, and we think that we have a problem, and then we need to move non-organically. No, I think we have a great opportunity, and hence non-organic would only be analyzed if and when there's an opportunity if it's even better than our central scenario. Nothing new from what I think I have been responding whenever I get this question for the last few years.
Okay, Britta. Thank you very much. I believe we have three more on the line, so we do have time to finish them off. Could we have the next one, please?
Marta Sanchez Romero from Bank of America, please go ahead.
Good morning. Thank you very much for taking my questions. I've got several regarding your residential mortgage book. The NPLs there are very sticky, EUR 3 billion, roughly. They've actually gone up a bit over the past 12 months. What are your plans for this book? Do you expect any impact from current provisions on the stock? Do I understand correctly that you've already captured fully your new scenario of lower housing prices in Spain? Also related to this, the density of your residential mortgage book in terms of credit risk is still low compared to your peers. Do you expect changes here as well? On your rental portfolio, it's coming down slowly, still EUR 2 billion. Could you give us an update here? Have you granted payment holidays on your rental portfolio and how that may impact your revenue line?
More broadly, just finally on payment holidays, how much of your book under payment holidays is contributing to your net interest income at the moment? Thank you.
Thank you, Marta. Lots of questions. I would say, in terms of our mortgage portfolio, generally, the RWA weighting reflects the extraordinary quality of the portfolio. Bank of Spain does publish figures about what is the percentage of production that is made at rates above 80% loan-to-value or over 100% loan-to-value. We appear in all those statistics as an outlier on the positive side. We've been extremely conservative in the residential mortgage portfolio, and it's a better mortgage portfolio, in my view, than the average of others, and I'm not surprised it results in lower density. I'm sure that Javier has things to add, but I think at least that point is important to make. Not all mortgage portfolios are equal. You see how our mortgage portfolio has been coming down consistently over the years, and this is obviously not because we couldn't grow this portfolio.
It is because we were selective as to where to grow. It's a matter of price, we've explained, but also clearly a matter of risk structure. In terms of something you mentioned, the rental waivers, what we have done is actually forgive the payment for the months under the state of alarm where people were in lockdown, and for people that were heavily affected by it. This is socially, we were not forced by law. We could have done moratoria, et cetera, but in this case, what we decided is that we would act in this way. It's obviously been very well perceived. We have had these on a little below 5,000 houses. We're talking here about a very small impact in the single-digit euro million. We are getting back.
Once the lockdown has finished in July, we are forgiving just 50% of the rent, and then it will come into normal payment after that. Obviously, there will be people that will not be able to pay. There's a part of a social portfolio here, which we are managing with care. I wouldn't think because of the size of all this is in any way something that is going to be material for our revenues going forward. At least I want to make those comments and maybe, Javier, you can compliment.
Hi, Marta. Well on what you mentioned on the low density on mortgages. I had here some prepared figures. Also I understand that this has to do also with moratorias on these portfolios, et cetera. It's the following, you can do your own numbers according to public information. If you look at PDs from IRB models for individuals for CaixaBank, PD is 1.16%, our peer average is 1.43%. This makes a difference. This, as Gonzalo was commenting, is because the underlying quality of our portfolio is better than the average. As a consequence, we have a lower density in our risk-weighted assets.
This is also a key element of what makes us confident about our moratorias, because the underlying quality is a good one. This is one number that I can share with you. Together with LTVs that are much probably lower than the average. Here, I don't have the data to compare, but at least for moratoria, for example, LTVs are 54%, and our book average is 53%. It already tells you that there is not really much difference, and this is why we feel comfortable with this situation. Regarding NII and payment holidays, we keep on registering NII on those loans under legal moratoria, because you know that for voluntary moratoria it's only for principal. In this case, for legal moratoria, we have had a net front impact, a negative upfront impact, that year-to-date has been €48 million in loan loss provisions.
That is compensating for the, let's say, the PV of the loan that has been affected. In terms of net interest income, we keep accruing. Thank you, Marta.
Hello. Okay, Marta, I hope that answers your questions. We can follow up otherwise.
Just-
Sorry. Go ahead, Marta.
Yeah.
Okay. We'll follow up afterwards. Let's go to the next one, please, operator.
Fernando Santivañes from Barclays. Please go ahead.
Hello. Thank you for taking my questions. Two questions. Two quick questions, please. One, if you could do an update on the strategy and valuation of the equity holdings, BFA, Telefónica, and Adeslas. What's your take on Adeslas, and how are you thinking about replacing the earn-out ending this year? Finally, what is the accounting of Telefónica's dividend is going to be in this year? This is the first part of the question. The second one is, what are the KPIs that you're using on the following of the moratorias that are not mortgages? Just to try to understand how fast you recognize these trends going on. Thank you very much.
I didn't understand all. The second part on the moratoria for consumer debt.
The KPIs we're using to track the portfolio of consumer debt moratoria.
Okay, Fernando.
Yes.
Thank you. I'd say obviously Adeslas is a great asset we have, in particular, and in this environment is fulfilling a very important mission, and I think it has pretty good prospects. We have a great relationship, great joint venture here. I think the company continues and is going to continue to be a source of earnings and certainly of fees for us. I think overall it's a clear opportunity for them. I think in this year on claims, et cetera, they are offsetting well claims related to COVID with lower claims related to other illnesses, which is what's happening. I'm hopeful for seeing a pretty good evolution. Telefónica accounting of the dividends, maybe you want to.
Yes. Well, on Telefónica, you know that this year Telefónica has changed the dividend policy. Although they have announced the intention-
Yes
...to pay a second dividend, it has to be confirmed by the board. Once it is confirmed, then we will register this dividend. So far this has not been the case. In previous years, it was the general meeting that already was announcing the two payments. This time is different. You had a question on equity holdings. Well, actually in terms of BFA, I would like here to mention that we have registered a dividend from BFA, EUR 14 million, and it has already been paid in hard currency 80% as of a few days ago. On this front, I would say that this is positive news. We don't have major changes this quarter in the fair value of BFA because, well, actually, according to our dividend discount model, valuation was supporting the new data.
We had a reduction in local yields, and we had different aspects that were doing better. No further adjustments were needed. I think that with this we cover- You had a question on KPIs on moratorias. Here, only to emphasize that 60% of the loans that are under moratoria are being billed. 95% of those are paying the monthly installment. While this has a phase-in process, and by October all will be being billed, because there are different moratoria vintages to some extent. That said, well, we are monitoring this as close as possible. Also internally, if I may say, we have organized things in order to be extremely close to the ground, to the situation in order to monitor those payments really closely.
If I may, Fernando, on managing the consumer moratoria and generally consumer book, this is the first crisis where AI, artificial intelligence, is now playing a large role. We have plenty of data, and we are using all the data we have on our clients to know who is likely to have a problem and act accordingly in advance. That's why you see we've done more moratoria than other institutions. We have been selecting those clients based on their profile and their, well, we know what happens to their income, and we know plenty of other information on our models. We know who is likely to have a problem, and obviously we'd rather be proactive and preempt that problem by offering appropriate solutions.
This is clearly the case for consumer lending, where we are obviously focusing on making sure that people that are in a moratoria and are going to end that moratoria starting October, we know who is likely to have a problem or who is not likely to have a problem, and start managing it before we have a default. I think this is going to be different from that point of view for those institutions like us that have the ability to use AI properly, have the models, and also then have the ability for those models to feed into actions taken by the branches. Obviously, also by specialized companies that help us in the recovery process. Because this is more massive, you need to have the branches really knowing who is likely to have a problem and making sure they avoid it. That's certainly the plan.
So far so good. As Javier was saying, in the month of July, we had close to EUR 3 billion of mortgage moratoria, in this case, that turned into a sectorial moratoria, and hence they have to pay interest, and was the first time that would be billed. The reality is we have now more than 95% of these people that have paid, and we will get further above that level in the next few days. Things are working well. The whole bank is prioritizing precisely asset quality. I feel good about us not only having given good loans at the beginning, but also now having the appropriate follow-up process to make sure that we are paid, and where there's a problem, that we find a solution that avoids at least the worst case, where it's that we get no money back from a client.
Okay. Thanks, Fernando.
Thank you very much.
We can move on to the last question, please.
Alvaro Serrano from Morgan Stanley, please go ahead.
Hi. Three hopefully quick yes or no questions. On the fees, just to make sure I've understood, you mentioned during the presentation that June fees were now flat year-over-year. Is that a good proxy for the rest of the year? If I take second half fees, and assume they flat year-over-year, I get to + 1% for the group fees, and I realize consensus - 3%. Is that a reasonable assumption or estimate? Two clarifications quickly. On NII, I think you said, Javier, that in the second half would be above Q1. Obviously TLTRO is coming in the coupon. Should we not assume that it's going to be above Q1 and Q2? I don't know if there's any nuance there that I should be aware of. The other one is on capital.
You've given the moving parts, but if you're going to make profits and RWA inflation is going to be limited, any reason why fully loaded capital should not grow in the second half? Thank you.
Okay. On fees, well, time will tell. Probably your assumption is optimistic. I think that we are going to do well in the future. We are quite optimistic on the future evolution. I mentioned I had a long answer to one of the questions, elaborating a little bit. We have plenty of areas where we are seeing very positive momentum. Clearly, time will tell. Last year, if I remember well, we had an exceptionally good third quarter. It's always a difficult quarter to forecast with the holiday season. This year is different. Holidays are also different. Time will tell. We have quite a positive view on the evolution in some areas. On NII, well, it's what you say. We have TLTRO III.
This is, by the way, just to clarify, we are accruing - 87 basis points because, well, there is the average of different lengths and different vintages of TLTROs. As a headwind, I mentioned, we have de leveraging in the consumer loan book. To what extent this is going to be reversed? Second, cash balances. To what extent we can handle this cash balance situation? Those are the main caveats. What I said is we have done better in the second quarter than in the first one, and I think that the pace we have in the second quarter is something that may be sustainable for the third and the fourth. In capital, sorry, but I am missing now exactly the question. Eddie, can you help me out? It was about capital distribution, or?
It was- it's fully loaded. It's fully loaded capital.
It's of fully loaded.
It's fully loaded CET1 going to grow.
Going to grow from 11%-.
Is CET1 fully loaded going to grow?
Well, you have the impact from the transaction announced today with Global Payments. This is fully loaded. You have the positive impact from software intangibles. This is going to be also fully loaded. Well, it's a normal course of business. The only question mark here is to what extent we face any potential impacts from TRIM this year or not, and the final amount of this impact, which is still unknown. I would say that is probably the main question mark for me while making this forecast.
Thank you.
I don't know if this helps you, Alvaro. Thank you.
Okay, Alvaro.
Yes. Thank you.
It's almost quarter past one, so let's call it a day. Thank you very much, everyone. I hope you have a great summer, and we'll reconvene in a quarter.
Thank you very much.
Thank you.