Good morning and welcome to CaixaBank results presentation for the second quarter and the first half of 2025. As usual, we are joined today by our CEO, Gonzalo Gortázar, and our CFO, Javier Pano. In terms of logistics, we plan to spend about 30 minutes with the presentation and 45 minutes to 1 hour with the Q&A, which, as you know, is live. After the call, my team and I will be at your full disposal. Without further ado, Gonzalo, the floor is yours.
Thank you, Marta, and good morning, everybody. Second quarter of the year, we would say strong performance, and obviously what we are doing as a consequence is improving guidance. I think the highlight is the volume growth. You've seen the numbers. We're gaining clients, performing loans 4.8% year on year, deposits 7% up, wealth management despite the volatility in the markets up 8%. It's quite remarkable knowing where we're coming from. And just reminding you the discussions we had at the time of presenting our plan in November about growth and whether it was feasible or not. What we're seeing is that growth is happening much faster and in a stronger form than we all expected, which is good news.
This is part reflection of our improving market share, and obviously, to a large extent, it's also a reflection of the Spanish economy and the Portuguese economy doing very well, as we'll discuss later on. I think this is certainly what I highlight the most. This volume growth is powering revenues, as we're saying, but most importantly, it's powering revenues, not this quarter, but in the future. Certainly makes us more optimistic about our performance going forward and particularly into the rest of 2025 and 2026, 2027. We're calling the trough in the NII cycle. We think this is the lowest quarter. Javier will comment on our expectations going forward. You've seen services, both fees and wealth management protection and banking fees, pretty good. So far, 5.4% increase. Cost of risk and asset quality with a 2.3% NPL ratio.
And cost of risk, which is 24 basis points for the last 12 months, even lower if you look at the first half of the year, is also something that we're seeing at this stage quite stable, and we're not expecting a deterioration going forward. We're seeing very good, very good trends. From a capital point of view and liquidity, we continue to be sort of evolving in line with our targets. We have a return on tangible of 18.5% this quarter. It'd be closer to 20% if not for the banking tax, which is obviously a very relevant feature.
Net income is up 10%, and we are improving guidance, as you have seen by now, particularly in revenues from services, from low to mid single digits to just the upper part of the range, the mid single digit range, reducing cost of risk guidance to around 25 basis points and increasing return on tangible equity above 16%. Those are the highlights of a very positive quarter for us. No doubt. The economy. And the economy is doing very well, as you know. We have seen now also the figures yesterday, which had a very strong increase, 0.7% quarter on quarter of GDP in Spain. We've just seen the numbers for the eurozone at 0.1% for the eurozone quarter on quarter. Big gap between Spain, the eurozone, and a gap that I think it's reasonable to think that is going to stay in place.
Certainly, that's our expectation for this year and the following years. Remind you some of the key growth engines: immigration, the labor market. Helping obviously very much the economy and our business. On the other hand, we still see growth in disposable income and very high savings rate is obviously helping a lot the liability side of the balance sheet. You've seen that 7.5% year on year growth is quite remarkable. I think also quite remarkable vis-à-vis our competitors, those that I have seen so far publishing, suggesting that we're doing something well. I think whatever we're doing well is likely to continue because we're now having no distractions. Back to that sort of different growth pace that we have always had. We will have some impact from obviously the tariffs accord in the economy, but Spain has a very limited exposure to the U.S.
Also the reality is that given that actually second quarter numbers for the economy are coming in much stronger than what we expected. We expected actually 0.5% quarter on quarter growth for the Spanish economy in the second quarter, and it's been 0.7%. That different growth rate is, in my view, going to be more than enough to offset any impact, which we estimate around 0.2% in GDP of the tariff accord, which has tariffs that are unfortunately higher than what we were anticipating. We were anticipated closer to 10% rather than the 15% number that is obviously still preliminary. Sorry for that. Strategy, two pillars for our plan: growth and transformation. That's what we're seeing. I mentioned growth right now, so I'm not going to repeat myself on the fairly good numbers. Transformation is also very relevant. Digital sales, digital onboarding, digital clients, adoption of GNI.
You have a few ideas there, and we're obviously going to keep updating you on our progress on these fronts, and our teams are available. We're taking advantage of these relatively good times to make sure that we make our competitive advantage sustainable going forward for the very long term. Few transformation ideas on the business front that we have launched either in this quarter or very recently: Facilitea Casa, the house portal. We already have 42,000 listed properties. It's obviously very early days, but it's actually delivering a very good service both for our clients, our real estate agents, and it's going to allow us to be closer to the action in one of the most important segments that we have, which is obviously mortgages, but all the products around buying a new house.
That includes not just mortgages, but obviously insurance and some other financial and non-financial services. Very promising that we have launched, and we already have that level of listed properties. We keep growing the business and obviously improving things as we go ahead. Similar example with cars. On Facilitea Coches, we have financed 11,700 vehicles through this portal in the first half of the year. Most importantly, this is improving our relationship with car dealers and attracting more and more associated business around not just what goes through Facilitea, but generally the vehicle financing business. It's actually up 34% for us year on year. It's close to EUR 2 billion. There is a very significant potential here given the initiatives and the fact that actually there's no other similar platform in Spain with the same characteristics of our platform.
Now we say over 8,000 vehicles listed, and this keeps growing. We've discussed it in the past. I'm not going to go deeper into it for the benefit of time, but very promising. Tap to Pay, which we've launched both for Android and now for Apple as first bank to offer the service. There'll be further news on that front. Generation Mas, Generation Plus, if you want in English, a very special ecosystem and offering the worldwide financial and non-financial services for the senior citizens, where we have obviously made some good progress historically, but particularly in this quarter with the launch of the initiative. Big, big opportunity for us. From the senior citizens to the digital younger citizens, imagin. I just want to give you some details of how it's going because it's relevant, and you sometimes don't see all what's happening there. Look at business volume.
It's up 23% year on year, EUR 20 billion. If you look at what the business volume includes, it's basically a full-service bank. It includes client funds, on-balance sheet, off-balance sheet, and lending mortgages, consumer lending. It's a real mobile bank, not just sort of a monoliner or a secondary bank to people. It's really, as you can see, 55% of our clients actually have their recurring income deposited into imagin. So it's basically primary bank for most of our clients, and it's a very significant tool for client acquisition. 50% of overall client acquisition at CaixaBank is coming through imagin. We already have 8.5% of payrolls market share in imagin Bank, so that means it's actually one of the larger banks. Obviously, when you look at mobile banking penetration, it's leading bank for the 18-34 years old or the 16-34 years old.
Obviously, including the segment that is included in CaixaBank, and imagin, it becomes by far a leading penetration. 40% is almost doubling in the next year. We'll keep you updated on imagin, but just want to make sure that you have the full picture of us doing very well also in businesses that are growing very fast and are very critical for our future. Loan origination, very high numbers, 46% residential mortgages, 10% consumer, 26% new business lending, good front book yields, and obviously, as I said before, great news that we've seen that kind of growth. You'll see it here on the balance sheet. Sorry, we have too many numbers. Maybe you have the year-to-date, the quarter on quarter, and then below the graphic part is year on year. Obviously, the year on year shows two things. One is the absence of seasonality. This is very strong growth.
Also the trend, which is very impressive. I would highlight particularly mortgages and business lending, a big jump in June. If you look at the GDP numbers for the second quarter that I mentioned before, you'll see there's a very significant contribution from gross fixed capital formation, both residential and CapEx. CapEx actually is up 11% compared to last year. This CapEx cycle in Spain, despite the fears we had because of the uncertainty associated with geopolitics and tariffs, etc., it's actually happening. Obviously, we're making it possible, and lending is picking up as a consequence. We've seen it obviously already in consumer last year, still growing fast now to 8.9%. As you can see, the quarter on quarter figures, they have some seasonality included, particularly, I'd say, on the business lending front. What you can see is still some degree of acceleration of growth in the numbers.
Customer funds are up 4.8%. Year to date, 4.8% year on year and 4.7% year to date. Obviously, the market effect has been limited in this first half of the year due to the volatility. Still is positive. It was negative at some point, but after a much better June, it is positive. I think we will see it in the next page. Important to see how net inflows have continued to be positive at all times. When you look at the balance sheet numbers, 4.8% quarter on quarter, again, some seasonality in there, but numbers are quite impressive, quite good. Javier will elaborate also on the breakdown there, and that is pretty good news, I would say. As I said, net inflows doing very well despite the potential impact of market uncertainty and stability during the quarter that has not materialized.
You see how even in the month of April, we have positive inflows and obviously then a quick recovery in May, June to levels more in line with what was the first quarter of the year. Pretty good news. Keep that differential market share. Again, 29% in wealth management compared to 25 if we add the tier one and tier two, which basically speaks by itself. The protection business doing well, 12% growth year on year, above our target for the strategic plan. Good breakdown between life risk and non-life and a good breakdown again in non-life, both health, auto, and home insurance. Gaining market share. Basically continuing our cruising speed and with a huge success of the My Box offering, which continues to be differential for our customers. Just a few words on BPI.
Just looking at sort of the long-term horizon of what has happened since 2017, which was the date when we acquired control. Today, you see those market share gains in lending and mortgages and deposits and in savings insurance in the region of 220-300, even close to 400 basis points. This is the trend on which BPI is. Obviously, that trend is allowing us, the bank, to be more efficient and more profitable, stayed with very attractive asset quality ratios, and hence continues to be for us one of the most attractive parts of our business and one where we see continued opportunity for further growth and profitability. Thank you, and your turn.
Okay. Thank you, Gonzalo, and good morning to all of you. From my side, as always, additional details on the P&L and the balance sheet. Here you have the consolidated income statement.
As you know very well, net income this quarter approaching EUR 1.5 billion. This is down by 4% year on year on a pro forma basis when considering the quarterly accrual of the banking tax paid last year. It is already up quarter on quarter. Better revenues. All in all, you may see NII pressures clearly awaiting. We will discuss all that in a few slides in a minute. Actually almost stable on a quarter on quarter basis, down by 0.4%. On revenue from services, the main driver here is wealth management. You may see double-digit growth year on year. Quarter on quarter, slightly negative, precisely impacted by the market's correction on average AUMs. As you could see, the pace of inflows remains unrated and has clearly recovered from the month of April. We can expect also very good performance in coming quarters.
Protection insurance, really strong commercial activity, although the P&L impact is a little bit masked by some positive non-recurrent factors we had during the second quarter last year. In any case, you know that here we have quite a strong view on future performance, and we are fully convinced we are going to deliver on that. Banking fees with more recurrent banking fees that had some pressure in the past. This is also being, I would say, better contained, but we have had a really strong quarter on CIV, as you may see. On a quarter on quarter basis, fees up by 6%. This is driven mainly precisely by CIV. Other revenues. Here I would like to highlight that this year we had the BFA dividend recorded on the first quarter. Hence you have this difference on a quarter on quarter basis.
As you know very well, the Telefónica dividend is no longer with us. On expenses, no news at all. Everything is doing according to plan. Remember, this guidance for costs to grow 3.5%. We are not changing that view. On loan loss charges, clearly a really benign asset quality environment. Loan loss charges below initial expectations. Hence, we are improving our guidance on cost of risk, as you already know well. My final comment on the income statement would be on the tax line, where again, as forecasted, we are including a DTA write-up. With that, let's move to NII. Here you have the evolution quarter on quarter, minus 0.4%. It is stabilizing earlier than anticipated. Now we are expecting that this second quarter is the trough of this cycle. We are expecting that the next quarter's NII is going to be higher than this second quarter of 2025.
Not by a wide margin, but in any case, higher. Clearly improving and accelerating from the second half next year. On the usual NII breach, you may see all the different impacts on NII. Client yields still having a negative impact. This is still some additional quarters having this negative impact. Here, still lower rates impacting our floating rate loan book, not being fully compensated by lower costs on our customer deposits. Then volumes clearly adding quite a significant push. The significant counterbalancing effect from ALCO, basically hedging, different hedging strategies we have been deploying, and also fixed income portfolio with increased yields as we are adding to the portfolio. We are also having maturities at very low rates. Below, you have the charts for the customer spread at 309 basis points. You have also the back book yield of the loan book at 375 basis points, still trending down.
Also a significant reduction this quarter of our client deposit costs. You may see ex-hedges and foreign exchange down to 58 basis points from 68 basis points. Additional details on deposits, clearly one of our strengths, and that is offering increasing support for future NII evolution. You may see here the quarterly evolution of average balances for deposits. You may see that on a year-on-year basis, those are up by 7%. On a quarter-on-quarter basis, only 1.6%. This is because the strong seasonality of the second quarter is not impacting average balances. In any case, the most interesting here is that our balances for non-interest-bearing deposits are increasing significantly, over EUR 5 billion in a single quarter, and set to continue increasing in coming quarters. At the same time, we keep the wave of interest-bearing balances almost unchanged, but actually gradually trending down now.
26.9%, and the peak being in the fourth quarter last year at 27.2%. On the chart on the right-hand side, this is the yield of our interest-bearing deposits, sharply down to 1.92% from 2.28%. You know that we have approximately 50% of those interest-bearing deposits that are fully indexed, the measured part to the overnight rate. Below, you have precisely the quarterly evolution of the overnight rate, the euro TR. You may see that the cost of our interest-bearing balances is tracking to a large extent precisely that evolution. An additional slide on market rates and ALCO. On the left, you have the same charts we disclosed last quarter, obviously updated. On the upper left chart, you have the deposit facility rate yield curve. In blue, it's the current deposit facility rate.
In gray, you have that yield curve as of September 24, which was the base case for our strategic plan projection. You may see that clearly there is a steepening of the yield curve. You may see this more clearly on the chart below that one. Here you have the yield of, as an example, a 10-year European Union bond versus 12-month arrival. You may see that there is a steepness of over 1 percentage point. While this is a very positive backdrop for the bank, you know that we basically lend long and borrow short. Also, it offers plenty of opportunities for ALCO management, which actually is what we have done this quarter. You may see that we have added to the portfolio. We have taken advantage of the strong market volatility to add to the portfolio over EUR 5 billion in the quarter.
You may see that the legacy yield is gradually improving. It's a quarter where we have not added additional deposit hedges, but that continues to be a key tool to manage NII sensitivity. You can expect us to be active on that front also in the future. With that, we change gear and we move to revenue from services for the first half, up by over 5%. As commented before, the main driver, wealth management, up by 14% for the first six months of the year. Also, protection doing well when adjusting for those extraordinaries we had, positive extraordinaries we had on the first half last year, up by 2%. As I said before, really strong commercial activity. We're expecting the effect of that to be felt in the P&L more clearly in coming quarters.
Successfully being able to stabilize our banking fees, less pressure on recurrent banking fees in some areas, maintenance fees on current accounts, debit cards, etc., with a little bit less pressure. In any case, with really strong performance from CIV and being more and more recurrent source of revenue for the bank. With all this backdrop, we are improving our guidance for revenues from services to meet single-digit growth from low to meet single-digit growth. A few words on costs. Actually, no news at all. You may see that for the first half, costs are up by 5%. This is where we are planning to be by the end of the year, meeting our guidance. On the right-hand side, you may see the evolution of our cost-to-income ratio. You may see that we have been hovering in the 37%-38% area since early 2024.
This is clearly a much better level than the average of our peers in Europe. A few words also on asset quality. First, on NPLs. A sharp reduction of NPLs this quarter, approximately EUR 500 million. That results in an NPL ratio at 2.33% in the month of June. We have been active this quarter. You know that NPL portfolio disposals is part of our business as usual. It has been the case this quarter successfully. In terms of the different segments, you may see that there is nothing to worry about at all. You may see that the NPL ratio is really not far from the average. Really benign environment in terms of asset quality.
If you combine this with a high coverage at 70% and also at the same time keeping our unassigned provisions unchanged at EUR 341 million, this is resulting in a clear reduction of cost of risk. Twenty-four basis points for this second quarter. You may see that actually the loan loss charges this second quarter have been the lowest in the last 18 months. With this backdrop, we are improving our guidance for cost of risk, now expected to be 32.5 basis points. Liquidity, no news, which is very good news. We continue to hold a really comfortable position, EUR 228 billion of liquidity sources, a liquidity coverage ratio of 217%, net stable funding ratio 150%. I think it's record high. You may see that this compares extremely well with the peer average.
This is on the back of a really strong and stable deposit base with a strong wave of stable retail deposits and wholesale operational deposits. We have the bulk of our funding plan almost completed. Still something to be done in the last part of the year, but the bulk is already done. With that, we update you on our EMREL structure with an EMREL ratio at 28.24%, really with an ample buffer above requirement, 382 basis points actually. We are complying actually with this requirement with subordinated instruments. As I said, a successful delivery in terms of funding, EUR 7.2 billion issued in year to date across all asset classes. I would remark here a really successful $3 billion senior non-preferred with really huge demand. On the right-hand side, you have the breakdown per currency and 36% of the funding this year in U.S. dollar. Finally. Capital.
We have really strong capital accretion in the quarter, 69 basis points. That includes net income plus the DTA consumption. We have then minus 33 basis points from organic risk-weighted assets. It is the first time we disclose this breach this way. On the appendix, you have the same disclosure for the first quarter, just for the record. Then we have minus 40 basis points for dividend accrual at cash payout at 60%, as you know very well, and 81s. Then we have small other impacts. That results in a CET1 ratio at 12.47%. This is already over EUR 500 million above the threshold for an acceleration of capital evolution. I mentioned that it has been a strong quarter in terms of lending. In any case, profitable with return on risk-weighted assets at 2.3%. Clearly above the average of recent times.
We keep executing our six-year buyback that was launched in June. Also, we are today announcing an interim dividend to be paid in November and finally approved by the board in October ahead of our third quarter results presentation. It would be a dividend between EUR 885 million and EUR 1 billion EUR 181 million. Bottom right, you know that we do not have an impact from the output floor. Clearly, as everyone has been disclosing those impacts, you may see that in our case, we are approximately 12 percentage points above the level of the output floor, which is a small group of banks we have this position. It is not the case for others.
In our case, to comply with this regulatory requirement, we do not need to set aside capital in coming years or not being any kind of constraint for growth, as I say, to comply with this requirement in coming years. A final slide, which is the recap of the improved guidance on revenue from services, just to recap, up to now expected to be up by mid-single digit, cost of risk 3.25 basis points, and return on tangible equity as a consequence over 16%. Thank you very much. I can imagine we may face a few questions.
Operator, we are ready for Q&A. First question, please.
The first question is from Maksym Mishyn of JB Capital. Please go ahead.
Hello. Good morning. Thank you very much for the presentation and taking our questions. I have two. The first one is on the NII. You see better quarterly trajectory. Loan book is growing above expectations, yet you do not have great guidance. Is there any particular reason why? The second one is on loan book growth. You're gaining market share across the board, new lending as well as back book. What are you doing to grow your market share? Should we expect similar pace in the coming quarters? Thank you.
Thank you. Next, I'll comment on the second one and let Javier get into the NII guidance. I think we're not doing anything particularly special in terms of lending growth. You know, first that obviously the market is growing faster than anticipated, and that has to do with the macro. Beyond that, we are gaining market share. Slight gain. When we talk about gaining market share, it's probably 10-15 basis points in the period, in the last 12 months. Obviously, there's also some volatility, sort of, because some of these balances can change, particularly on the wholesale side. Yes, we're gaining market share. I think we just have all our engines working and full attention, no distraction. We made a tremendous sort of integration, and now we have really the machinery working nicely. Close to our clients, we have over 4,000 people in the business segment, and it's just working.
We're not changing anything fundamental, competing mostly on service, being close to clients, being predictable, and obviously being fast and agile. We can do more, and we'll keep doing more. I don't expect gains of market share that would be significantly higher than those that we are talking about, maybe 20-30 basis points a year. It's the kind of sort of cruising speed that for an institution of our size is logical. We're pretty optimistic, I have to say. I mentioned some of the initiatives on the retail side, Facilitea on the mortgage front, on the vehicle side, consumer lending. We're gaining market share, clearly. We have a good transformation program on the business front, taking advantage again of our size and of the recovery, and obviously bringing in new initiatives. We have specialized some segments because we have both the scale and the expertise to do so.
We remain very integrated, which is a big difference with our other competitors. In my view, we have all our business, private banking business, and retail in the various regions under the same responsible. The synergies between these businesses, particularly the business of private banking and the business segment, are very significant. That works naturally because of our DNA, our incentives, and our organizational structure. I think we're basically very well equipped to compete and to win. We may not have shown that over the last few years because of sort of time spent in the merger and then obviously various special circumstances with the pandemic and sort of falling volumes. Now that we see the market growing, to me, it's kind of natural that we're going to capture more share than our competitors.
Obviously, that's what we're going to keep trying, obviously always defending profitability because it's not worth growing if you don't have the right margins.
NII.
NII. That is for me. As I said at the presentation, we are calling the trough for NII this second quarter. We are expecting that next quarters will be higher than this second quarter, not by a wide margin, but higher. Clearly accelerating into the second half of last year. Basically, we are still expecting a negative contribution from, let's say, client yields on that NII breach for some more quarters, as we still face negative repricing on the loan book for some more quarters. On the other hand, this is expected to be compensated clearly by the positive impact from volumes and also from output contribution. Basically, we are reiterating our guidance for NII to be down by mid-single digit. Our expectation is to be at the lower to midpoint of that range. I would say that this, to some extent, has upside.
We stick to the guidance for the time being. I would say with upside. For 2026, on the contrary, we have a clearly better view. Now we expect NII to be clearly above 2025 levels in 2026. For 2027, remember that we have been guiding for NII to be over EUR 11.5 billion. We see now a clear upside, very clear upside, I would say, for 2027. The dynamics are really positive. You could see on the evolution of average balances for deposits, that gradual increase of non-interest-bearing deposits. This is very gradually filtering into the impact on NII. It is not having an immediate impact, but it has a compounding effect that makes us to be more optimistic beyond a certain point next year. That is basically my message here, Maks.
Thank you, Maks.
Thank you very much. Super clear.
Operator, next question, please.
The next question is from Ignacio Ulargui of BNP Paribas Exane. Please go ahead.
Thanks very much for the presentation. Good morning, everyone. Just have two questions, if I may. One is on deposit growth. I mean, if you could elaborate a bit, you had a 5-4%, if I remember correctly, deposit growth target for the plan. I mean, how do you see that evolving, given the solid performance that we're having in deposits this year? More in the short term, how confident you are about retaining the strong growth of deposits that you had into Q3? We saw that last year you were a bit more cautious on that. How do you see the potential capacity to retain that deposits into Q2, the second half of the year? The second one is looking to the strong lending growth that you have delivered in the first half. I mean, could you just elaborate a bit more on the incremental profitability of this loan growth?
I mean, how confident you are that that market share or lending growth that you are delivering is incremental into the profitability? If you could give us a bit of a sense of that. Thank you.
Thank you. That is where maybe I'll give some color. I'm sure Javier will have thoughts to add to it. Starting with deposit growth, we obviously had a very strong first half of the year. Again, if you look at it for only six months, there is some seasonal impact on the figures. Even if you look at the last 12 months, you continue to see a growth that is sort of north of 7% per annum. When we talk about our strategic plan, we said customer functionality would be in a much lower level and adjustable for 4%. It is obvious that there is upside, particularly in deposits, where the strategic plan was lower than that 4%. It was about 3%. We see the numbers in the economy being pretty good.
Again, we were somewhat conservative in terms of how would disposable income and the savings rate evolve because they were very high. So far, we are seeing only, particularly on the savings rate, only small decline. We will have to see. There is a term trade-off between the customer funds and also the strength of the economy. If the savings rate comes down, we will probably see faster economic growth because consumption, in particular, will go up. So far, clearly, we have upside on deposits. For this year, it is obvious that we are going to be above that 3%. I think for the whole of the plan, it is very likely that we are going to be outperforming on that front. We are not sort of now providing alternative figures for the three-year plan because it would be very time-consuming to have every three months update on those numbers.
It is clear that we are substantially ahead. If nothing sort of deteriorates for an unforeseen circumstance, we are certainly going to be above our targets. Again, bear in mind on just the year 2025, the seasonal impact means that you cannot just extrapolate the last three months because that would lead to the wrong conclusions. On lending, maybe just sort of say, obviously, we are doing this business because it has got to be profitable. We are looking to risk-adjusted returns of, in fact, about 15%. That does not mean every single transaction that we do needs to have a pricing that goes to that level because we look at the overall relationship, whether it is an individual or whether it is a corporate or a self-employed or any of our business clients. We tend to look both at what is the profitability of any given.
Lending transaction, but obviously making sure that we have an overall relationship picture because clients will give us ancillary business associated to lending decisions. On that front, we are not relaxing our standards. We see that our growth is very profitable. And if it would not be profitable, and when there are occasions that it is not, we just refrain or get outbid by others because that is the nature of a business. With that, I do not know. Javier, you want to add?
Yeah. Nigel, you know that we have this strong seasonality on deposits. For us, it's really an important quarter. It actually sets the tone for the rest of the year. We think that we are going to be able to retain the major part of those balances. Some of those are actually really seasonal. At the end of the day, according to our experience in the past, we have some slowdown in the third quarter, and then the fourth quarter, again, recovering. You can assume that current deposit levels are sustainable till year-end. That's basically the main assumption. Also importantly, that chart that we are disclosing every quarter about non-interest-bearing balances evolution, we see really good momentum on that front. I think that we are being successful here on three fronts. First thing is we are being able to pass on lower rates to market rates to interest-bearing deposits.
Second, we are being able to grow non-interest-bearing deposits, which tells you about the strength of the franchise itself. Third, at the same time we do that, we are being able to grow, let's say, on wealth management, let's say, off-balance sheet. If you look at the second quarter figures, it's EUR 5 billion plus of non-interest-bearing balances and EUR 3 billion plus of wealth management. This is EUR 8 billion of really high-quality customer funds that we are being able to generate. That's, I would say, probably the best way to summarize the dynamics, underlying dynamics we are having. Thank you, Nacio.
Thank you. Operator, next question, please.
The next question is from Álvaro Serrano of Morgan Stanley. Please go ahead.
Great. Thanks for taking my questions. This might be one for Javier. Just to follow up on the comments you've just made around the mix of deposits. Term being down, I think it's 8.5% quarter on quarter, and you've highlighted the growth in those non-interest-bearing. My question is, how do you see that evolving? It's ticking down. In terms of a substantial reduction, is that driven by inflows of deposits just being more transactional, or people not bothering to roll over the term deposits given the lower rates? Just a bit of color on the dynamics going forward. My second question is around capital. Obviously, you haven't announced a buyback, and you have room to do it. Should we interpret this as a timing issue, or do you see with that kind of loan growth that you're seeing, you think you can grow into the capital?
I noted, I forgot you mentioned June was particularly strong. I think that's what you meant. Is that a factor in holding back on the buyback? Thank you.
Sure. Álvaro, I'll just take the second question. As you said, the first one is for Javier. On the buyback, you said, "Is it a timing issue?" The answer is yes, it is a timing issue. We have not changed our policy, and we will continue to buy back our shares when we have excess above the target, which for 2025 is 12.25%. We have over EUR 500 million. I think it's pretty obvious that it's a question of timing. We said that we will announce buybacks when we have them approved by the board and by the ECB, and we will not comment on that during the process. Anyhow, after six-year buybacks, I think everybody should be pretty confident of what we plan to do. The reality is we're only halfway through the six-year buyback program.
Any announcement at this stage would just be news about the future, which I would expect to take place in any case, whether we say it now or we say it later. We are going to continue to generate excess capital, and hence we'll continue to do share buybacks when we are above the targets. Obviously, we're at that level now.
Hi, Álvaro. On the mix, you may remember that our view was that the size of the time deposit portfolio would remain, in terms of weight on total deposit, pretty much stable. We think that this is the broad message. You could see that the peak was at the fourth quarter last year, gradually trending down, but not as sharp a slowdown.
Our view is that a client that holds a time deposit that was yielding, whatsoever, 2%, 2.5%, now at maturity is being rolled over, obviously at a lower yield. Now the front book is clearly below 2%, but still, it's interesting for clients. We believe that the size of this overall portfolio will not change that much. In some quarters, probably like this one, you may see some slowdown, but you should work with the assumption that the pool of time deposits will remain, in terms of weight, pretty much unchanged. I think that the growth on non-interest-bearing deposits has more to do with the general activity of the bank. Client acquisition. We are over 300,000 more clients per last 12 months. We are gaining payroll. Basically, it's more activity in the bank, not only individuals, but also, I have to say, SMEs and corporates.
Also, they hold part of their deposits as non-interest-bearing deposits because they are basically operational balances. We are really strong in terms of cash pooling, payments, all those kind of things. We are being able to retain a large chunk of those deposits as zero cost in exchange of all the services we provide on those activities. In our view, this will continue to grow, at least for the foreseeable future. You know that this is a key lever for NIIs in the future. Clearly, it is one of our strengths, and we think it is going to be there. Thank you, Álvaro.
All right. Thank you very much.
Thank you. Operator, next question, please.
The next question is from Francisco Riquel of Alantra. Please go ahead.
Yes. Thank you for the presentation. I have two questions. The first one is if you can please update on the guidance for cost of deposits that you gave in the last quarter and this time, if possible. Including and excluding the hedges. So that we can see the underlying performance and how the hedges are also impacting your margin dynamics. Also, if possible, the front book of the interest-bearing deposits versus the 1.92% of the stock. My second question is, you changed revenues, provisions, but you just fine-tuned the RoTE guidance to above 16% when you are printing above 18% in the first half. What is preventing you from a bolder change in the RoTE guidance? Shall we expect any write-down or restructuring charges in the second half of the year? Thank you.
Thank you, Paco. I will take the second one. No, do not expect anything extraordinary. We actually have not put a lot of thought on the bottom line. At this stage, we do not. Usually guide for the bottom line, but we are conscious that as we upgrade guidance on cost of risk and on revenues from services, it kind of leaving 16% was not making this very credible. We just said it is not fine-tuning. It is just removing a limitation of consistency in our guidance and say, "It is not going to be 16%. It is going to be over 16%." We are not putting any focus now if that over 16% is going to be just over 16 or comfortably or very comfortably above 16. We will see as the year evolves.
I would not put too much weight on that number and much more on whatever your assumptions are of how well we can do. Obviously, based on the guidance we are giving for the top line and cost of risk, I would certainly not expect anything extraordinary or negative in the second half of the year.
Hi, Paco. How are you? In terms of guidance on the interest-bearing deposits, we are expecting that for this year, on average for the year, it is going to be mid-50s. That is a small upgrade because if I remember well, we said mid to high 50s. So mid-50s. Keep in mind this is the yield ex foreign exchange and hedges, and I come back to that. Already in the fourth quarter being below 50. We are expecting to end the year below 50. If you try to forecast into 2026, clearly you have to take that as a base. The difference between with and without hedges is going to converge very soon. You know here the effect is that the floating rate leg of the hedges is now approaching the fixed rate level of the fixed rate leg.
You no longer have, let's say, a negative carry on the hedges. Basically, you should assume that by the end of this year, the difference will be one or two basis points up or down, but pretty much the same between each other. Okay? In terms of the front book of time deposits, we are currently in the 160-170% area as of the latest figures of the quarter. Keep in mind that we have approximately 50% of our interest-bearing deposits that are indexed. In the major part, probably 80-90% to the overnight rate.
As a result, we have what clearly in that sense, that is like a faster repricing. It is a little bit contradictory because you have like a faster repricing on what is, let's say, corporate funds than retail funds because retail funds, you need to wait until the rollover of the time deposit that per se is no longer than 12 months. We have an average life of our time deposit shorter than six months. The repricing of large corporate balances is done almost automatically once there is an interest rate cut because it is linked to the overnight rate. That is basically the situation. You can expect that interest-bearing part to keep trending down in coming quarters.
Thank you, Paco.
Very clear. Thank you.
Operator, next question, please.
The next question is from Andrea Filtri of Mediobanca. Please go ahead.
Thank you for taking my questions. Could you give us an idea of what kind of cost of risk you expect in the coming years? Should we expect other DTA rate cuts in coming quarters? Thank you.
A little while. Oh, DTA. Okay. On cost of risk, Andrea, I would say we see a very good benign scenario. Hence, the current numbers are numbers that we expect to see not just this year, but beyond this year. You move sort of to the longer term, we need to see what the macro environment is. To be honest, at least at this stage, the 2025 cost of risk is a good indicator for future years as well.
Hi, Andrea. Yes, on DTAs. Write backs, we are expecting this to be almost recurrent. I think that you can take the average of the first half as a good template for what may come for the second half. It's not exactly the same every quarter. This quarter, for example, has been a little bit higher as we have been able to incorporate some deductions.
No longer only tax losses carried forward, also some deductions. While this is really a complex issue, and you cannot forecast exactly the same amount for every quarter, I think that taking that average is fine for projection. Beyond 2025, I think that this is something that will continue to be with us. I cannot recommend now exactly by which amount, but as the profitability of the bank has clearly recovered, we are being able to write back DTAs. This is, as I say, it's going to be with us for the future. Thank you, Andrea.
Thank you. Operator, next question, please.
The next question is from Britta Schmidt of Autonomous Research. Please go ahead.
Yeah, hi there, morning. Thank you for taking my questions. My first one would be on the RWA growth. The organic growth was 30 or the organic capital decline due to RWAs was 32 basis points this quarter, or it was 15 basis points in the last quarter. How much of that do you put down to the seasonality in lending, and what is the outlook there for the coming quarters given loan growth is still expected to remain quite strong? The second one would be on the pricing competition. Could you give us the front book yield of your new business in the second quarter? I know it was 376 basis points in the first half, but what was it in the second quarter, and how does it compare to the 373 basis points back book in CaixaBank and BPI?
And do I understand it correctly that you're basically saying that a greater product franchise would allow you to be more competitive on the pricing of the loan book? And then lastly, maybe just a question on whether you had any comments on that. Regarding any news regarding the BSA IPO? Thank you.
Okay, Britta. Let's. I think, Javier, maybe you take it. Take this with your glasses.
Okay. Hi, Britta. It has been really a strong quarter for lending. It has not been only lending, but also we have had guarantees. We have had an exceptional quarter in CIB, as I said. Some probably single large impacts that we do not think are going to be recurrent in coming quarters. I think that the second quarter sets the tone for the rest of the year, but you should not expect that pace of growth in coming quarters. The third quarter is seasonally weaker because you have the summer break, etc. You have the fourth quarter again with better traction. We think that our loan book this year is going to move up by approximately 5, probably 5.5, or less than 6%.
If you look at what we have already done so far, year to date, it is quite the bulk of that growth. You should not expect that same pace of risk-weighted asset growth for the next few quarters. Also, we have quite a nice pipeline of risk-weighted asset management tools that will be deployed during the second half, probably more during the fourth quarter. We do not think that we have an issue with that. We plan to generate capital above what is being deployed in terms of lending. As I say, it is a quarter with, can qualify to some extent, exceptional, with quite a larger than expected loan growth. In terms of pricing, you asked specifically for the front book yield in the second quarter. It is 364 basis points. The average for 12-month arrival, as an indication for market rates, is slightly over 2%.
I think it is 2.1 or something like that. I had my notes. As you may see, broadly speaking, it is this kind of 150 basis points margin we have been talking about. You have clearly some segments with a tighter margin, like mortgages, but then you have segments with a wider margin, like consumer lending, probably compensating a little bit each other. As a base case for, let's say, SME lending, precisely those 150 basis points area. There was a final question about the IPO in BFA. In this case, we had this more uncertain situation in markets in general in this second quarter. This is what we have been told is that it is still ongoing. Eventually, in the second half of the year, it may happen.
You know that in any case, if you consider that this transaction, let's assume that it is done at book value, the impact in terms of capital is not that material. It is like one or two basis points, CET1. You know that the book value of this investment in our books is EUR 300 million. That is basically with a risk-weighted at 250%. You can do the maths very easily. Thank you, Britta.
Thank you. Operator, the next question, please.
The next question is from Pablo de la Torre Cuevas of RBC Capital Markets. Please go ahead.
Thank you for taking my question. My first one was on deposit growth. You've chosen not to increase the size of the structural hedge this quarter despite really healthy growth in non-interest-bearing balances. Could you just, I guess, remind us what is the short-term and long-term assessment that you consider to decide whether to increase the size of the ALCO book or the hedges? What are the key trade-offs here that you consider? Maybe how could these change in the second half of the year if you expect it to change? The second one is just a follow-up on shareholder distributions. You've explained that the buyback issue is just a matter of timing. Have you maybe considered committing to a more structured buyback cadence? Can you just update us as well on the return on investment and how it compares with alternative uses of capital at this stage? Thank you.
Thank you, Pablo. On the second point. I'm not sure I understand. When you say something more structured. For our capital distribution. To me, it's very structured from the point of view that we have a payout 50-60% and then certain capital targets. And then once we go above those capital targets, and when there is obviously enough amount of distributable to avoid doing very small share buybacks, then we make them effective. That is what we've been doing. And we've said that we will announce once they are formally approved, not when we submit requests. That gives you an indication of the kind of policy we follow. Obviously, the timing is not just subject to us, but also to the logical timing lag of these processes. Given that we have a share buyback that is only not even half executed now that is ongoing, we feel we have time.
It's, I think, fairly predictable. It's been in place for now some time how we deal with these things. In terms of the return on investment of buying back our shares with respect to other alternatives, as we're now actively considering M&A, is really a judgment on what is the value, the underlying value of our shares, what are our expectations. I tend to think that the management tend to be not the best predictor of future share price performance in their statements. Hence, what we do is we execute and we take the market price. Unless there are some very special circumstances, but we take the market price for reflection of the appropriate price for us to execute a share buyback. Just make sure that we do it over a period of time that is long enough that we do not affect the market.
Obviously, if at some point the circumstances change for the better, it would have looked at us as a great investment. Like, to be honest, we have spent EUR 8 billion in buying back. Sorry, we have spent, basically bought 1 billion shares at EUR 5 per share. So invested that close to EUR 4 billion plus what is still to be executed. Obviously, a billion shares today would be worth EUR 8 billion. That's great, but that's great because the market has gone up. In retrospect, it was one of the most sort of value-created decisions we have taken. To be honest, when we look at our prospects and discuss them, we're upgrading guidance. We're looking at the factors that support us upgrading guidance as sort of longer term or structural than just the sort of fashion of the quarter.
The trends in growth and lending and customer deposits, the stability of rates, the forward curve, the low cost of risk, all that suggests that we have actually good times ahead. Hence, the return of our investment in buying back shares seems to us quite an attractive one. It is based on the fact that we're going to need to take the market price as an indicator of what a bank is worth. As much as we would like to think that it's worth much more, which we may well think, but it's not that relevant for investors. We will continue to take action on excess capital and give it back to shareholders unless at some point there are very special circumstances which we certainly do not foresee.
Okay, on hedging, Pablo, there are different factors. You mentioned deposits. That's a key factor influencing hedging, but also you need to take into account the dynamics in terms of fixed-rate lending. There are several factors. Also, the maturity of hedges, legacy portfolios. It's quite complex. We monitor all that constantly. Basically, it has been a quarter where instead of using derivatives, what we have done is to use fixed-income securities. Economically speaking, it's the same. In terms of NII sensitivity, it's the same to buy fixed-income securities or to do derivatives receiving a fixed-rate leg. It's the same. We have a natural tendency that when we decide to add longer maturities, so longer duration, we have the tendency to use fixed-income because then you capture the sovereign spread. That is a sovereign spread that is larger as you purchase longer-term securities. We are quite opportunistic on that.
I mentioned at the presentation that derivatives continue to be a key tool. In any case, it's going to be used in the future for sure because we will need to roll over, or as you suggest, to increase hedging as our deposit base keeps growing. That's basically the plan. We have liquidity, so we can invest into fixed-income. Obviously, we have the ability to add hedges.
Thank you, Pablo. Operator, next question, please.
The next question is from Seamus Murphy of Carraigh ill. Please go ahead.
Hi, hi. How are you? Thank you so much for taking the question. Sorry, I have three questions, actually, which are all kind of related. What share of your NII do you think comes from the value of your deposit franchise, including the hedge? I mean, we think it's about 70-80% of your NII comes from this side, which will obviously grow over time. Just want to get some idea of your own thoughts around that or whether that's a fair number. Second thing is, given the strength of your deposit franchise growth and your ability, obviously, to redeploy that into longer-term hedges, what do you think the front book incremental return on capital is for your franchise or for that franchise? Because obviously, there's a zero cost of risk on your deposit growth.
And if it's being redeployed into a bond portfolio, then the RWA intensity is obviously really low. I just want to try and understand how you think about that in terms of, as we look forward into 2026 and 2027. And then the last question is back on the hedge again. Just a small number. Obviously, when you look at the hedge, when I add up the ALCO book plus the swap book, basically, I get to around EUR 127 billion. But then your total non-interest-bearing accounts is somewhere like around EUR 290 billion. I just want to understand, is there a fixed-rate mortgage portfolio as well that's kind of backing the hedge? Or is your hedge capacity really only running at 50% of total?
Or is there something else that I'm not thinking about when I think about the repricing of your current accounts gradually over the next three to four years? Is there a fixed-rate bond portfolio? Sorry, a fixed-rate mortgage portfolio? And also, does the hedge that you have include the equity hedge? Is that a separate component? Thank you.
Seems we're going to be busy.
Yes, I'm busy. I'm not sure I'm going to have an answer for all your questions, but I will try. In terms of the last question about the equity, no, we are not including the equity in terms of hedging. I understand that some banks are doing so, probably in the U.K., but it's not that common in Europe. The short answer for us is that we are not doing so. In terms of the non-interest-bearing deposits, basically, we have hedges being the fixed-income portfolio or these swaps receiving fixed rates. You combine everything, and you are doing it, right. You need to incorporate also, basically, more hedges, which is also a long-duration asset. Here, you need to make some assumptions on prepayments, which at some point may be relevant.
There is some kind of optionality embedded on that because with lower rates, theoretically, prepayments should accelerate. You need to work with an assumption, a model on the topic in terms of which is actually the real duration of fixed-rate mortgages to maturity. I think that actually this is offering, giving us a competitive advantage because we have like a natural hedge in the balance sheet for our fixed-rate mortgage production. Your first question was about which was the share of NII from deposits. If you think about customer spread, let's say if you have 300 basis points eventually, and maybe at some point slightly below that, but let's assume 300 basis points to make the maths easier, I think that you should think that 150 are coming from the asset side and 150 are coming from the deposit side.
Those 150 on the deposit side, obviously, it's a mix from interest-bearing and non-interest-bearing. Those are, let's say, back of the envelope numbers. Then, obviously, NII is not only customer spread. You have ALCO, you have wholesale funding, etc. It's more complex than that. When talking about customer deposits as a share of the customer spread, I think it's approximately 50%. The last one, but I am afraid I am not going to be able to give you an answer, although I will do the maths and we can come back to you in any meeting or call, is about the return on capital about deposits. In any case, it's massive because first thing, it's not only funding ALCO, so it's not only funding the sovereign. It's also funding mortgages, but mortgages are basically with low density.
If you think about only what is, let's say, the excess of our deposit base that is funding, let's say, low-density assets like the sovereign fixed-income portfolio or mortgages, then obviously the return on capital is really high. Honestly, I don't have an answer, although I will think about it and try to give you an answer in the future. Thank you, Seamus.
Thank you, Seamus. Next question, please. Operator.
The next question is from Ignacio Cerezo of UBS. Please go ahead.
Yeah. Hi. Good morning. Thank you for taking my questions. The first one is on the international lending book, EUR 31 billion growing 10% year to date. I think I've seen the presentation. If you can give us a bit of information from a kind of geographical point of view, type of client, yield, duration, main KPIs, basically, of that book. The second one, I'm sorry, might be open-ended, actually, but is there any way you can explain to us, actually, if there is a regular pattern of customer fund flows within the different products, i.e., the deposits, basically, non-interest-bearing deposits you're capturing, is there kind of a normal behavior, actually, by which a percentage of those deposits move to time deposits, time deposits move to a balance sheet? Maybe I'm not making myself clear, actually.
Just trying to understand a little bit, actually, how the customer fund flow works between the different products. Thank you.
Second, complex question, but. Give some time to think, Javier, and maybe I add something. First question on our international presence. This is mainly done through our branches. We have the largest branches in the U.K., Germany, Paris, and Milan. We also have one in Warsaw, but our business in Poland, because of the size of the market, is relatively smaller compared to the others. This is all geared towards investment-grade clients. We actually have a strategy of growing this slowly over the last 11 years, and we have had basically no accidents. I had a very good, great quality in this portfolio. It was originated based on two factors. There are large corporates that operate in Spain, and we are one of the main banks, and they want us to be bankers at parent company levels.
Once you have that relationship, and that is significant enough, we obviously have developed business with some of the large corporates in France, Germany, U.K., Italy, where we did not necessarily have the same intense relationship. Nothing, I think, particularly notable other than this. It is profitable. It is double-digit return on tangible equity. At this stage, I usually expect growth to slow down, certainly in percentage terms, as we have, I think, even if we want to grow, we now have a decent size, and what we want to keep is increasing the number of services and products that we are able to cross-sell in these situations. Again, starting from a fairly attractive return on equity, which, as I said, is double-digit already, but where we think we have room to make it even more profitable. The other point in terms of customer flows, I can try.
I can try. I think it depends. It would be my answer, but go ahead.
I think that we have gone through a structural change when rates started to be positive. I think that we had on current accounts almost 100% of our deposit balances. When rates became positive, we had a large shift to time deposits from customers that were actually, like I would say, risk-averse or not willing to commit for long-duration products, etc. The bulk of that process is done. To a previous question, I answered that we are expecting that that part, that portfolio of time deposits will remain pretty much stable in the future. That is our view. From here, basically, assuming that that remains stable and we have a stable base of savings that are, let's say, into, let's say, risk-less.
Time deposits, from here, we have a natural process of inflows into customer funds that, what is being more operational and new clients and, let's say, the operational buffer for households, etc., remains in a current account, and that drives that increase, basically, on non-interest-bearing balances. Then, when those same households start thinking about savings and planning for the future, planning for retirement, we were commenting initiatives, this Generation Plus, etc., that tends to be done, let's say, with off-balance sheet solutions. Also, to a previous question I answered, look, this quarter, we have had EUR 5 billion more average non-interest-bearing balances while we have had EUR 3 billion of inflows into, let's say, off-balance sheet solutions.
I think that once we have this time deposit portfolio pretty much stabilized and not set to grow much, I think that we are back again to a situation where we have inflows that go to non-interest-bearing balances because they are operational, and then the excess, or when people think about savings, moves automatically to off-balance sheet solutions. This is the broad picture. Obviously, then in the meantime, you have some time deposits that are being canceled and moved to off-balance sheet and new money that moves to time deposits. We are trying to incentivize the long-term planning for savings, that being the financial advisors for clients, and bringing down a little bit the threshold for this kind of assessment. Not only for private banking clients and ultra-high net worth, etc., but this kind of level that is below that, which is affluent clients, we call it internally premier banking.
We are really strong on that part. Usually, when we try to manage that portion, it has a natural tendency to move off-balance sheet. If I may add, in the longer term, obviously, what you have is sort of a lifecycle of our customers combined with some higher sophistication of financial education, which we have been working on for decades. Obviously, as people are more conscious of their saving needs, this is very much in line with what Javier said. Not just further clarifying it from that point of view, people are more conscious of their saving needs as they go through the way and get closer to retirement. If they have the appropriate advisory and education, and that is not just us, it is also the whole system, they are going to start.
Being ready to take some credit risk or volatility, let's say, intrinsic risk, and particularly also duration investment horizon. This is something that needs to change. This is a lot of when people talk about the savings and investment union. You look at the situation in Europe, and actually, we have plenty of savings and liquidity, more than in the U.S. In fact, that's what you see: real rates in Europe always lower than the same equivalent in dollar. There is more savings in Europe than investment opportunities compared to the U.S. There is not enough financial education for people to understand that rather than keeping the money in the bank in one form or another, they need to invest.
For me, saving insurance is a great example of the kind of investment that you need to make, and where you can get much higher returns and at the same time be protected from an actuarial point of view for either longevity or mortality, depending on the product and your moment in the lifecycle. This is a long way, and it's structurally a very attractive one for institutions like us that are very strong both in transactional deposits but also in long-term saving products, where we, in fact, have a higher market share. This is a very slow process. We saw part of it when rates went negative because, obviously, there was a very big incentive both for banks and clients to look for other products.
Now, we do not expect, fortunately, negative rates, and in these 2%-3% the incentive is lower, but clearly, you should expect to have a higher return on your investments if you invest longer term and you move away from sort of banking deposit type of product. I think we will continue to go back to a structural trend where our sort of off-balance sheet business is going to keep growing faster than our own balance sheet business. The good thing with the current dynamics is that we're seeing, basically, both growing at attractive levels. This sort of how the money flows, when you look at 10 years, people are going to hopefully have more of their investments in longer-term products, as Javier said.
Okay. Thank you so much.
Thank you, Nacio. I'm told that this was the last question, so thank you, Gonzalo. Thank you, Javier. Thank you all for joining us another quarter, and have a wonderful summer.
Thank you very much.
Bye-bye.