Hello, good morning, and welcome to CaixaBank's Results Presentation for the Q2 of 2020. With us today is the usual management team of the CEO, Gonzalo Gortazar 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 and A will follow after that. If you are new to this presentation, you should see the instructions on the screen. Without further ado, let me hand it over to the CEO, Gonzalo
Thank you, Eddy. Good morning, everybody. And you've set the limit the time limit, so I'm going Try and be disciplined and see if we can get soon to the Q and A, which is obviously where most of the interesting stuff tends to be discussed. Summary of the quarter and of this moment in time, Few ideas. One, which I think is very important, but sometimes people forget is we are gaining market share.
And the Q2 has been very good from that point of view. The Q1 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. And 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 June, a better month than May and actually July in terms of activity, a better month than June. So 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 The 2 most important products they needed liquidity through eco loans and payment moratorium. You have there our figures, 6.4% of the loan book that includes Portugal as well and approximately EUR 11,000,000,000 in the quarter Outstanding at the end of the period. So 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. And now we're announcing a reduction for this year to more than 2% in terms of reduction. So we'll have Costs shrinking by 2% or more or that's what we're seeing, hopefully more than 2%. And we also wanted to give you a glimpse into 2021 because I feel the market is a bit confused terms what it is just COVID related because there's less activity and what it is structural.
Most of this reduction this year is SACTRAN. And for 2021, we plan further cost reductions, which means that we would be having cost savings of over €300,000,000 compared to our initial targets in the strategic plan. And then finally, obviously, we took a very large charge and compared to what I've seen from competitors, a much larger charge than Many others. And 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 809, as you can see.
And 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 an impact small impact on capital. But because for the transitional with the transitional IFRS 9, This big chart, 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 a CET1 basis. Those are the highlights really.
It's 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, and 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.
And 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. And we have agreed, given the way this business is evolving, which is more and more into the technological world, software development, etcetera, that it was more logical for Global Payments to own a larger stake, 80% versus our 20%. But at the same time, we have agreed to keep everything equal in terms of the way we run the business. And both us and lower planes 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 Adient 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, and that's why we have kept 20% stake and actually The models of Brandy with management, etcetera, everything is going to stay the same. On the other hand, we obviously Owned a very high very highly valued business.
You see that share sale price 493,000,000 Our net income loss of EUR 14,000,000,000 that means a 35 times multiple, which obviously indicates we are crystallizing value from business that otherwise market really is not properly varying and at the same time keeping all the good elements of this strategic alliance, which will continue to grow And we'll 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 gaining market share, activity rebound, Cost Management and Risks. Market share, you see the numbers. I think they speak by themselves.
Life insurance, motor funds, pension Long term service, all the juicy liability side funds are doing very well. These are not easy figures to achieve in 6 months. We've been delivering this for year after year, but we are accelerating. And 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 organic. Similarly, on credit and business lending, you have all the figures.
Figures for performing loans for customer funding has been an extraordinary period. And based on the figures that other banks have reported, we've done obviously, everybody's done more. We've done more than more. And It's very rewarding and satisfied. And not just on the asset side, clearly, on sort of every aspect of what we do.
In terms of that recovery, we have changed the macro outlook. I'll discuss that Later, we'll talk about risks. But clearly, we have a big fall this year. We're expecting 14% and an important recovery next year. And 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, the hotel, restaurants, leisure, etcetera, came down to close sort of lockdown after mid March. And they have recovered to minus 13%. So the sectors that are more affected are Obviously affected, but they are now at minus 13%. It's not that they stay at minus 50% or minus 60%.
And obviously, the overall level of activity in payments is now already above 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, but we're getting closer to those levels. And I have to say activity in July continues this trend.
So 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, etcetera, but figures suggests 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 the vast majority pain.
Actually, in July, we have also already seen Some of these moratoria are 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 the moratoria that have now started to have to pay are actually performing. And we'll continue to see that trend on particularly in the mortgage book evolving well with that loans with those loans to value, etcetera. And government guaranteed loans, we've done a lot.
We've done what we have to do. We feel that the guarantee that we have has protected us to be active here with proper analysis. And 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 6 months, it has accelerated with 64.7% of digital or clients being digital, number of daily connections is up by 30 It used to be up by 15%, 20%.
So 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, Oceana and Smart Money, the Robo Advisor, which is also increasing the transactions digital transactions there. Big performance of InTouch, where we have this 1,400,000 clients. That is certainly a business where we We want to keep growing because the statistics in terms of productivity and revenue per client are improving and are compelling well, I would say, better than the traditional retail network.
We launched Imagine. You know that this is now a platform, a digital platform that offers financial and non financial products where enrollment is much easier. Onboarding is very simple. You just took you register with your mobile and your e mail. That means the sort of barriers to get into being client of a bank disappears when you are client of Imagen.
But Then on top of the incline of Imagen, you have obviously the ability to at some point be offered financial services through The bank at IMAGINE, we have now EUR 2,600,000,000 of our clients in IMAGINE. So obviously, a glimpse into the future. There's a lot of things we can do here. We've launched Imagine Shop, Imagine Music, Games, Planet with sort of a very focused green mindset against particularly use of plastic, etcetera. And 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.
But obviously, we'll be updating U. S. Time goes by. And costs, I mentioned in 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 €300,000,000 cost savings?
They are in personnel expenses. They are general depreciation in personnel. Obviously, we did a restructuring. We managed to get more people to leave the bank than was the initial 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, 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 to come out with this figure. And on the bottom, you have, I guess, full transparency of what we're doing. We have 3 cases, 3 scenarios: base, upside, adverse. Obviously, the base is The one with 60% probability and the others 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 minus 22% year on year.
And actually, what's embedded in these base cases scenario is minus 20 7%. Obviously, it's just 1 quarter, but gives you an indication that this is a pretty tough base scenario, obviously, much More negative than what we had at the Q1 presentation, but 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. And 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 have today, minus 12%.
But obviously, we'll have to See how things evolve. So we consider it the upside scenario and an adverse scenario where we have a minus 17% and a recovery of only 10%, so a 7% gap between 1 year and the other. On this basis and without considering any long term scenario, without any sweetening of this, we have come out with This COVID provision, EUR 1,155,000,000. And 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 Q1, 60 to 90 basis points.
Obviously, with the figures in the Q1, we were closer 60%. With these figures, we're closer to 90%. We'll see what eventually happens because we've gone, I think, very tough on the Macro expectations for next year sorry, for this year. And on that basis, This cost of risk already in the first half without annualizing is 53 basis points. So from 53 basis points, as you can see, We are going to move to somewhere between 60 basis points 90 basis points.
It means that for the second half, we need to do 7 to 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 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. Hence, 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 As soon as it can. Obviously, it's not going to be entirely behind after this semester. But According to the models, it is fully provided for.
We all know the reality means that we're going to have increased NPLs, etcetera, particularly the end of the year and into 2021. But our models are suggesting that We are going to be able to cope with this with the provisions that we have made. And obviously, therefore, the rest Of the year, it should be a much better year from the point of view of provisions. And 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 the Q2 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 main contributor Being guaranteed government loans, SEK10.6 billion year to date, but also mainly in the first quarter, €4,800,000,000 from lending to other businesses. As expected, deleveraging in mortgages, but also in the second quarter with much lower new loan production, also the consumer loan book with some deleveraging. An overview on our ALCO portfolio, a slight decline to €33,800,000,000 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 and also sovereign exposure across different countries that remains Broadly unchanged.
On the liability side, on our customer funds, probably the most remarkable here is that This Q2, we have recovered approximately 2 thirds of the negative mark to market impact we had in our AUMs. On top of this, we have had inflows, as you may see, €900,000,000 year to date. And I would say that the pace of those inflows, as you saw before, gradually gaining pace. But and also as is happening across the industry, a large increase of On balance sheet deposits, what we're observing is that many government warranted loans are accumulating cash and parking cash in site 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. But by the end of the second quarter, we were already higher, 1% higher and then as recent as July 15, up by 2%. So this market permitting about 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 percent. And as a consequence, our core operating income for the first half of the year compared to last It's up by 2.6%, thus keeping operating leverage below the line. The Provisions already commented with strong front loading of provisions that are expected for the whole year. With this, Our net income ends the 2nd quarter at EUR 115,000,000. 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 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 moratorium program in Portugal, in this case affecting also businesses. We have EUR 2,600,000,000 of businesses in Portugal with a moratorium program.
And also there is a reserve build, a copywriter of EUR 48,000,000 year to date EUR 31,000,000 in the second quarter. As a consequence, we have an impairment loss in the Q2 in Portugal of EUR 33,000,000 resulting in a net attributable profit of EUR 13,000,000 Let me now briefly comment on different lines of the P and 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 Q1. On top of this, we are Absorbing extra cash by doing so. And on the contrary, this Q2, we have lower contribution from what we could call client NII.
We have, In terms of the bad book yield, a reduction. The bad book yield now is 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%. But you may see clearly in the central chart the positive evolution of fees monthly.
And you may see that by June, We are already at the levels we were in June last year. And 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 is 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.
And in insurance distribution, although it was a segment that was affected during the lowdown. We are seeing a strong recovery on this business as people is looking for, let's say, protection in general terms. We have had a very 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 €141,000,000 in the Q2, better than the Q2 last year.
And 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 personnel levels of personnel costs as well we are having the synergies Year on year from the restructuring implemented last year, but also quarter on quarter costs are down by 2.6% as we have, as you know, implemented other cost saving initiatives. As a consequence and as commented before, we have A clear core operating income improvement as core revenues the loss in core revenues or what we have lost in core revenues is much And 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 and L on loan loss provisions here already has already Gonzalo has already elaborated, but I would only add that as we have revised our updated our macro models, assigning those way things into different scenarios. And also in this case, we have Considered customer forbearance and other liquidity measures.
So all this is taken being taken into account. But as a consequence, in the Q2, we have a full front loading of the impact of all IFRS 9 macro adjustments in loan loss provisions. This results in this euros 755,000,000 extra COVID related charge. Here you have the evolution sorry, the breakdown across different stages and also segments. There is an increase in Stage 3.
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. And well, as commented with this, we are front loading the situation and as we expect for total cost of risk to be closer to the guidance given last quarter, closer to the upper bound. And now 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 200,000,000 in the quarter. You may see that the NPL ratio is mainly because of the denominator effect is down to 3.5%. So, so far no impacts on this front. And the coverage that as commented has increased markedly by 8 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. Now 4.5% of our loan book is with a government guarantee together with the Important percentage of loans with a mortgage warranty that now stands at 50.2% 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, for example, in Turismo and Leisure, EUR 8,400,000,000 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. And with data as recent of a few days ago, 61% of those loans in Moratoria are being built and 100% of those will be built in October and 95% of those that are being built are paying completely their installments. And the bulk of the moratorium will already have expired during the Q2 of 2021. You have all the details also on the breakdown of the LTVs of mortgages under moratorium. Finally or close to finally from my side and liquidity, well, we had full take up of TLTRO III facilities close to €50,000,000,000 This places our total Liquid assets to more than EUR 100,000,000,000, EUR 107,000,000,000.
Our liquidity metrics are extremely comfortable, as you may see. Here I would only add that we took advantage of market conditions to issue senior preferred €1,000,000,000 bond for MREL purposes mainly. And in this case, it was a social bond, very well received, as I say, by the market. And finally, on solvency, we ended the Q1 with CET1 ratio at ex transitional IFRS 9 at 11%, 87%. This quarter we have organic capital generation of 8 basis points, of which 15 come from the quick fix in CRR 2.5.
This is the supporting factors for SMEs and infrastructure. Then as you know, we are accruing dividend. This is having a negative impact of 3 basis points and then we have other impacts of minus 11 basis points, ending the quarter with at 11%, 81%. On top of this, as you know, we have transitional impact from IFRS 9 adding 48 basis points. And let's say that the regulatory CET1 ratio closes the quarter at 12% to 29%.
In this slide, I could Only like to add that our Enron position by the end of the quarter stands at 23%, 29% above our requirements. And finally, for 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 update 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. And with all these, we have strong ambition to deliver positive 2020 core operating jaws.
Thank you very much and we are ready for questions.
Thank you, Javier. Operator?
And our first question comes from the line of Francisco Riquel. Please go ahead.
Yes. Thank you very much for the presentation. Two questions for me. 1, first on asset quality. So 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 PVs for the main loan categories? And then on the LGD, I mean, 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 ECO guarantees in particular or the mix of the NPL inflows? And 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, but on corporate loan growth looks stronger. You will also have the TLTRO benefit. So I 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, Paco, and I'll let Fabienne deal with the second question on asset quality. Obviously, we have given you a 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 pretty good. I wasn't speaking with my phone on with my micron.
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 I think, Javier, it's better for you
Okay. Hi, Paco. Well, on net interest income, we have, as always, plenty of moving parts. Our volumes It's clearly a positive. We expanded the ALCO portfolio also loan book is doing well.
But on the other hand, It's at lower yields. So clearly the new production of government guaranteed loans has much tighter spreads than the back book. So I would say that this 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. So you saw that in the first half or mainly in the second quarter, we have Obviously, had some deleveraging.
So to what extent we are able to stabilize this and even increasing or growing again. So 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 work 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.
And so this is having a cost. So 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 Q2 compared to the Q1 that this let's say, at This pace can be maintained that following 2 quarters also we are able to do better Than the Q1. So this is our main ambition. And We say clearly that our ambition is for positive jaws, as we are having now a cost target for cost to be cost growth to be negative by at least 2%.
So the implicit The guidance we are giving for core revenues is better than minus 2%. So 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, so 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 July of this business. I don't know if I am missing something, Eddy.
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 Laraghi from Exane BNP. Please go ahead.
Hi. This is Nacho. Thanks very much for taking the questions. I have two questions. The first one is 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-nineteen. How should we see the change in that pure banking fees and becoming a bit more sort of like keen to pay The clients pay for the services that they receive. So how that could impact the income into 2020 2021? And the second one on capital. I mean, 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 narrative in the quarter, and what could be the build That we could expect once you see that profitability is going to recover in the second half as lower provisions
Thank you, Natso. I'll answer to the first one. We had planned for this fee Structure change to come be effective on the 1st April. We decided to postpone for 6 months because it was the hardest part of the confinement of the lockdown, and it will now be effective in October. So you should see an impact on the Q4 and into 2021.
As you know, the Struct of the fee means higher fees for clients that are not relational. And whether this is resulting or whether this will result in higher fees Because clients stay non relational and pay a higher fee or from higher activity and profits because Clients become relational and they buy more products from us. Obviously, the second one is going to be more profitable for us, both short and long term. And we are going to make a big effort in making sure that these clients buy other products from us because I think We are an entity in which this works well, given our sort of universe of products and services, particularly with a very Insurance business that we have. So I think that is going to provide a support for revenues, whether it's fees or insurance or others, We'll have to see, but it will have an impact.
It will be starting October. And second question on capital, Javier, maybe.
Hi, Ignacio. While on capital, it's a quarter with low, let's say, profitability, first thing. So 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, but despite this, there is capital consumption on this front.
So and other parts of the business mainly on corporates and SMEs. We have also loan growth other than government granted loans. So then we are accruing dividend. And as you say, we in the capital ladder, we have this minus 11 basis This is not actually market related all, but we have positive markets from the ALCO that is approximately around 4 basis points, but then we have other things amongst those. We have a situation where we are not being able to transfer dividends from Birracasa to the parent company.
Let's say that the capital in VIDA cash is increasing. You know that this Lease weighted at 3 70 percent as we are having an increase of lease weighted assets because of this. So this is having a negative impact. We have a negative impact also from pension liabilities, mainly in Portugal. So we are revaluing As always, as every quarter, but this quarter, let's say, credit spreads have tightened and the liability part of the equation is having a negative impact.
And we have an increase of risk weighted assets related to markets. We have increased some hedges in some parts of our exposures. Then we have an increase in intangibles in terms of well, this is software that has been booked as intangible and is deducted. And then 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. So 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 Birracasa 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 Chigi from Credit Suisse.
This is Adrian from Credit Suisse. Just a few follow ups on capital and one on cost of risk, please. So 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 that 11.5 target is fully loaded or transitional? And in terms of capital returns, how you're still considering returning the Capital above which level and over what time line?
And then 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. And then on the cost of risk, you briefly touched on the 2021 cost of risk your opening remarks, do you expect the cost of risk to remain elevated into 2021? Or alternatively, should we see the 2020 Front loading as a 2020 front loading and expect a similar level of front loading in 2021? Or should we expect a sort of move towards a more normalized level?
Thank you, Adrian. I would Clearly, say on cost of risk, with a 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 a cost of risk pick in 2020. I don't think we'll have a 2021 where we will go back to levels of 2019, but there should be a significant reduction. That's what we are doing by front loading Through IFRS 9.
This is 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 I have provided much. At this stage, we are providing for the progress that would arise later on in the year and into 2021. So 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%.
This is ex In practice, it's ex transitional IFRS 9. And we expect also that transitional IFRS 9 and fully loaded view, which will converge over time this Quarter because we're making this very large provision. Obviously, there's a bigger gap Between the 2, 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 changed our payout ratio policy for this year that it would be not more than 30% for fiscal year 2020 to be paid in 2021. And 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 and we're staked 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. But 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. And According to the ECB, the TRIM decisions will resume in September or October. So 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 this is something the potential impact of this may be in 2020 or in 2021, actually.
But in any case, Those potential impact of this decision is already embedded in our solvency target. So in this EUR11.5 billion. And further elaborating on this gap between Transitional IFRS 9 and fully loaded. This is going to as Gonzalo was commenting, this is going to narrow quite fast because you know that We have this kind of capital forwardings 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.
So you should expect this to narrow Quite fast. And regarding this weighted asset inflation for credit immigration is something that is not happening yet. We are estimating that the impact will be moderate. We are estimating We're in the same let's say, in same position than in the Q1 on this. I remember commenting that, well, first thing, we have approximately €50,000,000,000 Slightly below €50,000,000,000 of lease weighted assets in coming from, let's say, Default that is in advanced models and we are estimating that credit immigration may result into risk weighted asset Inflation of probably around 5% of this.
So as you see, euros 2,000,000,000 €3,000,000,000 of these 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,
Adrian, on the software intangibles Sorry,
yes, sorry. I could not understand the question. Yes. 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.
So that's 10 basis points, okay? Thank you, Adrian. Let's move on to the next one, please.
Carlos Cabo from Societe Generale. Please go ahead.
Hi. Thank you. Thank you for the presentation. Carlos from Societe. I'd like to ask about the state guaranteed loans, the eco loans.
I'll explain basically what's the question about. It was surprising to see that some competitors You didn't use them and 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? And who, if you can say that?
Is it the foreign competitors, foreign banks mainly in Spain? Who hasn't used them? And that is kind of combined with the other two questions. What should you expect to default rate? Because 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 It's going to be substantial as well. So eventually, even if they don't consume a lot of capital, they do increase the expected loss of the of World Bank at the moment that you start to grow the exposure. So what's your thoughts on that and 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 of SMEs, but I want to understand the extra risk that you are adding. And 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 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? And that is kind of the whole question.
And lastly, if you could touch on the by gaining 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, Carlos. There's quite a few points in terms of The eco loans, obviously, I don't want to speak for others. I think in the end, The Eco Loans shares have been reassigned in a way that have reflected the activity and the demand that each financial institution has had because the initial allocation was based on market share, but the reality is market share is only an element. And anyhow, 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 A request for eco loans, 200, 300 a week, but it's come down from sort of big numbers. And I think it will continue. Then we have these new eco loans that have been approved up to 8 years for sort of 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 We'll 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 of the segments, certainly in greening the economy, digitalization projects, etcetera. I think there's going to be if The public measures work.
There's going to be demand associated to the recovery. And therefore, we'll see sort of Closing a chapter of demand associated to stain liquid, while the lockdown into something different It's probably not going to be immediate, so we may have a couple of quarters of lower level of activity. On the other hand, The mortgage and the consumer lending, clearly speaking up, you saw our numbers on that. But 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. And with respect to the collective bargaining agreement, it's 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.
And at the same time, we have achieved a number of things that are relevant. We have achieved an increase of 0% for 3 years, 'nineteen, 'twenty, 'twenty one and an increase at 0, 75%, 1% for 'twenty two and 'twenty three. For a 5 year period, it's obviously a fairly low increase. And then we have managed to achieve a number of things. And these famous triennials or triennials, we have reduced the number from 4% to 3%.
We have suspended Part of the Plushko menu, the extra payments for a couple of years. We have reduced some other sort of perks That made less sense. Hence, I think it's as always, when you reach a compromise, You don't get everything you want, no? But 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. And I would say this is probably a first in these processes.
Obviously, the current environment didn't allow for anything else. So we will not have settled for anything less than this. But 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, save obtain cost savings that we need to do and what we have explained would be over €300,000,000 next year. There was a couple of further questions, Javier, I believe. Okay.
Well, you were asking about loan demand next year. So unfortunately, this is a difficult question for us. Well, we have our scenarios. We believe in our macro scenarios is going to be Sound credit demand because with GDP growing over 10%. I imagine I don't know what exactly is in the models of our research department.
But Behind this, we should have much better loan demand than this year, although This year has been supported by government warranted loans. So unfortunately, it's too early to tell you. You had a question on the full rate On, let's say, eco 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.
So borrowers that we know well, so we have exposure with. We had the breakdown even by sectors very detailed in our presentation. So we think that There will be some defaults, but we don't think that we don't share this view that you mentioned in other jurisdictions, at least it's my opinion. Thank you.
Okay, Carlos.
And you don't expect the part of this liquidity to be Sorry, sorry, sorry. Yes. I'll follow-up late.
Can we move on to the next one, please?
Mario Ropero from Financi. Please go ahead.
Hello, good morning. My first question is, since you are assuming a macro scenario similar to the worst case 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 sector, is it simply because the MyBox product Is working super or any other insight you can give? And finally, if I may, just to clarify, Donparo, you said that cost savings are structural, That means that 2021 costs will be below 2020?
Can we assume that?
Thank you.
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, no, no. It's below.
Below 2019, Marion. All right.
All right. Got it. Thank you.
Okay. And 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. So this Clearly. And it's true that, as you say, there is A strong recovery forecasted for next year, for 2021, but the Loan loss provision cycle, that's it's not exactly the same.
So the peak actually the peak in non performing Probably will be precisely in 2021, but as we have front loaded, at least according to our models, All this COVID related impact, we think that provisions for 2021 will clearly be lower than in 2020. On fees, well, on fees, I would say, recurring banking fees, You show that 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, etcetera, Merchant Acquiring, this is recovering fast as you saw. So this is a clear positive and You are observing that week by week we are doing better on this front. And then we had a slowdown in some fees, wire transfers, etcetera, because activity in general was more subdued during the lockdown, but this is also gaining pace clearly.
And then in AUMs, well, first good news is that We are having inflows. We have had inflows year to date. And thus this means that our clients are confident with The advice we are giving her or receiving from us. So we are seeing very positive momentum on this front. And also we are observing a very good month of July so far in on this business.
So markets permitting, I would say, that looks better for the rest of the year. And we had very strong First half in CIB, probably this space 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. And then everything related to insurance, I hear we need to distinguish between online, 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. And I mentioned it in my presentation, but there is like a general feeling amongst our customers for the need of Further protection after what has happened in recent months.
And we think that we will do well on this front You know with Adeslas, the largest health insurance company in Spain. And well, by distributing those Products, we think that we will be clearly improving in coming months and quarters. And then on Life risk, You mentioned MyBox. Well, MyBox is doing extremely well. So it's we are so happy.
It's Actually, we had a very upbeat view for this product and this business life risk For 2020, unfortunately, it's not that positive. But our view is that we may end the year with this line having at least a small positive, at least flat, but I would say even slightly positive. So it's in the same pack with what I commented before about protection, all those kind of things And now, let's say, very well received by customers, and we think that we are the best prepared for it and we'll do very well. 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, and that's more or less what has actually happened. Obviously, it's not linear, but that's public information we can share with
Sophie
Sophie Persson from JPMorgan.
Here is Sophie from JPMorgan. So my first question would be around money laundering in BSA in Angola. A couple of weeks ago, there were some press headlines around the former Vice President and BFA who had been Morning the regulator about money laundering risks in the bank. So 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 You mentioned that you forgot 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 assume. And 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
Thank you, Sophie. AML And BFA in Angola, we are a financial investor in BFA Since actually the moment we took control of BPI and we do not participate in management In any executive positions. There have been resignation about one particular issue. We have Fully supports the fact that the regulators should need to be informed and the regulator in Angola He's conducting an investigation. We'll have to see before we have an outcome from that point of view.
But There's no involvement from us. And obviously, on the other hand, we at BPI have reviewed all procedures where we controlled, and we're very confident that BPI on AML matters has complied and continues to comply with all relevant regulations. The question on moratorium, maybe very quickly. We're talking about for consumer is a 6 month moratoria with 3 months of Payment and principal, sorry, interest and principal and then 3 months of just interest being Paid. In the case of mortgages, it's 12 months.
Again, the 1st 3 months is principal and interest. And the last 9 months is a moratorium of only principal, so you have to pay interest. And there are not really any significant Business moratorium granted in Spain situation is slightly different in Portugal. And Javier, do you want to Complete and take the other question.
Yes. Also, 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. But as I commented, we are considering Negative impact in real estate prices in 2020 of 5.6% and minus 2.3% in 2021. And precisely because of this is why part of the reserve built in for COVID is also going to Stage 3 as there is a larger loss given default because of Have a loss in the value of collateral.
So this is the main assumption. And in Portugal, it's slightly better. It's minus 4.1 and minus 2.6 and for 2020 2021, respectively. Thank you, Sophie. Okay, Sophie.
Thank you very much. I hope that answers your questions. Let's move on to the next one, please then. Operator?
Andrea Feltje from Mediobanca. Please go ahead.
Yes. Good morning. Just very brief. What is the PPI BPI drawdown on PPA in Q2 and how much is left. And 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 incident is higher in Spain. So 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, no?
And with respect to the PPA in BBI?
Yes. The PPA left in BBI stands at €124,000,000 And what has been left in the Q2 is €23,000,000
Okay, Andre. Thank you very much. Let's move on to the next one then.
Ignacio Cerezo from UBS. Please go ahead.
Hello. Good morning and thank you Presentation. A couple of things actually for me. The first one is on the eco loans. If you can give us the all in lending yield once we have already incorporated the fee we To the government.
And then in terms of the asset quality, also related to ECO, I think Javier mentioned that And there's a big amount of these loans which are going to the sectors which will state the higher impact. Are you being able to roll back Existing back book under the guarantee as well for this incremental credit you're giving to those companies. Thank you.
Natio, well, the all in yield is approximately 1.4%. So the cost of the warrantee is approximately 30 basis points for a gross yield of 1.7%. So this is the more or less the average. And well, it's mainly incremental lending. It's incremental lending because but what then money is fungible and over time, time will tell.
But as of today, it's incremental lending.
Obviously, there is some impact if someone is having a maturity in 6 months. It's Taking the opportunity to raise cash now and have cash to attend that maturity. So as Helene was saying, money is fungible. And clearly, there is positive impact there. I want to emphasize eco loans.
Let me just make sure that you understand what we've 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 an indication of risk post COVID. So 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 equal guarantee.
Then 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. And then 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 adding post COVID, we will act one way or the other. So 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. But I think we have done things properly. Our market Sharing eco loans in terms of volumes based on the last numbers published is 13%, 1 third sorry, not 1 third, 1 third, which is actually below our market share and overall business lending. We've been careful.
We've done what we had to do, but we have been careful as well. And I think We're not going to see this becoming a large part of a problem. There will be losses. There's no question. I think they will be manageable.
Thanks, Ignacio. Let's move on to the next one, please.
Rita Schmidt from Autonomous Research.
Three questions from me, Please. The first one will be, how do you define the core operating jaws? So with regards to your comment, there were revenue drop Of not more than 2%, what will be included in there? And 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? And then lastly, what are you thinking about in terms of M and A? There's been a lot of talk in the press about potential M and A in Spain With some companies that are struggling a little bit more, you said you were growing your market share organically, but would you have any interest In M and A or would this be a definite
Okay. Hi, Britta. Well, our core operating revenues and costs, I think that are Very well defined. On core revenues, it's NII plus fees, plus premia So this is core revenues And operating costs are the operating costs. So when we say that we are aiming for Positive operating loss is that if we have, let's say, minus 2% in costs, then we will have at least Minus 1.9 or 1.8 or 7 or minus 1 in revenues.
So This is the definition. I think that this we have been quite transparent on this in the past. And then on the prudential filters for I imagine that you are referring to the OCI in terms of ALCO portfolios, etcetera. Initially, we are not planning to use them. So if this is the question.
Thank you, Javier. Britta, in terms of M and A, our position has not changed. We like what we're doing on a stand alone basis. Actually, what we have done in these 6 months in terms of market share gains give us further Confidence that there's a lot we can do on our own. We see Very big crisis like this one.
We see that we are liquid with good capital levels. We have front loaded provisions, gaining market share, and I see a great opportunity for us. So 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, but our central scenario is to continue the way we are, and we like it. It's not that we see what's coming and we think that we have a problem and then we need to move non organically.
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 3 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.
My questions, I've got several regarding your residential mortgage book. The NPLs there are very sticky, EUR 3,000,000,000 Roughly, they've actually gone out a bit over the past 12 months. What are your plans for this book? Do you expect any impact from calendar provisions On the stock. And 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 this still low compared to your peers? Do you expect changes here as well? And then On your residential on your rental portfolio, it's coming down slowly, still EUR 2,000,000,000. Can you give us an update here? Have you granted payment holidays on your rental portfolio and how that may impact Your revenue line and more broadly, just finally, on payment holidays, how much of your Book underpayment 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. We Banco of Spain has published Figures about what is the percentage of production that is made at rates above 80% loan to value or over 100% loan to value. And 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. This is 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's 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. So this is so surely, we were not forced by law. We could have done moratorium, etcetera. 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 bit below 5,000 resale houses. And we're talking here about a very small impact in the single digit sort of €1,000,000 and 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.
But I wouldn't think because of the size of all this, this is in any way something that is going to be For our revenues going forward. No? At least, I want to make those comments and maybe Javier, you can complement.
Marta, Well, on the what you mentioned on the low density on mortgages, well, I had here some Prepare figures, no? Because also I understand that this has to do also with the moratorium on these portfolios, etcetera. It's the following. And you can do your own numbers according to public information. But if you look at PDs from IRB models for individuals For CasaBank, PD is 16%.
And our peer average is 143%. So this makes a difference. And this, as Gonzalo was commenting, is because the underlying quality of our portfolio is better than the average. And as a consequence, we have lower density in our risk weighted assets. So And this is also a key element of what makes us confident about our moratoriums Because the underlying quality is a good one, no?
And this is one number that I can share with you. And 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%. So 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 moratorium because you know that for Voluntary Moratoria, it's only for principal. And in this case, for Ligand Moratoria, We have had an upfront impact, a negative upfront impact that year to date has been €48,000,000 in loan loss provisions That is compensating for the, let's say, the PB that of the loan that has been affected, no, but in terms of net interest income, we keep accruing. Thank you, Martin.
Okay, Marta, I hope that answers your questions. We can follow-up otherwise. Just that. Sorry, go ahead, Martha. Okay, we'll follow-up afterwards.
Let's go to the next one, please, operator.
Fernando Jeff 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, PFA, Telefonica and Adeslas. And what's your take on Adeslas?
And how are you thinking about replacing the earnout And then this year. And finally, what is the accounting of Telefonica's to get dividend is going to be in this year? And this is the first part of the question. Second one is, what are the KPIs that you're using on the following of the moratoriums that are not mortgages. Just to try to understand how you how fast you recognize these trends going on?
Thank you very much.
I didn't understand what? The
KPIs we're using to track the portfolio of consumer debt moratorium.
Okay. Fernando, 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. And We have a great relationship, great joint venture here. And I think the company continues and is going to continue to be a source of earnings and certainly of fees for us.
And I think overall, it's a clear opportunity for them. And I think on and this year on claims, etcetera, they are offsetting well Claims related to COVID with lower claims related to other illnesses, which is what's happening. And I'm hopeful for seeing a Pretty good evolution. Telefonica, accounting of the dividends, maybe you want to
Yes. Well, on Telefonica, you know that this year, Telefonica has changed the dividend policy. So the Although they have announced the intention to pay a second dividend, it has to be confirmed by the Board. Thus, once it is confirmed, then we will register this dividend. But so far, this It has not been the case in previous years.
It was the general meeting that already was announcing the 2 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 40,000,000 And it has already been paid in hard currency 80%, so as of a few days ago. So on this front, I would say that this is positive news.
We don't have major changes this quarter in our fair value In the fair value of BFA because what actually according to our dividend discount model Evaluation was supporting the new data. We had a reduction in local yields. We had Different aspects that we're doing better. So 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 moratorium are being built and 95% of those are paying the monthly installment.
And while this has a phase in process, And by October, all will be being built because there are different moratoria vintages to some extent. Thus, well, we are monitoring this as close as possible. And 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.
And if I may, Fernando, on managing the consumer moratorium. 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 moratorium than other institutions. We have been selecting those clients based on Profile on there.
Well, we know what happens to their income and we know plenty of other information on our models. So 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 are in a moratorium and are going to And that moratorium start in 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 Default. I think this is going to be different from that point of view for those 2 stores 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. But 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 €3,000,000,000 of Mortgage moratorium, in this case, that turned into sectorial moratorium, hence, they had to pay interest and it was the first time that would be built.
And 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. So things are working well. The whole bank is prioritizing precisely asset quality. And I feel good about us not only having given good loans in 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, thank
you, Bruno.
And we can move on to the last question, please.
Alvaro Serrano from Morgan Stanley.
3, hopefully, yes, 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 on year. Is that a good proxy for the rest of the year? Because if I take second half fees and assume they're flat year on year, I get to plus 1% for the group fees, and I realize consensus minus 3%. So is that a reasonable Assumption or estimate.
And then two clarifications quickly. On NII, I think you said, Javier, it would be in the second half, it 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. And the other one is on Capital, you've given the moving parts, but if you're going to make profits and RW inflation is going to be limited, any reason why fully loaded capital should not grow the second half.
Thank you.
Okay. On fees, Well, time will tell. So probably your assumption is optimistic, No, but I think that we are going to do well in the future. We are quite On the future evolution, I mentioned I had a long answer to one of the questions elaborating a little bit. And we have plenty of areas where we are seeing very positive momentum.
But clearly time will tell also the last year, If I remember well, we had an exceptionally good Q3. It's always a difficult quarter to forecast with holiday season this year is different. Holidays are also different. So time will tell, no? But we have quite A positive view on the evolution in some areas.
On NII, well, It's what you say. We have TLTRO3. This is by the way, just to clarify, we are accruing minus 87 basis points because there is the average of different lengths Some different vintages of TLTROZ. And as a headwind I mentioned, we have the leveraging in the consumer loan book. To what extent this is going to be reversed?
And second, Cash balances, so to what extent we can handle this cash balance situation. So those are the main caveats. So what I said is We have done better in the Q2 than in the first one. And I think that the base we have in the second quarter is something that may be sustainable for the 3rd and the 4th. And 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 fully loaded capital. Is fully loaded CET1 going to grow?
Going to grow from 11 If
you want fully loaded, you're going to grow.
Well, you have the impact From the transaction announced today with Global Payments, this is fully loaded. You have Positive impact from software intangibles. This is going to be also fully loaded. And then, well, it's a normal cost of business. So 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 A question mark for me while making this forecast.
I don't
know if this helps you, Alvaro. Thank you.
Okay, Alvaro, I think Q1, so Let's call it a day. Thank you very much, everyone, and I hope you have a great summer, and we'll reconvene in a quarter.
Thank you very much. Thank you.