Hello. Good morning, and welcome to CaixaBank's results presentation for the second quarter of 2018. Presenting today is our CEO, Gonzalo Gortázar, and our CFO, Javier Pano. Please note that figures for the quarter are now fully comparable, both quarter-on-quarter and year-on-year. Just a brief reminder of the format, for our first-time viewers, we plan to spend around 30 minutes presenting, with 45 minutes available after that for live Q&A, for which you should have received instructions on the screen. Let me hand it over to our CEO, Mr. Gortázar.
Thank you, Eddie. Thank you very much, good morning, everybody. Thank you for taking the time to be with us. I will start with, as always, highlights for the quarter. You've seen the figures. I would say, results are very satisfactory. We actually reached the double-digit return on tangible equity for the first time. We reached it, as you can see, with significant growth both year-on-year and quarter-on-quarter from our core revenues, be it NII, fees, other insurance revenues. Net income is up year-on-year 36.1%. Volumes, very strong quarter, as you will see in some detail later on. Across the board, I would say both on the asset side and the liability side, it's been a very good quarter. Second quarter is usually seasonally positive. This one has been particularly positive, I would say. Asset quality.
The highlights were, no doubt, the agreement to sell our real estate business to Lone Star. As you can see, the reduction in NPL ratio has been very significant in the quarter and year to date, standing now at 5.3%, which is also very encouraging. The cost of risk is lower than what we had been forecasting for the year so far. The liquidity and solvency remain strong. Obviously, on the solvency side, we are at 11.4, which is down from the first quarter due to mark-to-market, as Javier will elaborate later. Pro forma for the real estate sales, actually, we're back at 11.7, and in a very comfortable position. Starting giving you some color on commercial activity. I think the chart is quite telling. Second quarter is always very strong. You can see that 2018 is particularly strong.
Almost EUR 15 billion of new Actually, we have a problem now with the presentation. It's now back, no problem. Anyhow, EUR 14.7 billion of additional customer funds gathered in the quarter. As you can see, heavily weighted towards on-balance sheet, particularly side deposits. Also, I think, quite relevant, EUR 3.3 billion of additional funds in insurance and AUM, despite the, I would say, volatility in the markets, is a good indicator certainly of the strength of the franchise. It's, as you can see, as strong or stronger than ever. Some details on deposits on savings products. You can see net inflows on the savings products, EUR 3.9 billion in the first half of the year, up 5% from last year. A very strong quarter and semester in terms of life risk, with 26% growth and EUR 611 million in premium.
A continuation of the sort of pluriannual growth trend that we have in non-life insurance, where we have grown by 6% our premiums and reached a 28.5% market share in health insurance. I would say trends that we have been seeing for actually a good number of years continue during the quarter and the semester. On the lending side, I would say a very positive quarter. You see the highlights for performing loans, growth of 1.6% both year-to-date and quarter-on-quarter. As you remember, we tend to adjust these for seasonal impacts, particularly approximately EUR 1.6 billion of lending to individuals associated to payments and advances of pensions at the end of the quarter, which just last a few days. Once we take away that impact, we still see some growth around 1%, just south of 1%, in the quarter and year-to-date.
If we look at segments, I would say a pretty positive figure as well. Mortgages will obviously continue to come down. Quarter on quarter, you can see that the second quarter has been very positive relative to other quarters. Second quarter, again, seasonally is strong. You can see how the third and fourth quarter of last year were actually more negative than the second quarter. We cannot expect a continuation of this trend line between the fourth quarter of last year and the second quarter of 2018. Clearly, what we see is a much better environment now also on the mortgage side. It's early to tell. It's one quarter. It's building on an improvement in the first quarter, and hence, we'll have to watch closely how the market continues to perform on this front.
Besides mortgages, strong growth on consumer lending, 5% in the quarter, similar level in the first quarter. Year-to-date is 10.6%. We grew businesses after a sort of weaker first quarter. Second quarter has been much stronger, and public sector has been flat in the quarter after a very strong first quarter. All in all, loan growth is certainly experiencing good trends across the board. I would say it's fairly early days, and we still want to remain cautious. Certainly, figures from the second quarter are encouraging on this front. New production continues to grow, whether it's consumer lending, residential mortgages, or businesses. In the case of businesses, we had a very strong first half last year, and we've actually managed to slightly grow from that level, which is pretty good after a weaker first quarter.
I would say the strategy we follow in this segment is working nicely. On the consumer lending, again, very strong growth over very strong growth, as you can see these three years. We still feel that the dynamics are positive. We are managing well the risk in this area. We continue to invest in the business with new commercial agreements with vendors. Javier, our CFO, will show that in the short term, it's actually costly to the P&L, but it is very important to ensure mid and long-term growth, which we expect to have in this area. I discussed the good trends in residential mortgages, so I will not extend myself on that one.
In terms of transformation of the business, we announced a few weeks ago the reorganization of a very large area, Global Customer Experience, which including people that work with us, affects over 1,200 people into a new team, which is basically aiming at being faster in the way we bring new developments to clients. We respond to their needs, working in a more agile way from that form, ensuring that we actually maintain our long-term leadership in this area. Certainly very much having our people focused on clients. The new organization is based around client experiences. Obviously, we expect that will result in even better outcomes. We had recently a recognition from Euromoney as the best digital bank in Western Europe, which pleases us. But obviously, we are going to continue to invest heavily in this area.
We have among the largest banks in Spain, the highest level of digital clients, the highest level of digital penetration. Internally, we have transformed already the bank in terms of all our employees operating with the smart PCs, all our processes being digital and our physical branches being more and levered on technology as per our new store branches, which already give service to 15% of our clients and even a higher proportion of our business volume. We have reached agreements with Fintechs and other companies to offer services to our clients. We had a few examples there, and we certainly continue to invest for the future and explore new areas of activity. On the mobile side, we actually have a very large lead in the Spanish market.
We had 10 million mobile payments in the first half of the year, over 2.2 million just in June, and continue to actually lead the payment market in Spain, and expect to continue doing so in the future. Moving on to financial results. Obviously, the highlight is the strong increase in year-on-year profits. The most important factor behind those, or the one that I would like at least to highlight, is that our core revenues are supporting this trend. NII fees and insurance grow, whether it is quarter-on-quarter, year-on-year in a good pace. We have on top of that some seasonal positive impacts from non-core revenues in terms of the dividend from Telefónica and the income from associates.
We also had this quarter to offset that, the resolution fund charge and the EUR 204 million of loss that we have recorded for the repurchase of Servihabitat, which was a necessary action in order to sell the real estate business. So a very strong growth in net income, but at the same time, not dependent on seasonal impacts, but on recurrent core revenues. The return on tangible equity reaching finally the double-digit figure. Looking at it by segments, I think the picture also looks nice. Bank insurance with very strong growth, 12% now return on tangible equity, of which approximately half comes from non-pure banking business, and being insurance and asset management, the most relevant one, but also payments and the point-of-sale consumer finance being helpful there. On the non-core real estate, we have a negative result due to the Servihabitat acquisition.
As I mentioned, if we exclude that one-off, the losses were actually 33% lower than last year. So, good trends. Investments up 20%. BPI presented its results on Tuesday with very solid numbers, as we will discuss later on. In fact, you have some detail here on BPI. The numbers are obviously public. I think to highlight the strong commercial trends, the growth in mortgage lending, and then particularly in consumer and in business lending, very strong growth in Portugal, gaining market share. Also on the client deposit side, 7.5%. The bank reaching already a 9% return on tangible equity, in Portugal. Obviously, this is excluding the investments in the African business, particularly in Angola. We are in the process of acquiring 100% of BPI.
We have bought the stake from Allianz. We are now actually moving ahead in the process of delisting and then squeezing out minorities, which we are looking to finalize before year-end, but we obviously depend on the timing from supervisors. We also announced our reorganization, or BPI announced the reorganization of their alliance with Allianz in Portugal and the future alliance they will have with BPI Vida e Pensões for the life risk business. I would say BPI is moving very nicely, and I would say ahead of what we expected, both in terms of commercial success and in terms of financial results. Javier, maybe now it's your turn. Thank you.
Thank you, Gonzalo. Well, good morning to all of you. As usual, I will continue making some brief comments on different lines of the P&L. Then the balance sheet. Starting as always with net interest income, where we have had a strong quarter. It is up by 2.3%. There are a number of different factors supporting net interest income. Client yields, first, mainly due, in this case, to the early redemption of expensive retail subordinated bond. Also, we have had larger asset volumes this quarter. As commented, loan growth is doing better probably than expected on that front. On wholesale activities, I would mention also lower average funding costs and also a slightly larger ALCO portfolio.
On top of this, very good performance coming from Portugal, with BPI that has a loan book that is growing at 4% year-to-date. That is also supporting on that front. All in all, we reconfirm our guidance on NII. We think that we may be at the upper bound of that 2%-3% we guided at one quarter ago. Looking into further details on time deposits, we see that in EUR, we are rolling those almost at zero. When looking to the back book yield, we have to consider that this includes our foreign exchange deposits. As U.S. dollar yields are going up, this has an impact on our back book yield. Otherwise, this back book yield would be almost flat. On the loan book this quarter, we have very strong production. More than EUR 10 billion of new production of loans.
Of those, one-third coming from CIB, from corporate banking. Thus, you may see that the front book yield comes down to 262 basis points, but this is due mainly to this mix effect. While looking to different segments on a like-for-like basis, I would say that performance is in line with recent quarters. The back book yield stands at 231 basis points after a sharp step-up when we introduced the impact of IFRS 9 in the first quarter of last year. This back book yield is set to gradually trend upwards as negative NII resets keep fading. As commented, loan volume's slightly up during the quarter. Turning to our wholesale activities, funding costs that do have an uptick to 122 basis points on our wholesale funding. This is mainly due to a new issue of a wholesale subordinated bond during the quarter.
On average, those costs have been lower than the previous quarter. On the ALCO portfolio, on the structural portfolio, we have taken profits on some long-term Spanish bond swaps into floating earlier in the quarter, crystallizing some trading profits, around EUR 66 million of trading profits from this. Well, as a result of this, you may see that the average life of the portfolio comes down, but the average duration, as those bonds were swapped, come slightly up. The yield is mostly unchanged. On the liquidity management portfolio, we have taken advantage of some market volatility at some point to try to drain our excess cash reserves, parked at ECB, making some investments into short-term bonds. All in all, stability while you analyze the portfolio globally. As a result of all this, both customer spread and net interest margin remain broadly stable, just down by one basis point.
As I commented before, we expect that this will gradually trend upwards in coming quarters as the NII resets fade. Now we turn to fees, where we have had a strong quarter, really. Fees up by 6.7%, even over-performing the second quarter of last year. I would say that the second quarter is always a strong one, but in this second quarter, we have had a strong contribution on banking fees from CIB during the quarter. Also, recurring banking fees have done really well during the second quarter. Year-on-year, you have the impact, as was commenting previously, the CEO, of the impact of investments in consumer lending distribution agreements. Otherwise, those recurring banking fees would have been almost stable. On mutual funds, where we have had around 2 billion of inflows, continues to do well despite market volatility. Non-life insurance, it's an engine for growth.
On pension plans, you have a slight negative impact, but this is because, as you know well, a new cap on fees was introduced from mid-April. In BPI, you have a slight impact because there is the transfer of some business, the asset management business of BPI, to CaixaBank Asset Management. With all this, what we call our long-term savings business continues to do well with revenues from our insurance and asset management business up by close to 10% year-on-year. Now, those revenues represent 25% of our banc assurance revenues, up by 3 percentage points from a year ago. As in recent quarters, we disclose details on the P&L account of our insurance company. As you may see, the improvement is across the board, the different lines, and reflecting solid activity trends. I turn to costs.
Costs grow as we continue to support the business. You see that quarter-over-quarter, costs go up by 0.5%, personal costs almost flat. We have EUR 5 million more of cost on general expenses and amortizations. Well, on costs, you know that we are always looking for business opportunities, looking for wider jaws in the future. This is the way we are planning to run the business for the future. As you may see, in past years, we have been able to deliver on that front, and we think that we will continue to do so. Summarizing all this, I would say that core revenue is doing well, up by 10% at group level, at 4% at CaixaBank. We think that we are fully on track to reach our guidance. Remember, we guided for our core revenues to grow around 4% for this year.
Our core operating income also doing pretty well. Some comments now on loan loss provisions that have clear reduction this quarter. On an annualized basis, our cost of risk has been 18 basis points this second quarter. On a 12-month trailing basis, 24 basis points. Clearly, well ahead of our guidance. Remember, we guided for cost of risk to be below 30 basis points for the year. A look at our real estate activities. It has been a really strong second quarter. The second quarter is always seasonally strong, but this time even more. We have sold EUR 611 million of real estate. On top of this, we have sold a portfolio to Testa of rented real estate assets. Thus, you may see that sharp increase. Capital gains on disposals continue to do well, 17% over the cost price.
While looking to our gains and losses on asset disposals, if it not were for the before mentioned fair value adjustment on the Servihabitat servicer, we would have been flat. Now, a few comments on the balance sheet. First, with our non-performing loan exposures that clearly are trending down this quarter, down by EUR 1 billion, maintaining more or less the same coverage. Actually, it is up by one percentage point. This reduction is clearly consistent with a clear inflow reduction. On top of this, you know that year to date, we have sold EUR 470 million of non-performing loans. As a result of all this, we make a strong push downwards to our non-performing loan ratio down to 5.3% and set to trend downwards in coming quarters. On NPAs, a comment on our Recent agreement with Lone Star.
As you know well, we have reached an agreement to dispose to a new company, all our available-for-sale real estate assets as of October last year, together with some other real estate assets, plus 100% of Servihabitat. As I said, to sell all those assets to a new company that will be held 80% by two Lone Star funds and 20% by CaixaBank. The initial valuation of all those assets is EUR 7 billion, but this figure will be adjusted according to disposals from October last year to the closing of this transaction, that is expected to be or late this year or early next year. As commented, this transaction is expected to be P&L neutral and to have a positive impact on our fully loaded CET1 ratio of around 30 basis points.
On top of this, we are estimating cumulative cost savings for the three-year period from 2019 to 2021 of around EUR 550 million. As commented before, organically, our real estate exposure is already being reduced by the close of the second quarter, standing at EUR 5.6 billion. On a pro forma basis, while including the real estate transaction with Lone Star, our real estate exposure available for sale, real estate assets would be only EUR 500 million now. On liquidity, a few comments. Record liquidity levels, EUR 80 billion of liquid assets. At CaixaBank level, EUR 71 billion. A liquidity coverage ratio that is well above 200%. We have been active in wholesale markets, issuing different instruments. We are done with AT1s and Tier 2s. Going forward, probably we'll tap senior non-preferred as we build our MREL requirements.
Finally, on capital, we have many one-offs this quarter, but the big picture is that the pro forma figure for our CET1 fully loaded ratio after the real estate transaction is 11.7%. We have 14 basis points of organic capital generation during the quarter. We have 23 negative basis points due to the transactions on BPI, the minorities that we are purchasing, and also the Servihabitat acquisition. We have value adjustments for nine basis points, mainly due to the poor performance of Telefónica in the stock market. As commented, that would lead to 11.4%, as commented, 30 basis points more coming from the real estate business sale, up to 11.7%. It's a quarter where we also issued a wholesale subordinated bond, as commented, we early called a retail subordinated bond also.
Our total capital is standing at 15.7% on a fully loaded basis. To wrap up, some final remarks from my side. We feel that we continue to move with confidence towards our strategic targets, mainly on profitability with an RoTE already within our long-term range. Our long-term target between nine and 11, now standing at 10.4. This is thanks to a continued improvement in our core operating income, also this year, a sharp reduction on our cost of risk. All this based on volume growth and stable customer spreads. I would remark also what we consider a landmark transaction on our real estate disposal that drastically reduces our NPA exposure, all this together with strong liquidity and solvency metrics just commented. Before ending, please save the date. All of you are invited to our incoming investor day to be held in London, November the 27th.
I think that with this, we may be ready to take questions. Thank you very much.
Okay. Thanks, Javier. Operator, can you please proceed with the first question, including the name and the company of the caller?
Your first question comes from the line of Carlos Cobo of Société Générale. Please ask your question.
Hello. Good morning. Thank you very much for the presentation. A quick comment on Portugal, if I may, and your thoughts around the market there. It looks interesting there with similar private sector leverage levels and high indebted sovereign. You are managing to get some more traction in lending volumes than in Spain, it's also something at system level. Why do you see that more positive or easier to lend in Portugal? Is it because peers there are in weaker shape, or what are your view there? Secondly, I guess that you'll address that in the investor day. Regarding your 9%-11% RoTE target, I would like to confirm that Your latest number, and if you feel confident towards the high end of that range towards the end, due to lower cost of risk below your guidance on stronger volumes and BPI. Thank you.
Thank you, Carlos. If I may comment, obviously, the numbers for Portugal are very promising. It's very good. The market is certainly experiencing a rebound there. What we have is a bank like BPI that now has all the enablers to grow. It has a very good, comfortable capital position, liquidity position, stability around it. That has not been necessarily the case in the past. What is being able now, BPI, is to play with all its strength in the Portuguese market. I am convinced, having followed the Portuguese market for over 25 years, it is the best bank in Portugal. I hope that the numbers here are the beginning of a very positive road in which the bank will gain market share because it has an edge and now has all the necessary tailwinds to capture that rebound in Portugal.
Obviously, the difference with CaixaBank, those are different markets, and CaixaBank has not had that process and has been trying at its full strength to capture the opportunity for now many years. I think BPI has untapped potential, and they are showing it very, very quickly. We continue to build on the future capabilities that BPI will have above and beyond the ones that they have already. Hence, we are optimistic of that long-term trajectory for BPI. With respect to guidance on the strategic plan 9-11, at this stage, we're maintaining that guidance, 9-11, and I think it's premature to be more specific than that. This is the guidance we gave some years ago. We're obviously very well positioned to be comfortable in that range.
Okay. Sorry, where do you see BPI as a proportion of the whole group contribution normalizing over the next one or two years?
Well, I would like to say, and certainly my expectation for BPI is that they compete with CaixaBank in Spain to show a higher level of return on tangible equity. As you know, BPI is approximately 10%, 11% of the group. I would like to make sure that over time, they actually contribute that proportion of profitability or more.
Okay. Thank you.
Thank you, Carlos. Can we move on to the next question, please?
Your next question comes from the line of Alvaro Serrano of Morgan Stanley. Please ask your question.
Hi. Good morning. Can you hear me? There's a bit of background noise, but hopefully you can hear me.
We can.
The first question is on the general environment. You've obviously had a very strong quarter in fees, in particular in banking. The market activity or the market environment has deteriorated during the quarter. It's difficult to expect higher rates anytime soon, probably not this year or next. Can you maybe give us some color on revenue growth expectations, and is that recovery in loan growth that you're pointing out enough to grow revenues? Just a general comment on activity and ability to grow revenues in the new environment. The second question is around costs. You've obviously sold the portfolio, the entire basically non-core to Lone Star. You've given EUR 550 million cost savings, but my understanding that's related to the direct cost of taxes to the real estate. There's about EUR 120 million operating costs in that real estate division.
Is there real ability to cut that down? When we look forward, what should we be looking forward to in terms of cost growth or cost reduction in the business? The reason why I'm asking is because you're now a relatively clean bank. Should we be expecting more restructuring costs to get the cost base down? Is that not going to happen? Just a general commentary on costs. Thank you.
Thank you very much, Alvaro. If I may, I'm sure Javier will be able to complement some of these topics. In terms of trends and revenue, we obviously had a very strong quarter, satisfied with the quarter. A quarter doesn't make a year and doesn't make a trend. As always, we want to be cautious. Certainly, we have given some guidance for core revenues growth for 2018. We are comfortably reconfirming that guidance. We expect that growth of core revenues 4% to be something that we can meet. The reality, as you say, the year is not easy in terms of the environment. We continue to think that our model is a model that provides with higher potential in terms of capturing market share and more revenues than our competitors.
Continue to invest and plan for the future on that basis, that we can grow faster than the market. Certainly for this year, what some issues at the beginning, I would say the market circumstances are making it a bit more difficult, our results are showing that even if it's more difficult, we can actually get there. In terms of lending activity, you saw, I think the segment that is most promising based on the second quarter figures is certainly the residential mortgage area, it's just one quarter. We know and we've seen in this crisis that at some point in time we had very strong quarters and they didn't necessarily create a trend. We'll have to see how things develop on that front. On the real estate, obviously, we disclose what our savings should be, EUR 550 million.
As you saw a few weeks ago when we published, whether they are recorded in one line or another of the income statement, this is a very significant amount of savings going forward. In terms of how we manage the cost base, we will have an investor day, as Javier mentioned at the end of the presentation, giving some details of what we plan to do in the next three years. We are actively working on that. Certainly, managing the cost base is one of the most important tasks that management has these days and always. Hence, we're going to need some time until we can provide you with some more details. Generally, what I would say is we're going to continue to be obsessed with being efficient in what we do.
This obsession of being efficient in what we do, which should result in cost savings, at the same time needs to live with inflation expectations on salaries, which certainly are going to be present for all our competitors. Our whole company, certainly in Spain, as the economy has been on a run, positive path for four years, 3% growth. Clearly, society expects salaries to grow certainly in nominal terms, but also possibly in real terms. This is going to be a fact which we cannot avoid. It should be positive, on the other hand, general salary increases for our business. When we look at the cost base of others, they are our clients as well.
We'll continue to make efficiencies, but that will need to live also with the investments we are making, we have been making and will continue to be making in making sure that we continue to build a positive delta when we speak about revenues versus our competitors. Anyhow, how does all this add up is something that we are working on and we will certainly be in a position to give some detail or a good level of detail when we present our three-year plan where we expect cost inflation, but cost inflation based on cost reduction, on running the bank to fund cost increase in changing and growing the bank. I think those are the general lines. The more detailed view will obviously be updated on that investor day in November.
When we look at the bank, it is relatively clean from a sort of one-off top-ups and things like that. Should we expect restructuring costs as here to stay as you try to be more efficient while you invest in other areas?
Again, the details we will certainly provide in due course, but while this year we have not, if we're talking about restructuring costs associated to people, and you look at our history, we have had a number of instances in which we have done specific actions, early retirements and others, in order to reduce costs. I think if you think of us longer term, you could expect that we will find opportunities to do so again. It's early to speculate on exactly what and when. We will certainly not rule out further actions. Certainly, don't expect them this year, but over the long term, this is something that is part of the management of our business.
Thank you.
Okay, thanks, Alvaro. Can we move on to the next one, please, operator?
Your next question comes from the line of José Abad of Goldman Sachs. Please ask your question.
Hello, good afternoon. Thank you very much for the presentation. I have two questions. The first one is a follow-up from a previous question, in particular on loan growth. I guess we can conclude that this is one of the key takeaways from this results season, that the loan growth seems to be back. I was wondering whether you could actually provide us some visibility of what is actually driving growth in this quarter. Is it actually a bit of seasonality? Is it a change in pricing policies by yourself and competitors, given that we also see some compression in front book deals, or it is actually genuine demand? Based on this, whether you could give us some visibility or whether you could share with us your expectations with regard to loan growth for the second half of the year. My second question is on the bank tax.
I'm sure you are involved in conversations with the government, not sure whether you could give us some visibility here as well on in which direction this debate is heading. This tax could take many forms with different impacts depending on the form, not sure whether you could comment anything here. A related sub-question here is, regardless of the final form of this tax, do you think that you could pass it through, in the form of higher fee income interest rates or rather in the form of higher efficiency gains? Thank you very much.
Thank you, José. Maybe I'll give you a response on the second question, Javier can elaborate further on the first one, because I already gave some views there. We obviously do not know what, if anything, will eventually happen with respect to a potential tax, whether it will affect banks in particular or corporates in general. This is a decision for the new government to propose and obviously, for the Parliament to support or not. In due course, there's nothing much we can do. Obviously, we've been vocal that we do not think it's appropriate to have a specific tax on banks. We don't see that there is a specific reason for doing that. In any case, it's not in our hands. We do not control it. It's very difficult, for that reason, to make any projection or prediction.
Depending on what happens, if anything, I think the ability for us to pass that cost will be different. It's obviously unfortunate having, at this point, this uncertainty, we have to continue to focus on running the business, doing what we're doing nicely, as long as we become more and more profitable, if there is an adverse event, we will have obviously a higher degree of cushion to compensate for it. Sorry to not be able to be more specific, there's nothing more I can really say on that topic at this moment in time.
Hi, José. Just to give you some more color on loan growth. It is true what you say. We have had a good quarter. It is early days to tell you if this is sustainable at the same pace for the rest of the year and for the years to come. You are right that we are a little bit more upbeat than earlier in the year. It is a combination from the many little things, I would say. Clearly, we have shown figures on new production across different segments. It has been improving across all segments, I would say, this quarter and year to date, on mortgages also, on consumer loans, on SMEs, and this second quarter, especially on corporate banking. There is another factor you should consider while analyzing all this, which is the steady and consistent reduction of NPL inflows.
That means that the performing loan book has much more support in volume because there is much less loans going into non-performing. This is happening across all sectors, even on mortgages, that partially also the improvement on the deleveraging process is done precisely thanks to a slower pace of inflows into non-performings. On prices, I would say that we are not changing things. It is extremely competitive environment across all segments. On mortgages, mainly on SMEs, as has been since many years ago, as you can imagine, also on corporate banking with all players willing to lend to large Spanish corporates. So far, we are being able to maintain our margins. You may be up or down a few basis points one quarter versus the other. Generally speaking, this second quarter, nothing much different to something that we had seen in previous quarters. Let us see.
More positive probably than what we were a couple of quarters ago, still early days, anyhow encouraging.
Thank you.
Thanks, José. Can we move on to the next one, please, operator?
Your next question comes from the line of Sophie Peterson of JPMorgan. Please ask your question.
Hi, here is Sophie Peterson from JPMorgan. I had a couple of questions. First of all, you mentioned on one of the slides that you have FX deposits. Could you just remind us how much FX deposits and FX loans you have, and also in which currencies? If you see any potential for additional provisions for these loans, in particular, given that one of your competitors took quite big provisions this quarter. The second question is around BFA. Could you just update us on your strategy around BFA and how we should think about the contribution going forward? Thank you.
Thank you, Sophie, I'll answer the second question. There's nothing new on BFA. Only see good things happening around Angola in terms of the, I think, orthodox economic policy they are undertaking, the agreement with the IMF, the fact that they tapped the capital markets for over $3 billion in terms of foreign currency, obviously, the oil price is also helping the country. I am fundamentally optimistic that the country is moving along a solid path. BFA continues to do, in the country, very well. In terms of the indicators for BFA, whether it's efficiency, solvency, margins, non-performing loans, is by far the best bank in the country. With those ingredients, we are happy. We are obviously interested in due course in reducing our stake, with no urgency, we will continue to see when and how that makes sense without any other pressure.
The bank is obviously showing results that are volatile, particularly because of the impact of devaluation, which, as you know, when Kwanza comes down, we have an adjustment for that devaluation against shareholders' equity. The bank itself has appropriate hedges, which create actually an asymmetry because the value from these hedges is reflected in the P&L. You have all that detail in the presentation. We will continue to be very transparent of the contribution, both in terms of P&L and book value to our results. Obviously, there will be some quarters where the contribution will be particularly high. Others, it would be lower. We had a very significant contribution in the first quarter, as you know. When you look at what has been this quarter, the recurring contribution has been lower.
It's been EUR 27 million in the quarter, of which EUR 13 million are negative associated to hyperinflation, IAS 29. I think it's probably the better way to look at this as taking these kind of results as the recurring levels and sort of isolating the impacts from devaluation, which I think it has largely run its course in any case, but it's difficult to forecast.
Thanks. Sophie, you commented on foreign exchange deposits. Well, the size of our balance sheet in foreign exchange currency is small. It's of less than EUR 10 billion. The main part, I would say around half of this, is U.S. dollar, and the rest are hard currencies like British pound, Japanese yen, Swiss franc, et cetera. On time deposits, we have a small part that is deposits in mainly U.S. dollars. If I remember well, it's less than EUR 1 billion. That's as the U.S. dollar has a yield of around 1.5% or close to 2%. When this compares to zero, that leads to an increase of the back book yield. That's it. It's nothing important. We fund all our activities in foreign exchange with customer deposits or wholesale funding, and everything is matched assets and liabilities with no foreign exchange risk open.
Okay, thank you.
Thanks, Sophie. Let's move to the next one, please.
Your next question comes from the line of Ben Toms of RBC. Please ask your question.
Good morning. Thanks for taking my questions. Two for me, please. How do you see your CET1 ratio progressing for the rest of the year? Can you just remind us the guidance you've previously given on the potential for buybacks or special dividends and the timing of when this guidance could apply from? Thank you.
Thank you, Benjamin. In terms of CET1, we expect to be close to 12% or around that figure at the end of the year. We had to set up this level in our previous strategic plan as a level. After reaching this level, we had said that we will look to return capital to shareholders. Given that this is going to be unlikely before year-end and that in November we will present a new three-year plan, we will obviously update on our capital plans in the context of the three-year plan. I think, obviously, when we look at the next three years, we'll have to take into account the levels of profitability that we have already achieved that are obviously much more attractive than they used to be, what we can do to improve those levels in the next three years.
On the negative side, also the need to start planning for the impact of other things like Basel IV in particular. As you know, Basel IV will start in January 20, 2022. Our next strategic plan will finish in December 2021. Certainly, up-fronting those impact during the next three years will also be needed. All in all, we continue to see a story of, I would say, generosity in terms of returning capital to our shareholders, based on a combination, certainly of an attractive payout ratio, and if appropriate, other means of returning capital. Nothing in the second half of this year, being practical, and an update on what our strategy should be for the next three years due in November.
Okay, Ben, I guess that answers your question. Let's move on to the next one then, please.
The next question comes from the line of Britta Schmidt of Autonomous Research. Please ask your question.
Yeah. Hi there. Thank you for taking my question. I've got two questions, please. One is, apologies if I've missed it, but there seems to be some reference to a one-off regarding Repsol in the equity line in the quarter. Maybe you can just clarify what that is and how much it is. I'd also like to have your view on the Repsol stake. At a price of 1,680, I think we are beyond the breakeven price in capital terms. How do you think about the future of this? Maybe you can also confirm that it's still about 50% hedged. My second question will be on the securities yield. According to your yield and cost table, it has gone up again in the second quarter after being up in the first quarter as well.
In the presentation, I can see that on a part of your ALCO portfolio, the yield has increased from the structural ALCO portfolio, but not on the liquidity management portfolio. Maybe you can just explain the technical details behind why the securities yield has gone up.
Javier, maybe you can.
On the last question on the structural portfolio. As commented, we took profits on some long-term bonds that were swapped into floating, this has resulted into a trading profit close to EUR 70 million this second quarter. This was done early in the quarter before all the sovereign spreads started to widen. Were Spanish sovereign bonds, as a result of this, as you remove this part from the portfolio, this had a low yield than the overall or the remaining part, the average goes up. If I remember well, it is just a cent from 2% to 2.1% as you keep the legacy portfolio with higher yields. I hope that this answers your question. On the management portfolio or the ALCO liquidity management portfolio, sorry. You know that we have a lot of cash, record-high liquidity metrics.
We are trying to find opportunities to deploy this cash into, let's say, short to medium-term securities in order to reduce or to drain cash balances we are parking at ECB at minus 40 basis points, this is why this portfolio has increased by more or less 1 billion. On Repsol, if I may, there are not more news. We are where we were. We did some hedges. Those hedges, as you know well, there is a pass-through effect through trading profits, we have an impact this quarter on this of around EUR 40 something million, there are no further plans. We did this hedge when Repsol was trading around 15 and a half euros. Now we don't have further plans.
We're managing all those stakes for value. We see those hedges as part of the normal course of business in order to try to protect value as the way to manage those positions. I will not add much to this, if I may. You had a question, the first one on the equity line. I think that you were asking about perhaps something you are missing on our CET1 ratio.
My question was referring to the footnote on page 11, saying there were some non-recurrent impacts in BFA, which we know, but also in Repsol, which contribute to the at equity accounted income.
No, actually, there are not much news.
This is I think the impact of the sale of Gas Natural and Repsol.
Okay. You're asking about the income from associates. Okay. This comes from, Repsol had published results, now we can comment, and this had a positive impact, what the CEO was commenting, the disposal of Gas Natural. As commented also on BFA, there were some extraordinaries due to a structural position that BFA has long US dollars that at the end of the day, results in, from an accounting point of view, trading profits. This is an extraordinary that also goes on this line.
It's EUR 39 million, the impact of the sale of Gas Natural in our income statement on the quarter.
Okay. Perfect. Thank you.
Okay, thanks, Britta. Can we move on to the next one, please?
Your next question comes from the line of Andrea Filtri of Mediobanca. Please ask your question.
Yes, good morning. Two questions, one on cost and risk and one on insurance. What is your updated cost of risk guidance following the sale of the real estate portfolio, and what would be the new normalized run rate in light of a cleaner balance sheet? On insurance, what is the right way of looking at the return of your insurance operations, in your view, and what is the rebated placement fees cost for VidaCaixa to selling products via CaixaBank branches? Thank you.
I'm not sure I understood the second question.
The second question is how much is VidaCaixa paying CaixaBank for the distribution agreement, which is
Right, which is not relevant because it is.
It's an.
It's an intercompany transaction.
Andrea, you can see it in the VidaCaixa accounts. From a group perspective or a CaixaBank shareholder perspective, it's irrelevant, since we own 100% of the company. I guess beyond that, Gonzalo, his question is asking how should they look at the profitability of the insurance company in isolation.
Obviously, the figures are public for the insurance company, and we have even added in our presentation yet what the quarter is. It's a very profitable activity, obviously, it's difficult to think of the insurance company in isolation because it's an integral part of CaixaBank Group. The main distribution channel by far is the branch network. Even though there's obviously the separation of what the profitability is of each of the two units, what is clear, if they were not together, there would be significant negative synergies and value destruction. Contribution to revenues, and you can see this in the presentation, has moved from 22% last year to 25% in the second quarter of this year. We continue to grow EUR 146 million of net attributable profit in the quarter.
One of our, or probably the most important engine of growth for us, we're talking about, by simplifying it, this is, one, a very large market, second, a market in which we are by far the leader, and third, is a structurally growing market, given the trends in terms of aging and the need for protection. It's a great opportunity that we are exploiting, and it's a great opportunity that we will continue to exploit in the next years. We're certainly planning to provide further detail on what we're doing on insurance, both savings and protection, during our next three-year plan. If you see, I explained at the beginning how we have reorganized the bank, and we said we are reorganizing this area of global customer experience around the clients.
One of the four client experiences or the key client experiences under which we have organized is protect. We already had identified one of savings, which is led by our private banking and premier banking unit, but we wanted also to put a lot more focus on protection, where the opportunity is very significant.
Another question on cost of risk, just to clarify that real estate provisions are registered in other gains and losses on disposal of assets. Thus, this disposal will not affect much our cost of risk guidance. That only affects our provisions to our loan book.
Okay. Thanks, Andrea. If you have any questions, call me afterwards. Can we move on to the next one, please?
Your next question comes from Marta Sanchez of BAML. Please ask your question.
Good morning. Thank you. I've got a couple of follow-up questions on your bond portfolio. The first one is about size. In the past, you've mentioned that you were targeting to be at around EUR 30 billion in Spain, and then you've got EUR 3.8 billion in Portugal. Is that still the target, given that you keep accumulating liquidity and that's penalizing your P&L? Are you willing to increase the size of that portfolio? More or less, again, what's the average life of new bonds that you are buying? There's a second one of your 11.39% fully loaded Core Equity Tier 1. How much is coming from unrealized gains in that AFS portfolio? Finally, it's more, it's a general question I'm trying to understand.
Under IFRS 9, are banks fully free to sell their bond portfolios that are at amortized cost, or is there a penalty if you decide to change your strategy and sell before the maturity as we've seen in other banks? Thank you.
Thank you. On the many questions on the one portfolio. On the size, would we like to increase the size? The answer is yes. The problem is that the market is not there to do so. We don't think that structurally it's a good time to increase the size of the portfolio. Long-term yields are, we think, too low and hopefully set to be higher in, I don't know when, but at some point. Yes, we are being penalized because we are holding cash and parking this cash every day at the ECB at minus 40 basis points. This is something that is suffering all the sector, I would say. Difficult to tell you which is our target. No doubt that as we will hold cash, we have to think about TLTRO overall redemption in 2020.
Even despite this, we'll hold cash and all banks will need to hold cash for regulatory purposes and just for products. Yes, we should have a higher portfolio, but I don't know when. This is my short answer. Our exposure is mainly on Spanish government bonds. Would also take the opportunity to clarify that at group level, we only have less than EUR 2 billion in Italian bonds, EUR 1.1 billion in CaixaBank, and around EUR 700 million in BPI. Thus, the sensitivity to Italy has not affected us much during this quarter. So far, this is the position. Unrealized profits on this portfolio are around EUR 300 million. I think that this was your second topic. On IFRS 9, we did not change anything on our portfolios on IFRS 9.
I know that other banks took the opportunity to account things differently, but it was not our case. We have, let's say, our hold-to-maturity portfolio, and then we have a portfolio that was formerly the available-for-sale portfolio that is now fair value with impacts in OCI. I think that you have a detailed breakdown of our exposures in all the information, so no major changes expected from IFRS 9 on that front.
Thank you, Javier. My question was more like, are you free to move your portfolios around without no consequences? Because in the past, once you reclassified a portfolio from held-to-maturity back into AFS, you can reclassify it back again for a number of years. Do we have the same now or?
It's true what you say. You have a little bit more freedom to do so. You have to justify those circumstances, as far as I know, with auditors, and so far we have not used this option. This has not been the case in our case.
Thank you.
Okay, Marta.
Thank you. Can we move on to the next one, please, operator?
Your next question comes from the line of Ignacio Ulargui of Deutsche Bank. Please ask your question.
Yes, hi. Just have one question on the cost of risk guidance. Given the performance that we have seen in new NPL inflows, which keeps on going well, and recoveries are going better in Q2 versus Q1, do you think that you're still confident that you can be below 30 and not farther down given the performance that we have seen in Q2? You see scope to deteriorate in the second half? Is that number? Thanks.
Ignacio, I think in a nutshell, we did say less than 30 basis points because we anticipated that it could be clearly less than 30 basis points. This guidance we obviously maintain. How below 30 basis points, we'll see. Certainly, obviously the figures so far are encouraging, but we're not moving our guidance yet.
If I just may, a follow-up on the net inflows. You change a lot on the net inflows. You change a lot the recovery process. Do you think that the cruising speed has been achieved or there is a scope to keep on improving in terms of the recovery phase of the NPLs?
It's a very good question. We have, as you can see in our report, approximately EUR 400 million less net entries, both first quarter, second quarter, even the fourth quarter of last year than what it used to be. That is not a coincidence. It's obviously reflective of a better economic environment, but of a new push that we've made to the whole process. We continue to make changes and add initiatives. Every time we do something, it's more difficult, obviously because there's a limit to how much we can reduce. We're going to keep working on trying to make that number even more attractive.
Thank you very much.
Okay, Ignacio. I think basically we have one more person on the line. Could we have the last question, please?
The last question comes from the line of Javier Echaniz of Santander. Please ask your question.
Hi, good morning. Couple of very quick questions. First one. You have a 14 basis points organic capital generation in the quarter. Could you give us an idea of what is the nature of that organic capital generation? Is this retained earnings or is there any element of risk-weighted asset optimization within it? I just want to get an idea of how sustainable this is. Second question is, after the sale of most of your real estate assets, I think that you still keep a substantial portfolio of rental assets. I'm not sure what the size of that is now, but I don't know if you could tell us where your plans are with that specific portfolio. Thank you.
On capital, well organically, what we do is the pro rata of the payout is deducted from what we consider our organic capital generation. This quarter on RWAs, I could say that from an organic point of view, actually have gone up slightly because you know that we have had loan growth. Thus, we have had a small uptick on risk-weighted assets related to our organic capital generation. You may see that risk-weighted assets are fairly stable, slightly down quarter on quarter. I would say that the reduction we have had due to, let's say, our impacts coming from stakes here during the quarter, we have deducted the risk-weighted assets from the disposal of Viacer. You know the stake that was holding BPI. Also as Telefónica has corrected the markets, risk-weighted assets from Telefónica also have come down.
This, I would say that has more or less been compensated by risk-weighted asset growth coming from organic concepts, the main one being the growth of the business.
In terms of the rental portfolio, the net book value is currently EUR 2.8 billion. Gross yield is around 5%. We're going to continue to manage this portfolio for value. It's not a problem portfolio. We have the opportunity, given the environment in the market, to optimize that portfolio, sometimes by increasing yields where appropriate, sometimes by when rentals expire, actually moving on and selling those in the market.
Thank you.
Welcome.
Okay. I think that's all we have time for today. Thank you all very much. We'll see you next quarter and hope that you enjoy the summer break for those of you that are taking it now.
Thank you and have a good summer.
Bye.