Good morning, and welcome to CaixaBank's results presentation for the Q1 of 2020. Let me start by hoping that you and your families are well and in good health. With us today is our CEO, Gonzalo Cortazar speak to the CFO, Javier Panohrupp, joining us from our Madrid office. If you are a first time viewer, please note that we plan to spend around 30 minutes for the presentation spend 45 minutes for the Q and A, and you should have received instructions for that via e mail. Let me just state that my team and I are available after the call for any questions that you may have after the event.
Without further ado, let me hand it over to our CEO.
Thank you. Thank you, Eli. Good still good morning to all of you hope you're healthy and stay that way during this difficult period. Thank you for your time again, and
we'll turn directly to our presentation today.
Say, obviously, the crisis has changed things radically. I think the first thing is that we have a state operational at the housing moment. See and, from my point of view, comply with what is our mission in this crisis. Our branches have been opened. On average, 90% of our branches have been opened.
With approximately half of their branch employees, so approximately 50% have been see working on the other 50% on branches working from home. And headquarters and subsidiaries, the working from home is around 98%. This has worked well. It's obviously been a challenge technologically to move from physical to remote spend a longer day, but it's worked well. And I guess that is important.
It's worked well for us and generally for the whole industry, which is good news. We have been active in supporting our clients. Obviously, we have liquidity and solvency see and our ability to react quickly. So we had a very strong month of March in the Aviso front with over EUR 5,000,000,000 of see loan growth only in March to businesses. Year to date, that figure is 3.1%, and figures we're publishing today that the equal loans that we have processed so far are of €11,000,000,000 so quite significant sum out.
We have been disclosing well, we have disclosed today also the amount of the moratorium given to individuals. EUR 8,500,000,000 is a significant number. Discuss about it later, but we feel great about the Moratoria, and we do not feel that Moratoria is going to convert into nonperformil loans. 95% of the more areas that we have the more material that we have see, granted, is actually or was actually preferring. Many clients are just making sure they have liquidity for the next few months.
Credit quality, solvency and liquidity, you have the figures there. Say we're happy that we're entering this crisis with that balance sheet strength. In terms of the work of many people follow the long period. But we feel we have a financial position that is very strong. It's going to allow us to help our clients, and it's going to allow us to come out as stronger.
Every single crisis that we have faced, we have come out stronger. This is not going to be different, I'm convinced. Spend stronger also means in the course good news for shareholders. Obviously, before the lockdown, we had a pretty good quarter. Core revenues are up almost 1%.
With 2 weeks of lockdown, it's a good result. And see the final results are affected in a big way by this EUR 400,000,000 extra provisions that we have see if we can get a book related to the change in the economic scenario associated to the virus. See. Net income is there 83%. We have decided to formally suspend guidance and targets for both see 2021, which is, I'm sure, not surprised to you.
But obviously, in this view of the moment, the guidance and the targets are no longer better. I'll spend some time on Section 1 describing the situation of
the bank and the preparedness
for the crisis and then leave for Javier Reuel, our CFO, to get into the second or sorry, to the Q1 results. Firstly, as I said, fully operational. Obviously, thanks to our speak to our people, and we can continue to be fully operational for as long as we need. See. And hence, from that point of view, there is no problem.
We have decided to maintain most of our branches open. Obviously, see. As you know, we have we're presently 2,000 different towns in Spain. We have actually managed to keep our shops open in 97% see. Of these tests, we have had some infections logically.
But today, we have more people that have recovered from COVID than people that are actually speak currently with the disease. And from that point of view, our situation workforce is improving. There's never been confirm from the operational point of view, as I was being a concern from a management point of view, to make sure that our people are in good shape. They have received see appropriate protection measures, sanitary and also hot change protocols and ways of doing things to make sure that we will stay healthy and safe. We have experienced a significant growth in digital activity.
It's no surprise, see, including activity in touch in our remote phone channel, where we have see our 1,300,000 pilots already, and we will have been seeing growth of 35% calls per week. And obviously, this is a business that was very attractive for us see. And it's going to continue to grow faster going forward. Connections to our digital channels have increased, see everything that you expected. Transactions, cash transactions and advances have been reduced by 3 quarters, 75%.
See. ATM's I mean, operational, the open doors activity has been reduced by around 60% in terms of see the tariffs and the monetary value of these withdrawals by around 40%. This is a time of crisis. You know that banks in Spain and in many other places, I've had difficult reputation. We feel this is see the right time to make sure we do the right thing and that we tell the society that we're doing the right thing and that they perceive it.
It's not yet about propaganda is reality. I think this is important. This is something that generally, our peers are see what we're keen to do. The sector is reacting in the right way. And as we have so many bad years in this crisis.
I think this is one piece of hope. It's a great opportunity to prove to society that banks are good, protect our results, our solvency and in reality, to making sure that in the long term, we have see better returns because society feels that we are owed these better results, no? Show some of the figures of what we're doing for in the U. S, for businesses, for society. Obviously, the IPO applications with EUR 11,000,000,000 summarize the 2 100 and 20,000 mortuary requests that we have received are very visible by our data, see what we've been doing in terms of advancing pension payments to our and unemployment payments to our clients, say, which is obviously financially attractive for them, but also has allowed us to make sure that there was no one day queue see for guillotine payment for pension or unemployment subsidy.
We've been calling clients to make sure that they don't come to the office. See if at some point, there's one that feels because they are more digital and how they need to have their previous appointment, and hence, we can make sure that everybody is safe, which has been clearly achieved for us. We have granted over EUR 40,000,000 of non eco business loans since mid March. It's obviously a record in our history, EUR 14,000,000,000. And these are good see transactions, no guarantee.
We have good clients. They have a higher need of cash now. But we have capital. We have liquidity. We have see the ability because we know our clients to know which credits are going to continue to be credits that will pay us.
And hence, we have been able to be with our clients immediately when they needed us, which has always been something that society or some sectors of society have blamed us for not doing. This is another case. We are undertaking many other see many other actions. I will continue to do so and continue to do so in a responsible manner. And working for to society here, because of the magnitude of this crisis, is also working for the benefit of the long term future of this bank and for the returns of you have some data here on the moratorium.
It's, as I said, see EUR 8,500,000,000 requested so far, most of it in terms of balances and in mortgages. For that, we just want to make sure that I will elaborate on that that whatever the statistics of our mortgage portfolio, see, which are very driven. Hence, it's a very defensive portfolio where this moratorium is not going to be a problem. Obviously, on the consumer side, up to EUR 1,100,000,000. Both cases, you can see that practically 95% of the requests are coming from see from situations where the loan was performing, which is also a good indication of a good quality see going forward.
There will be some more that we'll have payment problems in the future, but the vast majority of them are going to be okay. Let's review ecolons. You have the data here. Clearly, we have this is very much more demand and the portion that has been very least allocated to us. Say I am very confident that in the next few days, development will continue to increase see the amount of the guarantee so that we can actually satisfy the demand we have for this start with our credit capital level.
You know the latest play in Spain by far, so hopefully, this is quite representative of what's going on in Spain. See. And evidently, in mid March, you have the big growth and obviously, lessor in e commerce, but it's also somehow comforting to see that even though we're still in lockdown, see. The trend is positive, and it is somehow improving in the last couple of weeks. We're going to come back to normality or to a new normality in a gradual manner, but it's already happening.
And hopefully, it will continue see the results to me that way. There's very different degree of behavior. The Peruvian sector is national presence, supermarkets and see. Pharmacies are doing well on that. Hotel, restaurants, etcetera, have been actively closed.
I've had a major trip. See Petro stations were a big driver. So you can see that last couple of weeks, there's some growth. So that's why I think the beginning of the sort of return to know. IoT has already started.
It's going to be a long trip, we all know. See. In terms of the macro views that we have that I think are relevant per se, but also relevant for the decisions we've taken in terms of provisioning. We have no crystal ball. Everybody knows that the visibility now is very limited, we had to put some numbers.
We have a base case, which you see here for TRAP GDP see this year of 7.2% and an increase next year of 6.9%. That's the sort of the blue line there, see, obviously, well below the pre COVID line, but a significant recovery in 2021. See. And we have also considered an adverse scenario in which the fall is used as high as 15%. And then when we have our recovery, the disclosure to turn a bit below that.
And hence, we end up in 2021 exactly 7 percentage points below where we were in see. So I think, as you know, when we estimate provisions, we have to play with a number of scenarios, macro scenarios, and we have considered also this appraisal scenario to make sure that we have other action in this crisis that is front loaded because we all know We're going to have significant non losses going forward compared to what would have been before this crisis started. Our view is to firmly speak within reason and obviously respecting accounting principles at all points in time. See. And as we gain more visibility, we will see how things evolve.
Beyond the GDP trajectory, I'll let us know see what it does for unemployment and house prices, which you have, obviously, a big drop in house prices this year and increasing unemployment, see this reversed next year. Beyond that, I think, and I've mentioned this in the past, it's very relevant to see the level of leverage that our businesses and families have now. It is completely different to what it was 12 years ago when we started with the previous crisis, completely different, is a big improvement. And the reality is that even turn to the U. S.
Zone. Now we are well below in terms of leverage for our business sector and slightly below in terms of our families. See and we have to add a house bubble. You see what house prices are compared to where they were in before the previous crisis. Show I think we have less than Brazilians.
Obviously, we have not more Brazilians in the banking sector. You know that we're a part of the overall economy as well as more engineers. And businesses and families and the state are going to end up with higher level of debts. See. So the fact that we suffer from a relatively low level is quite relevant to see that we actually have the capacity to deal with this start without a major crisis in the mid and long term.
Summarize the relations around our long book evolution as we do not have the visibility of what exactly is going to happen in the next quarters. See what we are trying is to be as transparent as we can. And full of that is the data offered on moratorium, e collars, etcetera, continue to be a transparent as we can also on how we see our loan book and how resilient it is. See. It's diversified, obviously.
Big proportion of residential mortgages, very defensive. You can see that on the right hand side, EUR 76,000,000,000, the average loan to value is now below 50%. I don't think it's here, but the average loan to value of the mortar we have requested is 51. So it's basically in loan. Majority of that is with loan to value below 80%.
So very, very differentiate. We feel fairly good about our mortgage portfolio, and we have been quite conservatively last few years. If anything, you know, I would be losing market share on the mortgage side. For we've always said that it's a matter of price and suffer somewhat, but not like last time. And hence, we feel pretty good that I will learn book on that front.
Look at the rest. We are obviously consumer lending. 6% is a profitable part of our business, but small part of the book. We'll be contained, and we are taking the necessary actions to make sure that these measures are not a problem going forward and that we obviously have to tighten criteria. On the corporate side, you see we have provided some detail see on various sectors, high moderate and low impact.
And I mean, it's self explanatory. Say, obviously, it's very relevant not just how much especially we have to have moderate or no impact, but what names and specific situations we have in each of these sectors. So we have been very focus on lending to some of the best companies in each sector. You can guess say the portfolio is heavily weighted for Spain. We'll talk about all the time.
Especially we have is downstream, is refining, is marketing, etcetera, etcetera. So I think it's both in terms of the distribution of the book and the specific criteria in the book, we have kept say conservative and presuppose. We have not been active in LBOs, specialized asset in any significant say, Bander, I expect to be resilient. So the fact that we're making a very important provision is not present off specific concerns in our limbo is a view that we have to frontload and deal by the bullet sooner run on a late, but obviously, it's going to take a few quarters until we have a full view of the impact of all these summarize. As I said more before, we mentioned the level of liquidity very high.
You can see see both LCR
and actually a must say
with funding ratio, are at very, very high levels. It's a great advantage at this point. We have no concern about liquidity. And obviously, we have the ECB there. And Javier will surely expand on it.
In terms of CET1, we have a higher buffer than ever with EUR 5,800,000,000,392 basis points. There will be volatility around capital this year. We have plenty of cushion. And this is going to be very important for us to be able to capture and put this capital to work properly. This is the best we can do in a crisis like this is find good uses for this capital, see and we are on that program.
In terms of resilience, given the lack of visibility, just a few see considerations on history. You have pre provision profit for the last 8 years and tell you, in this graph, I will have asked you the question of risk. Pre provision profit obviously has see a big room to absorb the provision measures and some comparison of what has been see the worst 3 years of forecast of risk in the previous crisis where obviously the situation was much tougher than now. And even if we select the 3 worst years in history, what happened in the recent history, obviously, 154 basis points. Look at the EBA last stress test that we did.
The average cost increase was 82 basis points, approximately half follow the production profit. And on top of that, we have this MDR buffer. So the Brazilian Central Bank is very clear to us, speak. I would now leave the floor for Javier, who is, I guess, ready and move on. Thank you.
Speak. Thank you, Gonzalo. I am ready. Good morning to all of you and my best wishes also see for you all. Let me now give you the figures for the Q1.
Although at the same time, I will try to offer take some insight into the trends since the start of the lockdown. Well, first, see a few key messages on the balance sheet. On the loan book, as the CEO has already commented, we have had see a strong Q1. Our performing loans up by 1.7%. Clearly, very 2 differentiated periods.
With the usual impact in the Q1 from seasonality. But then from March, I would say that we have had a strong growth from businesses. In many cases, we spoke liquidity facilities for large corporates. Please note that in the figures by the end of the period of the Q1 still does not include see the pipeline of loans with government warranties, eco loans, thus this new production of loans speak to the second and probably the Q3. I'll look into the ALCO book.
You know that state that we were running comparatively smaller ALCO portfolio, but this time we have taken advantage of the widening of sovereign spreads During the last part of the quarter, to add to the portfolio significantly, Spanish and Portuguese government bonds start with maturities from 3 to 10 years. Here you have the complete breakdown of the portfolio. On average, I would say that the purchases have been 6 years, summarize the year over the portfolio now standing at 0.6% and the average life is slightly over 4 years. See now continuing with our customer funds. We have had a relatively stable summarize the Q1 if we exclude market impacts.
Excluding those market impacts, our customer funds are up by 1%. Also hear 2 very differentiated periods. In the 1st 2 months, I would say, see a strong inflows into long term savings, as you'll see, EUR 1,400,000,000 up to February. And then with the Correction in markets, we had some outflows, but the net on this front for the quarter is positive, EUR 600,000,000 positive. And during the last part of the quarter also, we started to have again inflows on balance sheet inflows.
In the right hand side chart, see the evolution of our AUMs. Market impacts, obviously, have start with the results presentation for the Q1 of 2020. Let me start with the year. I had here an impact of €11,500,000,000 If we take as a reference the average see AUMs for 2019. We see that on average during the Q1, we have been up see by 2% compared to this average of last year and clearly higher than the average of the Q1 of 2019.
Thus, see. This is why we have had year on year very positive results on this front. But obviously, this large market impact has impacted the balances by the end of period. We are down now by the end of period by 6% compared to the average of last year. But In recent weeks, as you know, well markets have been recovering.
As recent as April 23, we were down only by 4%. See. And as recent as of today, probably we are closer to minus 3%. Despite these market turbulences, see. We have continued to gain market share in mutual funds, up by 25 basis points of those 19 basis points in March February.
Speak. With this, let me now shift to the P and L to give you an overview. Despite March check. We have had solid operating performance. Core revenues are up by 0.9% year on year.
Our core operating income It's up by 4.2%. We see an impact from lower yields in net interest income that year on year is down see by 3%. On the contrary, on fees, we are clearly up compared to 1 year ago by 8%. And Even the 1st 2 months, we're doing better, running at a pace around 10%. Our life risk business continues to recover summarize our sales built on the recurrence of MyBox.
And in this item, we are up by close to 16%. Speak. And also, I would like to mention the negative impact we have in trading. In this case, the widening of credit spreads impacting our credit valuation adjustments from derivatives. On costs, you know that we have on this confirm savings from the restructuring of last year.
And well, as of today, we formally revised see our guidance for this year. We expect now our operating costs to be below those in 2019. Below the line, sorry, we have those loan loss provisions. This reserve build for COVID impacts, €400,000,000 And without those impacts, cost of risk on a 12 month trailing basis would have been 15 basis points. Summarize.
Remember that other provisions include a one off for the early retirement, slightly north of EUR 100,000,000. Start with the results presentation for the Q1 of 2020. Let me
start with the results presentation
for the Q1 of 2020. Let me start with the results and with this, our net income falls to 90,000,000, 83% down compared to last year. Let me now give you some color on BPI. We have got revenues continue to support see. Net interest income in this in Portugal is doing well, up close to 10% year on year, see.
Thanks to strong growth in the loan book in the past. We have in Portugal the help of loan loss provisions. See here, we have released EUR 45,000,000 from the PPA, EUR 140 something still left. See here the business volumes. Portugal continues to do well.
The country also suffering the lockdown. See. Our expectation for the GDP growth in this year and next are pretty similar than the figures we have for Spain. 68% of the employees working remotely. There are also some, let's say, programs in Portugal see quite similar than those in Spain.
We have EUR 4,000,000,000 in new moratoria and there are also some public lines see that now amount to €1,000,000,000 Let me now enter into the usual details start with the summary of the P and L and the balance sheet. First, net interest income, we are down by 2.5% quarter on quarter. See, in this case, lower yields affecting mainly on the loan book, also see maturities on the ALCO portfolio in the 4th quarter affecting quarter on quarter, but those negative impacts are partially offset see by ECB actions, Tiering and ECB funding. You may see on the right hand side chart start our margins. The back book yield of our loan book falls 6 basis points to 215 basis points.
We can discuss this in more detail in the Q and A, but mainly lower arrival resets and some other factors. Going forward, what we see on the front is that we have a very strong pipeline in new business lending. Those state warranted new loans. Also, we expanded the ALCO portfolio by the end of the quarter see. And probably a lower impact of arrival resets.
We expect that NII will have some support see additional support in coming quarters. On fees, we have had a strong quarter compared start to the Q1 of last year. You remember that the Q1 was affected by seasonality and fees are up by close to 8% year on year. See here the breakdown across different segments. All of them have done well.
I would say that probably see the line that has been more affected by the start of the lockdown has been in non life insurance distribution. See. In the right hand side chart, you see the evolution of our insurance revenues. We have already commented on premia from life risk. I would only like To add here, note on our equity accounted from Cebu Casa Deslas, the company has had some small market impacts that I would like here to give you some insight into what's going on since the lockdown.
See what we are seeing is that in life risk insurance revenues, the pace of those revenues It's approximately 10% below the pace of those revenues before the lockdown during the Q1. And that for recurrent banking fees, what we are seeing is that those revenues are approximately running at a pace that is 15% below the pace of the Q1 before the lockdown. Of those, I would remark that I would say see the area that is more affected, which is e payment fees, which are running down by around 14%. The CEO already disclosed some charts with the evolution of credit card traffic, etcetera. Those fees account for approximately 15% of our total fuel revenue pool.
Let me now continue with costs. On this front, we year on year, we have see negative growth by 1.3%, clearly having the benefits from the restructuring implemented see. Last year, you may see personnel costs down, also general expenses. We have growth in amortizations see because of strong CapEx last year. You know that we have start with an early retirement that with 229 departures as start of April 1.
This will allow for close to €30,000,000 of annual cost savings going forward. But it's time for additional cost savings to be implemented, and we are working on those in order to drive see our operating cost base below the levels of 2019. And finally, on the P and L loan loss provisions, We have this result built for COVID-nineteen, €400,000,000 You have here the breakdown across different stages. We have used here a top down approach based on a weighted average of different macro scenarios. See also in this case following the supervisory and other accounting authorities' recommendations.
See. And as for the rest of the year, as I commented before, no, it's still uncertain times, but our best estimate as of today is that cost of risk will be in the range between 60 and 90 basis points. And this upper range of guidance already taking into consideration a more adverse scenario than what is our current base case. With this, say a few comments on the balance sheet. NPLs, the NPL ratio remains stable at 3.6%.
See. We have a slight increase of NPLs in absolute terms. This is mostly reflecting see the temporary pause in recoveries during the month of March. Obviously, during the lockdown, the recovery process has been more difficult and this has resulted into a slight increase of NPLs. I will not read more than this on this.
Obviously, In coming quarters, this is something we will follow very closely. On our For sure, stable, less than €1,000,000,000 I would only like to add on this slide, sorry, that our coverage ratio now summarize the financial provision. It's at 58% with very sound coverage ratio of our uncollateralized start with the details of the portfolio. On liquidity, we have a very sound position. We have further reinforced Our liquidity position adding further collateral to our ECB facilities.
Liquidity coverage ratio ending the quarter at 2 24% and net stable funding ratio of 129%. As you see, ample room on this front. €3,000,000,000 or some U. S. Dollars.
Those facilities are maturing in June. And then we are planning to make a substantial use summarize the details of the TLTRO 3, €39,000,000,000 additional borrowing capacity we have. On the right hand side chart, share some color on our undrawn corporate and SME credit lines. I would say that not much use of those credit lines. Generally speaking, large corporates are rather preferring take or made loans instead of using credit lines.
And as you see, we have a comfortable position in terms of wholesale funding maturities. Thus, see. Finally, we have, as the CEO commented, a sound a solid position. The last the public figure that you have in mind is this 12%, 35% CET1 ratio after the significant event see when we announced the reduction of the fiscal year 2019 dividend. Since then, we have update for transitional IFRS 9.
This is adding 13 bps to our regulatory capital ratio. And then we have negative impacts in the quarter. First, we have negative organic capital generation this quarter. This is a combination of, 1st, low profitability in the quarter after start the loan loss provisions and second, a strong risk weighted organic risk weighted asset growth as we have expanded our loan book. See.
This is minus 10 bps. And then we have market impacts on those, basically the well known impact from Telefonica. See. And also, we have adjusted the fair value of BFA and then we have other smaller impacts, mainly fixed income related impacts see that make up to those 37 basis points. We end the quarter with this 12% CET1 ratio.
This is well above our 8.1 percent CET1 SREP requirement, almost 4 percentage points over see at this level. Remember that we revised the CET1 internal target to 11.5 speak to the financial results. And with this, I would only make some final remarks. We feel that the value of the franchise remains intact. The bank is being fully operational.
We have continued to gain market share in those times. And in January February, We were performing above our expectations. Now obviously, things have changed see dramatically, but we are ready and prepared to support our clients and the economic recovery,
speak to the financial
results and we can do so as we face this crisis from a strong financial position with Capital and liquidity that have been recently reinforced. Thank you very much. And I think that with this, we may be ready to take questions.
Okay. Thank you, Javier. As we say, it's time to proceed to Q and A. I would just like to remind everyone, see if you can keep your questions brief for the interest of everyone who's lining up, and we'll try and do the same. So operator, let's have the first one.
Our first question today comes from the line of Ignacio Ulargui from Exane BNP Paribas. Please ask your question. Your line is open.
Yes. Hi, good morning. Thanks for the presentation. And I wish you as well all the best for you and your families. See.
I have just 3 small questions. One is what kind of initiatives on the core side are you planning to take? Are they focused on administrative expenses mainly or also in personnel costs? The second one The second one is, will the UC NPL going? And when we should start seeing some inflows?
And just finally, a very quick update on what's your view on the dividend policy of the bank for 2020 and what have you done with the dividend so far? Thanks.
Thank you, Matthew. I'll start with Personnel expenses, we are not expecting any further action to reduce headcount. We have these
early retirements that we agreed in the Q1 in Barcelona associated to the discussion we had last year. We are not, therefore, going to have a lower number of employees going forward. Obviously, there
will be an
impact as our financial objectives are not going
to be met, our old financial objectives. See. There will be an impact in per capita compensation, but not that will not have a cost speak for shareholders.
It will have obviously just an impact in the
P and L. With respect to dividend, bank has approved see the change in the dividend policy for 2020 so that payout is less or as can go up to 30% or no more. And because of the current goals with that, we are accruing the average over the last 3 years basically, which is see a 43% dividend. It's a consequence from the rules we have. So it won't be higher than 30%.
Put at this stage the ECB requirement is the average payout ratio of the last 3 years. In this quarter, given the see the impact of
the business. The limited profitability obviously has had very limited impact.
But at this stage, we're not planning to change that policy and hence, we have the ability to pay up to 30% of dividends. We have capital. We have a good condition. But obviously, this decision will have to
be made almost a year from now, not it's not something
There's some additional question
I would like Javier maybe to answer if you can.
Hi, Ignacio. I think there is a remaining question on the evolution of NPLs. Well, it's early times, obviously, but we think that those measures that are in place, mainly see on the regulatory and those state warranty credit lines that, as you may see, We have a very large pipeline. This will obviously help to cushion see the downward impact of this downward trend in GDP on borrowers. So In any case, obviously, our NPL ratio is going to go up in coming quarters.
See. It's going to be over 4% for sure. But according to our estimates see in any of the scenarios is going to be higher than 5%. So I would say that between somewhere between 45 see. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We'll be the place where we will land probably, and this will depend a lot on The evolution of the situation, the final impact on the economy, the length of the lockdown, I'm sure that is see something on what we would be able to provide you more visibility in coming calls.
But according to our initial estimates, Thank you. Inacio, I don't know if this answers all your questions.
Thanks so much.
Sorry, your next question comes from the line of Carlos Cobo from Societe Generale. Please ask your question. Your line is open.
Hi. Thank you for the presentation. Carlos from Sartin here. Three quick questions as well. 1 will be on your consumer lending book.
If I'm not wrong, you've been launching some JVs and agreements with third parties to do some more point of sale lending. If you could elaborate a little bit on that, how big it is? See. Onlook for that non payroll clients oriented business. Also on the 9% Of other individuals lending, could you please also elaborate on that?
You don't classify it as pure consumer. So Is that purely personal lending and secured? Or do you have some self employed lending there, see, which could be similar to SMEs and your outlook for lending and consumer, if it's going to contract, they're going to 2nd on IRPH, just here in your latest thoughts, and if there's nothing else to add, Don't really worry, but we're starting to hear some sentences, which are ruling against the banks. And that kind of contradicts The market's initial thoughts on the European Court of Justice ruling. So what's your view there?
Should we expect this case to go finally back to the Supreme Court again. What do you think that you expect on provision impact while you have some negative sentences? And lastly, a very theoretical question. Would your base sorry, would your worst case be Discounting or incorporating any kind of new outbreak sort of after the summer see. Posting a new lockdown, would that be something that is consistent with your worst case?
Or that is clearly something that It's too unlikely that you don't want to incorporate. Just to understand how sensible the 90 basis point worst case
Thank you, Carlos. I'll give a few comments and then Javier can elaborate here. We'll try to be speak with to have enough time. On our IPH, there's no real change. We are satisfied
see some of the different reactions in different courts, most recently from the Audiencia Provencea do Barcelona, a very clear one that is just confirm in what the European Court of Justice said, the transparency of the index, etcetera. And our conviction is that see. In due course, the Supreme Court will make sure that everyone is aligned with that decision. So no particular worries. Obviously, the press will always pick on that sentence from a local court that is against the banks, say that there's no real change by the opposite.
We have good news on that front. In terms of the macro scenarios, I wouldn't directly translate 1 macro scenario one sort of sanitary scenario into 1 macro scenario. We feel the way out of the lockdown is obviously going to be asymmetric, and it may not be linear always speak to a better place. We certainly can have bad news at some point. If they happen, what we are expecting is they will be contain.
It won't be
a general
resurgence of the problem because now we have obviously a different vigilance on this, And it will be more local possibly and certainly not generate the same problem that the last did. But obviously, the whole world is speculating about how things can develop in a very prolonged lockdown. See. Obviously, our adverse or our disaster scenario will be more likely, but our adverse scenario pull in place. Even if we have problems, I don't think we're going to end up in that adverse scenario.
That adverse scenario means higher degree of problems and also inability from public measures to get them sorted out. But we have no claim to try and predict the future. At this point, it's very difficult. What we think is that 60 to 90 basis points is fairly conservative, It is consistent with the deterioration of the economy of up to 15% this year and a gradual recovery. So what we think is we actually have resilience to deal with this.
We have good capital. We can focus on our business. And obviously, if this ends up earlier, we'll have lower credit losses and it will be better news for shareholders if it takes longer. Javier, any there were some questions on consumer lending as well that you can address, please.
Absolutely. Carlos, speak. On the consumer loan book, probably I can give you some color on some metrics and probably this may help you. You mentioned the part of the portfolio that is from those agreements speak with major merchants. This is now approximately 1 quarter of the portfolio.
You know that we have been commenting in the past that we are very happy with the performance of precisely this part of the business. And I can give you some metrics. So The overall nonperforming loan ratio of the portfolio stands at 4.4%, but this subpart of the portfolio You know that we have put in place an origination criteria That is very strict on this front. And with the help of the all the data we gather from our payments business, We have been able to originate a very sound portfolio. I would also add that see and I have I remember myself commenting this in the past that we were monitoring very see closely vintages and the performance of every vintage has been progressing see, as we have been obviously fine tuning and refining to some extent the origination process.
We are quite confident. So this is not a kind of consumer loan book where We have been advertising consumer loans in our website and first in, first served. So it's it has speak to the results being done very carefully with mainly with our own clients. And as say the recent vintages have performed better than the previous ones. You know that delinquency ratios see the performance in recent vintages.
And as we see that the performance has been see better every vintage. We are quite confident that the resilience of this portfolio is significant. See. You have a question on other credit individuals. Of this, well, there is a lot a little bit see of everything here.
Approximately, there are around €5,000,000,000 I give you the numbers see in euros of self employees in this case, in this area. We have see also loans related to housing rehabilitation, to some pension repayments. So you have here speak to a broad spectrum. In some cases, we have collateral. We have collateral on those loans.
Speak. And well, we are quite confident that with also in the case of self employed people And I think that I'm not missing anything else, Carlos. Thank you.
No, that was very complete. Thank you.
And your next question
Here is Sophie from JPMorgan. I was wondering if you could give an update on how we should think about the moving factors on For Equity Tier 1 incoming quarters, how do you view the TRIM impact? How do you view the IT software intangible benefits From Europe, SME supporting factor, the lower market risk multiplier. So if you could just discuss how these are evolving or what it will on your core equity Tier 1 and how we should think about it. The second question would be the EUR 400,000,000 of COVID-nineteen provisions that you took in the Q1.
How would you split this across the different product segments? How much is for large corporates? How much is for SMEs, how much is for self employed mortgages and consumer? And then lastly, You guide for 60 to 90 basis points of cost of risk in 2020. How should we think about the cost of risk impact in the next Quarters, will it be largely stable?
Or should we expect a significant upfront loading in the second quarter? Or how do you think about it? And also,
I'll make a comment on the last one and then let you, Javier, do the others. See. Very difficult to give you guidance for 2021 on cost of risk. Obviously, see. We're going to need more time to see how things evolve into 2021.
There's Not enough visibility. We've made an effort to measure what we think is 60% to 90%. We expect, obviously, 'twenty one to be a better number, but it is difficult at this stage
to be more specific.
In terms of the evolution quarter by quarter, I would be also reluctant, Sophie, and I don't seem to be very helpful here, but I'm sorry. But it's a bit complex to now see exactly how this is going to play out quarter by quarter. But, Enigamo, the annualized cost of risk this quarter is 84 basis points. We're expecting 60 basis points to 90. I would say we are likely to be within that range in every single quarter.
And depending on how see the economy and the situation evolves. You will we will sort of gravitate towards the one point or the other. But I am not sure that there will not be potentially ups and downs in this trajectory. Javier?
Thank you. Sophie, you had this question about these see the new European Commission measures. Well, we expect that those changes will proceed fast potentially during the Q2. This is, obviously, good news. See.
It shows an alignment of all international bodies to support see the banks and their lending capacity, so this is positive news. More specifically, on IT software, we are reporting, as see. Probably, you may see from our annual report, slightly more than €600,000,000 of software intangibles. Probably not all this amount may be eligible for this perimeter see that there will no longer be deducted. It's still uncertain if there will be some kind of risk weighting or not.
But in any case, estimate that if this goes ahead, the final figure will be north of €500,000,000 It's easy to do the numbers. It's around 35 basis points. And hopefully, this will come assume, but obviously, with those issues, we need to wait until the final papers. And finally, on the SME and infrastructure supporting factor, this may have a positive impact on risk weighted assets. According to our initial estimates, it's not going to be large.
But obviously, we can further update you in the next future now. And for the market risk multiplier, in our case, is having an see. Almost a non relevant impact, no? You had a question also, Sophie, about the breakdown speak across different sectors of this provision. I can give you some general comments on this front.
It's approximately around 45% to SMEs and corporates, obviously, more to SMEs than to corporates. And there is also around 4%, 3% to the mortgage portfolio. See. It may surprise you, but while considering those combination of scenarios, see that in the in our base case also we consider, well, a negative impact on real estate prices. Discuss that as a consequence, the value of the collateral of the mortgage loan book is affected actually.
See. Approximately 1 quarter of those provisions come from this effect, no? And the rest is mainly for our see consumer and other loans to other individuals. I think that with this, I have answered your question, Sophie.
Thank you. And your next question comes from the line of Stefan Nedialkov from Citi. Please ask your question. Your line is open.
Yes. Hi, guys. Good morning. It's Stefan from Citigroup. A couple of questions on my side.
On the macro assumptions, just to get some more color here, I believe your scenario weights before were 30%, 40% and 30%. How have see if this changed under uni macro assumptions. And also related to that, what are you assuming for the default rate on the payment holidays that you have granted. My second question is on fees. In see in the slides, you talk about how fees are down 10% to 15%, and especially e commerce payment fees down around 40%.
See how should we think about fees for 2020 generally given these trends? And obviously, your expectations for see how the inflection curve develops over the next few months. And the last question is on capital. Right now, you are down to around 11.5% as an internal target. That's around 3 0 5 basis points above your CET1 SREP.
If we get more forbearance going forward, see. Should we think about your target as a buffer above your SREP? Or is it something that kind of stays at 11.5%? Speak.
Well, on
the later question, Stefan, I would say At this stage, we are obviously very comfortable. And if depending on how things evolve, see. 11.5% may appear even as too high a target, but that is something that see what we're seeing in the Q1 of 2020. Capital is not, at this stage, a problem. We have plenty, and obviously, see.
We'll see how things settle down. And particularly, if there are new initiatives like the ones that Javier mentioned and answer the question on Sophie. We'll have to adapt. Clearly, we have a very large CET1 buffer or MDA buffer, see and that gives us margin to deal with the volatility that is likely to be see ahead of us and no have to manage the business in a way that we have to be concerned permanently about capital. That's why we had already a high level of capital, and we're expecting to maintain it that way.
Javier, first of you can please get the others.
Absolutely. Stefan, on the macro assumptions, Well, I think that here we need to differentiate the situation as of today with the visibility we have today see how this situation may evolve. In order to calculate the provision for the Q1, we have considered see different scenarios and we have given a larger weight of to our base case, Which is this minus close to minus 7% GDP growth plus close to 7% next year. But you know that see also other scenarios have been considered, including a more adverse one, but also a more a longer term, let's say, scenario, know a more stable scenario and following those supervisory and accounting authorities' recommendations. Going forward, see.
We know that probably this will move and we will have more visibility in order to assign different way things speak to those scenarios. And obviously, the upper bound of this cost of risk guidance is already taken into account see a very large wave in the most stressed scenario, which is this scenario that see in a chart in the slides presented by this year, you could see this minus 15% for this year. So this is see how we are calculating our expectation for cost of risk for the year. We need to take into account that with the moratoria and the government warranties, see. We assume that the impact on from the downtown on borrowers will be softened see and that as a consequence, there will this situation will not entail a significant increase of the credit risk and as a consequence, a huge transfer between stages.
Show, obviously, this is our this is the base case. This is why all governments, DCB and all banks, We are at the same time facilitating this liquidity needed across the economy. See. Obviously, this has been a top down approach. As the year progresses, we will be able to do more bottom up approach assessing the creditworthiness of all borrowers to what extent the situation is affecting them.
And probably, we this will affect ratings of some of them. This will affect some shifts see from the stages. But all this is already taken into account in our numbers. So when we give you this upper bound Of 90 basis points is because this is what is going to happen in coming quarters. And obviously, our loan loss provisions will be adjusted Accordingly.
You had a question on fees. Well, Precisely, we will try to give you some color on what's going on after the lockdown. See. You have the figures on in the presentation. We are seeing our see.
Life risk insurance business resilient. I would say here that probably Those are not strictly fees, but that is probably in the back of, let's say, those revenues. See. We had quite an upbeat view for this business for this year. You know that we changed our commercial offer.
We have this commercial offer based on this Myvox product, etcetera. And to put it differently, Our internal view is that we were going to do better than consensus. See. And obviously, now those revenues are going to be affected. This is no doubt and are running at a pace for this part of the business, see approximately 10% below the pace of before March 15.
So this Depending on the assumption you make on the length of the lockdown, you can extrapolate. But our as of today, if I I am, as of today, being able to give you some kind of short guidance on this part of the business. We expect that this will be flattish compared to last year. This is for a premium from Life Risk. Now let's go to fees.
Here we have other moving parts. First thing is AUMs. So We displayed this chart with the impact on average balances. As of today, we are approximately 3%, 3%, 4%, probably more see the market close to 3% as the market has clearly done well during this week compared to the average of last year. Thus, it's quite easy to do the numbers depending on your assumption on the evolution of markets.
I will mention here something positive in our case, which is that we have not had outflows at all. So I think that here is where we see that the model is working. Our model based on advice, see on the proximity with clients, financial planning, etcetera. This has played extremely well in this correction. So see.
Obviously, we are close to clients explaining everything, but we are not facing redemptions at all. So this is positive for the business. And then for the rest of the fee pool, which is probably the larger one, see. It depends a lot on the length of the lockdown, no? So, so far, our recurring banking fees are running see those days more or less 15% below the pace before the lockdown.
You can do your own assumptions. E payments, obviously, are more affected, but in recent weeks, improving slightly. So see here, you can make your own assumptions, but probably it is going to be difficult to A negative number, not sure. But very much will depend on the length see the breakdown on the evolution of markets in this front. I think that, Stephane, I am not missing any of your questions.
Speak. Thank you. Thank you so
much, Gonzalo. Thank you, Javier. Take care.
Thank you. Your next question comes from the line of Mario Ropero from Fidentiis. Please ask your question. Your line is open.
Hi, good afternoon to everyone. The first question is, can you comment how much unwinding, if any, Chacono Ronaldo in the quarter. P and L market impact, which you referred to, but also on the combined ratio evolution. See. And if I may, if you could give us an update on revolving cards, the total size, also the book size with average give you the above 20% and legal provisions made so far.
Thank you very much.
If I may just give a color on the second one in terms of Adeslas. See. It's been stable in terms of, obviously, higher claims from COVID related systems, see. But lower claims from other kind of diseases. So the main impact on Adeslas has been, as I said, The financial part, Javier, if you want to respond the others.
Absolutely. Mario, on the see the impacts we are seeing in April so far in capital. While the main one from markets see some Telefonica. I would say that on this front, no major changes. You can follow perfectly the share price.
On the other hand, we are having a slight widening of sovereign spreads see during the month. This is marginally affecting negatively, although see. Obviously, a large part of the portfolio and you have all the data is accounted, let's say, hold to maturity. And then we have indirectly in capital in trading or related to market see the CVA valuation, which is, in this case, is being positive in the quarter. As see.
In this front, we are seeing a tightening of credit spreads, and we are recovering a little bit on this front. So, so far, see. No major changes, I would say, quarter to date. And you had a question On revolving credit cards, well, we have a portfolio see on this front of slightly above €2,000,000,000 if you consider also see those delayed payments or payment delay or part of the portfolio, not only revolving. And on average, the portfolio is around 20%.
So obviously, there are some parts that may be higher. But in general, we are not much worried about the litigation we may have on this portfolio. Thus, we have not provided any specific speak for it. So time will tell. Unfortunately, the threshold for determining if see.
Our rate is ROCE for note is a little bit gray. We assume that below more or less 22%, 23%, say we are safe. Thus, we expect that we are the majority of our portfolio lands in this space. So we are safe.
Thank you. And your next question comes from the line of Andrea Filtri from Mediobanca. Please ask your question. Your line is open.
Yes. Thank you for taking my questions. I have 1 on capital and one clarification on provisions. On capital, you have mentioned some of the regulatory changes. I just understand in bulk what would be the overall value of the regulatory easing that is being approved.
And if you still have any regulatory headwind spending for 2020 and where do you see risk weighted assets go this year see. Given the different dynamics in individual lending and in corporate. And the second, a clarification on provisions. You mentioned before, I'm not sure I understood fully. Is the upper end of your 60 to 90 basis points guidance see the equivalent of your worst case scenario in GDP of Page 9 of the presentation before the government measures and 60 basis
Andre, in terms of the projections we have, the incorporated government measures, both on the 90 basis points is closer to the adverse and the 60 basis points is closer to the base case. See. That's the reality. But in all cases, we are including the current measures that have been announced. See what we're saying is the adverse scenario would mean that from now on, there would be policy mistakes, most likely, see in order to get to such a bad outcome.
That's what we're trying to say. In any case, this is not an exact summarize at this stage. As you can imagine, there can be infinite number of scenarios. And what we are trying is to model 2 reasonable cases, one for a base case, another one for that adverse case. Then Javier, do you want to comment on capital?
Yes. You had a question on pending regulatory impacts. Well, you know that Before the crisis started, we were waiting for the final letter for the TRIM exercise for the see. Now everything has stopped at least for 6 months. Right now, it's difficult for us to assess see if this will come in 2020 or not.
My personal feeling is that and see a little bit here from the mood from DCB is probably that everything will be delayed to 2021. But this is
Thank you. And your next question comes from the line of Maxime Mechen from JV Capital Markets.
Speak. I have 2. The first one is on your ALCO strategy. You have increased the size of the portfolio significantly in the Q1, and I was wondering what's What's your plan for the future? Do you plan to use TLTRO operations to further boost your ALCO portfolio?
And the second question is on state guaranteed loans. I was wondering if you could give us some color of what Are the profitability levels that you expect to generate on these loans or at least how this compare to normal corporate loans with no state guarantee? Thank you.
On the second one, I would say the pricing is in line speak with the risk that we're taking. And the risk that we're taking on the one hand is increased because of the current scenario, but on the other hand is decreased because of the government guaranteed. Pricing is around 1.5% for businesses see. And up to 2.5% for self employed. Those are the I would expect here that we are making Javier, you can address the other one.
On the ALCO, yes, we have taken the opportunity of this Widening of sovereign spreads to add to the portfolio. We felt that the size of our portfolio was say comparatively smaller to many of our peers, and we saw this as an opportunity Going forward, as we are planning to make large use of TLTR Road 3 facilities, we may depending on market circumstances, But we feel that we still have some room to expand the portfolio, mainly
Thank you. And your next question comes from the line of Fernando Hill from Barclays. Please ask your question. Your line is open.
Hi. Thank you for taking my question. Just a question on asset allocation on the Aiko location lines. I mean, what is the criteria that you're following on giving these lines to clients? Is this the same criteria in National Locust in terms of sector size as a normal portfolio?
Or are you following any other criteria that I might be Lucie, thank you very much.
Thank you, Fernando. The reality is that On these cycle lines, we have been reactive. So clients have liquidity needs see if there are any concerns that they may have, the needs in the future and they come to the bank and ask for the money. So what we've been doing is reactive, analyzing these requests. Fortunately, in most of the cases, They have come from clients that were in good shape before this crisis.
And hence, they have been scrutinize according to our risk criteria and then priced and processed and in some cases already see. This was in another, we are waiting for an increase in the guarantee, but it's been a reflection of our current client base and a reflection of which start with our client base now feels that they need the cash. There's been no pre conceive the strategy of which sectors are we going to target with these eco loans. This is rescuing the economy. Speak.
I think it's the right tool to rescue the economy. It's been used in most countries. And what we've done is, I think, put some proper risk take analysis. But obviously, with the guarantee from Tramico was something that we could actually get done. I don't think rescuing the society or the economy and Making appropriate sort of risk return decisions were contradictory, but clearly, it's see quite the opposite, Alain, but it's not been a proactive decision for us to target certain sectors.
But the reality is our ability to handle the turn on the request and separate those that made sense from those that didn't.
A follow-up, if I may. Do you think that the EUR 100,000,000,000 program Is enough or would be needed probably an additional top up on that program?
As of now, I think it's enough. I think the split between the larger businesses and the smaller businesses is wrong, and the split has to be speak more towards the smaller part of the business, but the overall EUR 100,000,000,000 at this stage, I think, is going to be enough. However, see. We'll have to see how the economy evolves in the future, but this rescue operation, I think, is appropriate. Probably, policy see.
Going forward, should be rather than just providing cash to keep people alive, it is providing incentives to make sure that the activity returns see some of the people are have the support to go back to this new normality. And also there will be, I'm sure, new initiatives and new thinking. There would be new lines also from obviously from European Investment Bank and other initiatives that need to come to Europe for rebuilding. See. And that is, I think, a separate theme from rescuing for which, at this stage, my personal feeling, I can get it wrong, obviously, say the €100,000,000,000 is okay.
The split will be changed so that it's like we accommodate demand in a more proper manner.
Thank you very much. You're welcome.
Thank you. And your next question comes from the line of speak. Jose Abad from Goldman Sachs.
I think most of my questions have been answered. So thank you, Mans, for staying so long. And just one very quick on specific on the STV that you set up with the loan That was actually in June 2018, so I think you kept a 20% stake there. I don't know whether you have you participated in any other STVs, maybe on a lower scale. So have you incorporated potential losses from these vehicles or vehicles in your 60 to 90 basis points?
And how do What is the losses from this vehicle's actual flow to your P and L? Is this through the other income and losses line? Or is the K losses line?
The 60 to 90 basis points is our guidance for cost of risk see. And losses that may come from other participation that we have are not included, no? And those see what comes from equity method accounting or other gains and losses. But obviously, at this stage where we see The problem or the bulk of the problem is in credit losses and hence that 60 to 90 basis points there.
Thank you.
Thank you. And your next Question comes from the line of Ignacio Cerezo from UBS. Please ask your question. Your line is open.
Yes. Hi, good afternoon. Thank you for the presentation. 2, 3 quick questions for me, hopefully. Sorry to come back to the cost of risk guidance, but if you can qualitatively tell us see all the mitigation factors coming from loan guarantees and monetarias, which is the one that has actually reduced the cost of risk guidance the most.
See. Any number on that will be useful. The second one is on the noncore revenue. Both equity accounted and trading, in particular, are declining quite heavily year on year. I mean, how much can you tell us on Equita Content, you have a payment company, you have a health insurance company.
I mean, how do you think actually we have to think about that line? And the third one is on the cost per risk in Portugal. We have seen write backs in the last couple of years. How does that reconcile with COVID and the start with COVID and the change obviously in the credit environment.
Javier, maybe you can take this one if you don't mind.
Speak. Thank you, Ignacio. On the I will start by the from the end with this question on import oil. We still have 144,000,000. Please, Eddie, correct me, but I think this is the figure.
See PPA remaining in Portugal. Obviously, there is a very strong performance of this portfolio. The portfolio is affected in Portugal. And even taking into account the COVID, we have been able to reduce see. 45.
So I think that everything has been taken into account. Without the PPA in Portugal, On an individual basis, cost of risk, obviously, would have a negative impact see this quarter, if I remember where it's around €30,000,000 So those are the numbers. In equity accounted, well, see here you have SEVER GACHA. Other than those market impacts we have start this quarter. I would say that should be more or less business as usual.
So we don't think that see. As long as the lockdown is not that long, the profits from sugarcassar vessels will be that affected. And then the main impact here comes from Esteban that as of today is presenting results. Probably, you can reach your own conclusions Clearly on this front, but obviously, Esteban is going to have lower net income this year And as a consequence, being affected. And as for the impact of moratoria and State warranty lines.
Well, the impact is significant, I guess, because it's an important package And providing liquidity with Moratoria to households and providing liquidity with those warranted credit lines and our on balance sheet because as you could see, close to €15,000,000,000 have been originated from our own balance sheet since the crisis or at least since it started heavily. So I think that The main assumption here is that as okay, the GDP corrects very sharp. Hopefully, we are not going to have a second wave in 6 or 1 year time. So this is clearly an assumption. Otherwise, GDP would not rebound according to our base case.
And by providing liquidity to households and I'm mainly self employed and Sammis. This obviously will cushion, as I commented, the impact of this situation see on the creditworthiness. Obviously, this will not be 100%. This some of those see. Borrowers will face a significant increase of credit risk.
And as a consequence, we will need to set aside see provisions for this. Some of them will end migrating from a Stage 1 to Stage 2. And obviously, this will result into Lifetime credit losses, so or lifetime provision, sorry. So this is see why we are estimating a credit risk that is, let's say, a cost of risk that is higher see during next quarters because otherwise, we would have been to make all the loan loss provisions upfront as of today. So this is the situation.
We will be able to assess this as we progress see in next quarters. And other than this kind of top down approach, that is what we have done see during the last few weeks, a more granular analysis on how the situation evolves and to what extent those moratoria and, see, liquidity lines work, which is what we expect. But obviously, we will need to assess this in the future. But according to This is, let's say, the upper bound of our projections already takes into account those factors. Thank you, Ignacio.
Thank you.
Thank you. And your next question comes from the line
I've got 2 quick questions, please. One follow-up on the cost. To what extent do you think the 2020 measures will be temporary relief, such as delaying investments, for example, To what extent are these top ups sustainable cost cuts? And then a second question, just on framing the provisions and getting your impression, We've seen some pretty unprecedented regulatory forbearance that has come extremely quickly when banks are when a bank like you got to 60 to 90 basis points of provision. Is there anything that we should be aware of that we don't know?
Or how can you square this? Thank you.
Thank you, Britta. No, we do not see anything different than what you see. We have see, obviously, on our models, but they depend so much on external events to us. And we are being prudent, There's no hidden corpse, if that is part of the question. And as always, we'd like to deal with problems sooner rather than later.
We all remember that, that was not exactly what happened in the last crisis generally in Europe and particularly in Spain, and we are not going to be going in that direction. Show that's why we are being upfront, and we'll continue to do so in the future. With respect to the cost see the evolution. Obviously, there's a lot of things happening here. We are having an increasing cost associated to fighting see the pandemic in terms of changes to the way we operate, protecting the health of our employees, providing them with stop it, sanitary measures, etcetera.
Those will disappear, but there are other some other savings that are associated the fact that we're in a lockdown and hence, traveling, etcetera, all the things are coming down. And as results will likely suffer this year, You already have seen that we're going to take a prudent approach to compensation as the management committee has already announce that we'll be not accepting a bonus this year, including myself. See. That is obviously just one off, various things that move. Moving into the future and what is stable we have, see.
This is all going to or this is going to force all of us to rethink the way we do business, and I'm sure that there's going to be a decrease in Travel expenditure that be a part of that decrease that will become permanent as we go more towards our digital communication tools see clearly. And there are many other initiatives that we have been working on already speak for 2021 and that we are bringing forward and deepening for that purpose. At this stage, what we are clear is that for 2020, we are going to be able to contain cost growth. But obviously, our ambition goes beyond that pure containment for this year, but particularly goes speak to 2021 and onwards to reduce cost growth. I think We have an environment which is going to allow us to reach agreements that make more sense.
And I am now thinking about discussion of our collective bargaining agreement. See and hence, we think that we will be able to adapt and reduce our cost base, not just for one given year because there's lower activity, but going on that we will have a positive impact there. We're working on it. Obviously, There's a limited amount of things we can achieve in these 7 weeks, and you've seen that we've been super busy. But clearly, we're not just thinking about deal with these 7 weeks or the next quarter, but dealing with the long term.
And there's a lot of things that we can do and that they are the right thing
to do for our shareholders.
Perfect. Your last question comes from the line of Marta Sanchez Romero from Bank of America Merrill
speak. Three quick questions. The first one, a clarification on the PPI PPA, sorry, and cost of risk. Does your 60 to 90 bps guidance include the full release of the of those €134,000,000 The second one is on your IRPH and your revolving credit book. Have you been re pricing those books?
In that case, could you share volumes and the impact it may have already had on NII or may have What's your general approach towards these two books? Are you willing to reduce litigation risk by changing prices And speaking to those contracts? And lastly, the thinking about see. Potential positive one offs that may come through in following quarters. The first one is we've seen CVA impacts on your trading line.
Do you expect that negative effect to unwind in future quarters? And if you could quantify That impact on your trading line. And the second one is, I understand that your 10 year agreement with ADESLARS comes to an end this year. What is your expectation for the final
Javier, do you want to well, let me just say one thing on second question and then pass it on to Javier. On IRPH, we're not renegotiating contracts. We think the contracts are transparent generally, and There's no change to be expected associated to that. In the case of revolving cars, we have adjusted our pricing policy downwards. See.
And obviously, our views of this year include the impact of that. That is going to reduce see litigation risk going forward. And obviously, on the PPA, well, Javier, you know the details better than I do. So me please go ahead.
Martha, well, the PPA see. The release follows its own rules. It's designated to a specific portfolio. See. And obviously, this is, let's say, business as usual in terms of deciding whether or not and what see the release and obviously, depending on the evolution of the underlying assets, we will proceed.
But While giving you the overall figure, all those effects are included. On Trading, yes, we had this impact. As long as the spreads keep, let's say, tighter, We will have positive news on this front. Other than this, trading on the fixed income portfolio, It's a year where we'll rather defend NII see. Instead of looking for trading profits, but obviously, as we assume that we will see the volatility in coming quarters and during the year.
Maybe we have the chance speak to the Q1 of 2020 to have some trading profits. But it's generally speaking, it's not a year theoretically where we are looking for Making very large trading profits. Well, and you had a question on Adeslas. I think that this is referring see to the earn out of Adeslas. This is the last year where we will face a positive potential positive impact from this side.
Going forward, This will be the last year. No, I think that I understood well your question.
Yes, it was just if you had an expectation of the quantity of that positive.
Not yet, unfortunately, Martha. Not yet.
Okay. Thank you very much. That's all we have time for today. We'll reconvene for Q2, hopefully, in better circumstances. And in the meantime, let me wish you all good health.
Speak.
Thank you very much and good help.