Good afternoon, and thank you for joining us for Sabadell's Results Presentation for the Q1 of 2020. I'm Cecilia Romero, Head of Shareholder and Investor Relations. And presenting today, we have our CEO, Jaime Guardiola and our CFO, Tomas Varela. We will be covering additional topics this quarter, so we plan to spend a bit more time presenting the results around 40 minutes, and then we will answer your questions. Today's presentation will follow a slightly different structure to last quarter.
Our CEO will start by going through an update of the effects and implications of COVID-nineteen Sun, will then provide details about commercial activities, risk and business performance. Our CFO will then discuss financial results, Asset Quality, Liquidity and Capital before our CEO concludes with some brief closing remarks. I will now hand over to Mr. Huerra to kick off our presentation.
Thank you, Cecilia, and good afternoon, everyone. We trust and hope you are all safe and healthy. Starting on Page 4, of Since our last earnings call, the global economy has suffered an unprecedented shock with extraordinary implications. Of The initial nature of this crisis has made it very hard to estimate its duration, shape and final impact, Financial Services, which introduces a high degree of uncertainty for the financial sector outlook overall. The ongoing response from authorities CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, of The speed and magnitude of this response, we believe, should provide effective relief for the economy and banks.
Obviously, given this new macroeconomic reality, which is still evolving, our 2020 financial guidance will be impacted. Of The slower activity in volatile financial markets may have an effect on revenue in this year in the year. And while revenue might be impacted by the current uncertainty, we expect of to generate sufficient cost savings to mitigate this impact of Financial Services so that the pre provision profit is expected to remain flattish in the year. Of We will continue to monitor the situation as it evolves. And having said that, our business performed in line with our expectations of Financial Services and Financial Services during the 1st 2 months of the year.
And most importantly, our solvency and liquidity positions of Moving on to Page 5. European authorities have provided Unprecedented Support to the Economy and the Banking Sector. Therefore, financial institutions can focus their full attention of Corporate Development and Services. I'm helping to minimize the economic consequences of the crisis for customers and society as a whole. Of Financial Services.
The support focuses on providing flexibility in the supervisory approach, Capital and Liquidity requirements and on giving banks the right tools to help customers. On this slide, we summarize the measures taken by the authorities in the European Union and the U. K, our 2 most important markets, together with the impacts for Banco Salare. Of We welcome the steps taken in both markets And a well coordinated approach. The system is stronger for having received this support.
I would like to emphasize that at Sabade, We will continue to apply some capital liquidity and risk management standards. Finally, following regulators' capital conservation recommendations, SABRE has announced that it will not pay a 2020 interim dividend and group senior management has foregone its 2020 of Investor Relations. As we announced in our of 2019 year end results presentation. We started the year with well defined priorities for 2020. You can see this in Slide 6.
Of First, preserve revenue growth second, continue to improve our nonperforming exposures third, deliver on the restructuring activity Financial Services. As outlined in the plan presented last November 4th, maintain adequate capital levels and last But not least, continue to create value for our shareholders. Since the sudden and unexpected arrival of the coronavirus crisis, We have emphasized 4 focus areas in addition to our 2020 priorities: responsibility, commitment, of Facilities and Digitization. We have ensured operational opportunity without downsizing our service level, While taking care of our customers and employees, we have reduced the number of open branches as well as the number of on-site employees in those branches. Of.
This temporary surplus of branch employees has been redeployed, for instance, to reinforce remote services. Meanwhile, almost 100% of Staff in our headquarters is currently working from home. This brings me to the resilience of our IT platform, It has been very reliable throughout the lockdown, providing good service for a large number of employees working from home and demonstrating its robustness and scalability. Furthermore, our IT platform has endured a surge of We were also able to implement quite quickly new end to end digital processes suited to the current context. Regarding commercial activity, we have shown commitment to our customers by focusing on supporting them to alleviate of Financial Pressure, while protecting our balance sheet against potential arrears.
We have also taken initiatives to help mitigate The impacts of COVID on society in general. Finally, we are also focusing on accelerating our customers' digitization. Of We have made progress in this regard, which is expected to continue after the lockdown and will bring us Financial Services and Productivity. So whilst we retain our key strategic priorities for 2020, We're also taking action on COVID-nineteen related activities. In Slide 7, We show some of the key metrics that demonstrate that we are all well prepared to face the current challenges.
Firstly, We are operating with a substantial capital buffer of €2,600,000,000 or 3.22 CECLIA ROMEDO, Head of CECLIA. I'm CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA
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of CECLIA ROMEDO, Head of CECLIA. Our liquidity position is substantial with a liquidity coverage ratio of 172% and EUR 45,000,000,000 Securities of Highly Liquid Assets. We are also eligible to withdraw a substantial amount of TLTRO III and TFS Financial Services. Moreover, the significant progress made in recent years to the risk of our balance sheet pleases us Financial Services with an NPL ratio of 3.8%. And finally, our volumes have continued to grow substantially at 4.4% year on year, showing continuous dynamics.
Slide 9 shows our performing loans region
Credit Suisse,
including foreign branches, increased by around 2.6% in the quarter and by more than 4% in the year, including strong growth in foreign branches. PSA volumes grew by 2.7% year on year and remained flattish in the quarter. Of Mexico. Volumes in Mexico grew by double digits, quarter on quarter year on year. Half of this growth was customers driven and the other half was due to the increase of the U.
S. Dollar wage on Mexico's balance sheet. Overall, group performing loans grew by 2.2% in the quarter by more than 4% year on year. Of In the following slides, Slide 10, you can see that we have diversified Diversified Credit Portfolio. 46% of our performing loans are mortgages to individuals in Spain and the U.
K, which are roughly 8% Consumer Loads and Others and 6% is lending to the public sector. Looking of Commercial Banking. At our SMEs and Corporates portfolio, you can see on the right hand side that our credit exposure to the sectors most impacted by COVID-nineteen is limited at around €11,000,000,000 or 8% of the total. In terms of total risk For exposure at default, we have about €13,000,000,000 €1,000,000,000 sorry, and 8% of the total. Of In addition, it is worth noting that about 25% of our corporate and SMEs book is secured.
Finally, on the lower right hand side of this slide, you can see the exposure at default of our corporates and SMEs portfolio Broking down by rating, which is also published in our annual report. The graph shows that around 80% of Our exposure at default is investment grade. Next Slide 11 shows of Customer balances excluding TSB. On the left hand side, you can see the breakdown of performing loans. Overall, performing loans increased by 2.5% in the quarter and by more than 4% year on year.
Of Corporate and Public Administration segments were the strongest drivers of growth in the quarter. Our customer funds decreased by 2.2% in the quarter and were slightly up year on year, driven by lower of balance sheet funds of the quarter. The amount of deposits with negative remuneration increased of At the same time, debt deposits continue to flow into current account as is to be expected in the current low rate environment. Of Moving on to Slide 12. In terms of commercial activity, in the Q1 of 2020, new production in the main business lines has been resilient in Spain.
As you can see in the slide, both our products and our market shares have grown year on year. However,
of Operations.
The growth rates have slowed down since the second half of March due to the impact of COVID, as you can see in the non revolution also shown The loss of turnover in these businesses is expected to recover in the coming months as the lockdown is gradually lifted And we move towards a new normal. Continuing with Slide 13, on the left hand side, we show year on year growth of New Lending during the Q1. New SMEs lending has increased by 6.8% year on year and new lending to individuals have recorded 0.5% growth. Meanwhile, our market share of loans in Spain has increased by 6 basis points year on year. Of Looking at April, while we observe a reduction in new mortgage to individuals of around 50%, Corporate and SMEs of around 30%.
This growth in SMEs of Financial Services. It's mainly driven by state currency lending, which is referred in the lower right hand side of this slide. As you may already know, the Spanish government has launched a €100,000,000,000 public guarantees program for lending to SMEs. Of Escuduto de Quereto Official, ACO, a Spanish public bank under the Economic Affairs Ministry, is channeling of Public Countries to Banks. So far, DKK40 billion has been released in 2 tranches, and we are being allocated more than DKK4 billion of these guarantees.
Finally, on the upper right hand side of this slide, you can see that clients increased credit facility roll downs by €800,000,000 in the quarter. In April, these drawdowns actually declined by 6%. Of On the following slide 14, we provide more details about the actions we are implementing to support clients. Of This is Ricardo. During the lockdown, we have been in frequent communication with customers reaching an all time high of Financial Conducts.
Our portfolio of customer financial solutions includes government measures of Such as the ICO guaranteed loans and the government moratorium for mortgages and loans. Of Our customers can also apply for principal repayment holidays, renewals of expired rate facilities Financial Services, an extension of their working capital maturities as well are also offering solutions beyond the scope of the government measures. On this slide, you can see of Some key performance indicators, I would like to highlight the €7,900,000,000 application of the ICO guarantee loans to SMEs that we have originated in less than a month. Turning now to TSV, Slide 15 on the asset side. Net lending remained stable in the quarter with an unsecured lending contribution of less than 6%.
Q1. First quarter core mortgage performance was stable at TSV, continuing to manage margins versus volume considerations and following On the liability side, customer funds increased both in the quarter and in the year with growth across almost all products. In the quarter, growth was driven monthly by current accounts due to the current low rate saving environment. Moving to Slide 16, We can see TSV new lending performance in the Q1 and how the bank continues to make progress in delivering on its business plan. Of New mortgages were lower in the quarter in comparison to the sharp increase in the Q1 of 2019.
Of This was mainly due to the extraordinary performance in last year's Q1 and the current focus on profitability. Of In terms of new customer lending, the year on year increase was almost 3 times higher than the production generated during the same period of 2019. This increase was due to the good performance of sales in both branches and in particular, the digital channel. Of In addition, as you can also see in the slide in March, our new lending volumes were slightly impacted by the lockdown, Specialty New and Secured Lending. PSV also continues to make progress on the delivery of its strategic plan.
The customer focus pillar of the strategy has been supported by the delivery of several initiatives. Of Customers are now benefiting from the new T service capabilities and feature. Regarding Certification and Efficiency, GSV announced H2 brand closures in 2020. Furthermore, the bank also continues to focus on identifying Sustainable Cost Savings with a Disciplined Approach to Discretionary Expenditure and Investment. Operations excellence benefits are also beginning to be delivered through TSV's IT transformation.
Of Our partnership with IBM Service is supporting the consolidation and optimization of the IT infrastructure. Of In addition, PSV has announced it will be opening a new IT center in Edinburgh. PSV overall service performance of Supply Chain Management Systems and Company Management Systems remain stable with customer service availability performing above the industry average. Furthermore, it is worth highlighting that TSV platform technology of On Slide 17, we include the actions that DSV has implemented to support its customers during the COVID-nineteen crisis. Of GSV has responded quickly implementing credit and payment solutions to alleviate the immediate financial pressures felt by customers.
Of That includes payment holidays for mortgages, personal loans and credit cards. To date, payment holidays granted by TSB amount of over 30,000 for mortgages, over 19,000 for personal loans and over 2,000 for credit card debt. Of For Business Banking, TSB is offering overdrafts through the civil scheme for lending up to GBP 250,000 This meets the of the Financial Services and Business Banking customers. Prior to TSV CBIIL Product Launching, TSV has provided over £16,000,000 of lending to more than 600 customers to support them of to advise them the support measures available to them and to how to access the bank. We are also implementing awareness campaigns to protect customers Info.
To finish this section of the presentation in the Slide 18, I would like to highlight our digital response on how we have deployed new end to end digital solutions to meet the needs of our customers. For instance, in Spain, we have deployed remote signatures for ICO guaranteed loans of Retail and Repayment Holidays as well as 2 remote contract capabilities specifically for companies. Of Meanwhile, in PSV, we have rolled out online forms for mortgage and loan repayment holidays as well as 20 of 20 fourseven live chat feature. The indicators shown in the slide highlight both Spain and the U. K, the extensive use of these new capabilities as well as the overall increase in the number of interactions of Digital Channels.
The resilience of our IT and the efforts made in digital transformation in recent years have been key to overcoming the Current Challenge. And now, I hand it over to Tomas.
Of Thank you, Jaime. Good afternoon, everyone. Regarding our quarterly results in Slide 20, We reported a net result of €94,000,000 in the quarter. The reported results were impacted by impairment charges, which included an Additional management overlay of €213,000,000 in respect of COVID-nineteen. I will walk through the results in detail in the following slides.
In Slide 21, you can see that group net interest income dipped by 2.8% in the quarter and by 1.8% in the year. Relative to the Q4, NII was positively driven by volumes Chipper Wholesale Funding. Factors which reduced NII include lower asset yields, a lower day count and a smaller ALCO contribution. Of Finally, in terms of sensitivity to interest rates, based on the balance sheet as of the end of this quarter, an additional increase of 10 basis points In all relevant rates, we'd increase NII by €23,000,000 and a decrease of 10 basis points will lower it by €18,000,000 in the 12 months following the rate change. Turning to Slide 22.
Here we specifically look at from book credit deals ex DSV. This quarter, the 2 products that contributed the most to new entry volumes were loans and credit lines to SMEs, which respectively amounted to about 60% 2020 and 20% of the new production and therefore explained most of the total customer deal evolution in the quarter. This included a higher level of big ticket corporate and public administration transactions in the quarter, which are usually priced at lower yields. The yield drop Credit Suisse was more noticeable in credit lines, while loan yields were more stable. In Slide 23, Liquor.
Now in the next slide, number 24, we should which shows the changes in composition of our Polco portfolio. On the left hand side of the slide, we show how the size of the overall portfolio decreased by €3,600,000,000 in the quarter. This is due to existing bond maturities, as we explained in our Q4 earnings call, as well as Italian and U. Of K bond sales in the quarter. We generated €150,000,000 in trading profits.
Going forward, we will be assessing our opportunities of On the right hand side of the slide, we show the composition of our €6,000,000,000 of fair value through the OCI portfolio. As you can see, the risk is limited. Around half of the portfolio is composed of Spanish bonds with an average maturity of 5 years. There is also €1,200,000,000 of U. K.
Guilds with an average maturity of 14 years, and the rest is mostly agencies, corporate bonds and Corporate Financial Funds. There is almost no risk to Italy in our fair value OCI portfolio, and the average maturity of the overall portfolio is 8 All of this means that the impact on capital of a onetime increase of 10 basis points in the Spanish and U. K. Grade spreads would be around of €9,000,000 and €8,000,000 net of taxes, respectively. Of In Slide 25, you can see that group fees were down by 6% in the quarter, impacted by asset management seasonality and the of FX.
In the year, fees grew 1.9%. Of Asset Management reduced the most due to the usual Q1 seasonality and also due to the Financial Markets during this period. At the same time, the lockdown lowered activity levels, which affected service fees. Of were also impacted by new regulation affecting gross border payments. And finally, it is also worth highlighting that there was $8,000,000 less This quarter, as some payment services cost that previously had been netted of fees for the of accounted for in costs were netted off fees for the first time in the quarter.
In previous quarters, this cost was Moving on to Slide 26. We reduced group total expenses by 8.1% in the quarter, driven by lower nonrecurring costs at TSB of As migration related expenses are left behind as well as lower general expenses ex TSB, such as marketing and third party advisory costs. Of Moreover, TSE recurring costs were also lower as we continued to make progress on our restructuring plan. Of PSE Restructuring cost amounted to €5,000,000 year to date. Overall, we expect total cost for the full year to decrease of Year over year, driven by a more favorable partially by a more favorable ForEx of Currency Rate in comparison with the guidance, so what we initially But this doesn't affect significantly the comparison year on year.
But also what is driving this of the company's additional cost savings initiatives. In Slide 27, We provide an overview of the different regulatory measures announced recently to help lenders operate in the current situation impacting provisions, accounting NPL, Provincial Treatment, just as referenced. In addition, we also highlight some of the operational relief actions Financial Management and Regulation to Resolution. In terms of credit risk accounting, the EBA has stated that for the time being, Debt monetoria, public and private, shouldn't entail any automatic classification into defaulted or forward IFRS 9 status And that an individual assessment of the obligor is required to determine the likeness to pay. It was Financial Services also stated that public or private moratorium shouldn't automatically trigger a significant increase in credit risk.
In this context, regulators ask banks to give more weight to the long term stable outlook Financial Services and take into account the relief measures that are granted by the public authorities when calculating EBIT provisions. Of Overall, regulators have guided banks to avoid procyclical assumptions in applying IFRS 9 and have given operational relief by postponing Prepares Test for a year and other regulatory work for 6 months. Well, with that, let me turn Credit Suisse. We have considered our credit books after the 1st March. In Slide 28, regarding provisions, This quarter, we are starting to focus on the credit provisions excluding costs as this metric will be the most important metric to watch in the current environment.
Our credit impairment charges, excluding costs, were €369,000,000 And includes a post model adjustment of €213,000,000 intended to prepare for the impact of COVID-nineteen in the coming quarters. This adjustment was based on our estimated credit losses calculated using the macroeconomic scenario recently published by the Bank of Spain I'm giving more weight to the El Naterma outlook, which is more stable. Overall, credit cost of risk was 93 basis points annualized Financial Services or 39 basis points when excluding COVID-nineteen related provisions. In the following section of the presentation, We start with asset quality in Page 13. NPLs were down by €29,000,000 driven by lower new entries in the quarter, of As you can see in the chart on the top right hand side.
Over the year, they were down about 4%. At the same time, the lockdown impacted recovery processes, which usually take place at the end of the month. So recoveries were also lower quarter on quarter, which prevented NPLs from being produced further. Foreclosed asset exposure was €1,300,000,000 Finally, it is also worth noting that more than 60% of Sabadell's NPLs are secured loans. The next page, Slide 31, of Focusing on TSB Asset Quality.
Our mortgage portfolio in the U. K. Is low risk and prudently underwritten. By too late exposure, it's in line with the market and the bank has fewer tracker and interest only mortgages than the average in the market. Of Our mortgage percent is also well diversified geographically, and we have a low of Share in Unsecured Consumer Lending.
And in fact, this means that 94% of the net lending is secured. In the left hand side of the slide, you can also see that SBL ratio is very low at 1.2% and was stable quarter on quarter. Of Liquidity is abundant and at 2 56% LCR and capital is robust at above 20%. Of Turning now to Slide 32. Group liquidity at the year end.
The group continued to have a strong liquidity position with an LCR of 172%, A loan to deposit ratio of 100 percent and a high quality liquid assets of circa €45,000,000,000 of Furthermore, in terms of TLTRO2, we currently have €13,500,000,000 of euros outstanding, of which EUR 3,000,000,000 are due in 2020 and EUR 10,500,000,000 are due in 2021. And in terms of DFS, we have GBP 4,500,000,000 outstanding, of which GBP 3,600,000,000 is due in 2021 €900,000,000 in 2022. Of And with regard to TLTR 3, no funding has been drawn at this point, but we can take up to €27,000,000,000 in addition, of And at least GBP 3,000,000,000 are available through the TFSME. With regard to our funding plan in Slide 33, We have no immediate pressure to issue as we are MREL compliant. Our eligible MREL securities as a percentage of total liabilities and owned funds stand at 9.3%, Which is above the requirement of 8.3%.
We have issued more than €4,000,000,000 of Enbel eligible securities
Credit Suisse from the beginning of 2019 to date.
Finally, we also meet our subordination requirement, which is 5.2% as our current position stands In slide 34, on the following slide, we show the evolution of the group's fully loaded CET1 ratio during the quarter CECLIA ROMEDO, Head of CECLIA, as
well as our pro form a position and
pro form a facing CET1 at the end of the period. Starting from the reported fully loaded ratio at the end of of the Q4 and following to the right in the graph, we show the different drivers and capital impacts CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA ROMEDO, Head of CECLIA
ROMEDO, Head of CECLIA ROMEDO, Head of
CECLIA ROMEDO, Head of CECLIA. The organic capital generation deducted 4 basis points and included net profit net of 81 coupons, Intangible Asset and Other Organic Directions as well as the increase in organic RWAs in the quarter. In addition, fair value reserve accounted for minus 9 Taking all of this into account, our fully loaded CET1 ratio on a reported basis stood at 11 point 47 basis points. Firstly, the sale of our real estate developer, which adds 5 basis points. The disposal of Sabadell Asset Management will add 35 basis points.
And lastly, the disposal of our custodian business announced during this quarter, which will add 7 basis points. All of these three processes are progressing, of Well on track and are expected to finish in the coming quarters. These elements will bring Our full loaded CET1 ratio to 12.1%, and this is in line with the pro form a CET1 reported last quarter. Finally, we arrived to our CET1 facing pro form a as of the end of the quarter of 12.6%. Of Now to conclude my part of the presentation, on the following slide, number 35, you have the details of our current reported capital base versus Our reported facing total capital ratio stood at 16.2% at the end of the quarter, 3 22 basis points above our requirement of 13%.
Our fully loaded total capital ratio stood at 15.78%. Our capital requirement has been positively impacted by several regulatory actions this quarter. Firstly, the Bank of England decreased The countercyclical buffer to 0%, which had a positive impact in group own funds requirements of 14 basis points. Of Secondly, the change of P2R mix as per CRD V will allow banks to partially use 81 and Tier 2 of of hybrid capital instruments can be used against P2R if there is 81 or Tier 2 excess. Maxabel has currently a Tier 2 and 81 surplus of 8 basis points.
In addition, our phasing leverage ratio stood at 5 point 9% at the end of the quarter. And with this, I will hand over to Jaime, who will conclude our presentation today.
Of Thank you, Tomas. Just to finish, I would like to reiterate 2 points. Of Firstly, that overall, our bank has ample liquidity and capital, well above regulatory requirements. And in this regard, we are much better prepared today than we were at the beginning of the previous financial crisis. And secondly, that we will continue to execute on our 2020 priorities and key COVID focus area, That concludes our presentation.
We will now be pleased to take your questions.
Of Thank you, Jaime. We are now ready for a round of questions. We kindly ask you that you keep your questions to 2 per person, so others can also participate. Corporate. Can you please open the line for your first question, please?
The first question is coming from the line of Carlos Peixoto from Caixabank. Please go ahead.
Hello, good morning. Thank you very much for taking my questions. The first one would be on capital, basically, which was actually split into 2 topics. Of First one would be on RWA, on the level of RWA inflation you expect to see From the duration of ratings within our basically the PDs and LGDs within your internal models, of How will that balance out versus the guaranteed loans that you have been renting? Of And within that topic as well, if you could give some details on the 4 basis points negative impact from organic capital generation of In the quarter, I struggled a bit to conciliate the rationale behind this.
Could it have to do with the fact that Some of the trading gains were already reflected in the common equity Tier 1 ratio as potential gains in previous quarters. Of Then finally, on a different topic, I would like to ask you on revolving Credit Card Exposure. Basically, how much Sabadell has? What type of affiliation costs And then sorry for taking a further question, but basically On the cost of risk, apologies. What levels do you expect to see throughout the year?
Was this quarter a full anticipation of all the impacts you expect to see or just a small cushion ahead of of additional iteration that you expect in coming quarters. Thank you very much.
Of Okay. Thank you, Carlos. I will try to be short on the answers because it's 5 questions here and we need to Allow for time for everybody as much as possible. So RWAs, what we see In the year, as a consequence of inflation, but also the dynamics and the impact of the of RWAs release of the guarantee of the ICO, which is, of course, significant. We expect RWAs Actually marginally decreasing, okay?
One thing to note is that of A factor that usually is taken as reference for RWA inflation in this situation is usage of of And on credit lines, and as we saw, we had BRL 800,000,000 actually in April Actually, in April, it receded a little bit. So we don't expect on RWAs significant growth. Of I think I answered also the second one because I included that of Given that actually a substantial amount of the loan growth of the year will be covered by the of Capital in the quarter involved the usual. So net profit, in this case, we haven't accrued Dividends, consistently with the announcement that we did, deduction of 81 coupons, intangibles, other deductions and RWAs growth. Of So it's a combination of those.
There has been some timing in the evolution of how the different of Factors that play out in the quarter. So all of them were, except for the additional COVID Provision in the quarter, all of them were included in our guidance at the beginning of the year. Revolving credit card exposure, we have EUR 300,000,000 of exposure on revolving With yields above 20%, we don't think there will be relevant of Cost going forward, cost of risk levels expected throughout the year. I think of Jaime, at the beginning of his presentation, gave a little bit of guidance for the year. He said, I won't understand on that because he already said it, but he said that while the environment provides uncertainty In terms of revenues and might affect them, on the other hand, we have a focus on costs and we expect the pre provision of Profit to be kept at least flattish in the full year.
And then on provisions, Given that usually provisions under IFRS 9 would be expected to capture a substantial part of the impact of an of Given that this has been a post model adjustment following the indications that of The different authorities have given in the quarter and trying to avoid excessive volatility, short term volatility We expect that this of Gross model adjustment hasn't captured the full impact, and we would expect that for the year, A total of between 90 and 95 basis points would be what we I hope this has answered your questions,
of Thank you, Tomas. Thank you, Carlos. Operator, next question please. The next question is coming from the line of Ignacio Ulargui from Exane BNP Paribas. Please go ahead.
Of Yes. Hi and good afternoon. I hope you and your families are finally healthy. Of Just have two questions. 1 on the NII and how the ALCO should help of Into the coming quarters and then different moving parts of the NII, if you could help us to see where should we see Moving within this flattish provisioning profit target.
And quickly on costs, of What cost cutting measures are you planning on top of what you had already anticipated in TSB? Thanks.
Thank you, Ignacio. NII, of We've seen in the quarter, we provided the cost of change analysis, of course. We've seen of Some of it we had anticipated coming from the ALCO portfolio. Some of it was due to quarterly decisions made in the quarter like the sale of the So we've taken the impact of this in full. As we said, we expect to have the opportunities to of reinvest over the coming quarters and offset part of the loss of NII coming from the sale of of this portfolio of Italian debt.
So but this today, this is a headwind that we expect to offset, as I said. Also, of course, reduced activity that it's not clear for how long It's going to be there, might affect volume growth in consumer lending and mortgages. But on the other hand, as tailwinds, we have cheaper cost of funding, including So the fact that we don't need to issue NPL, also including TLTRO III and DFSME Also in the U. K, we are reducing the cost of or the yields or of We pay for current accounts and savings to in case of the savings to of And on the other hand also, we are seeing Ihorabor of Significantly higher than where we thought it would be. So if this If the Euribor stays there and we gave some sensitivity to increases in Euribor as well as decrease in Euribor.
Of If your eyeball remains at this level, actually, this would also be a significant tailwind. So all in all, it's difficult, but I think all these factors of Might offset amongst them or even be marginally favorable. We need to take into account also that volumes of Corporate and SMEs will be high. And so I think NII, At the end of the day, we'll be supported. In terms of costs, our focus that's right.
In We are progressing into costs. We've accelerated plans for digitization, which will help the new of way of working after this crisis. We haven't slowed down. On the contrary, we are accelerating The branch transformation project, we are also looking into several different projects where we have discretionary cost to make decisions on that. And also in Spain, there are a number of focus.
Of You will have seen that the top management waived bonus and there will be a policy of Viable Pay. Also expectations for payroll inflation are now of Reduced and also there are a number of course travel expenses and some other related
Thank you very much, Tomas. Thank you, Natchez.
Did I miss something? There was another Jaime is He's pointing out that you made another thing about the provisioning. Sorry for that. I'm not sure if I missed that, Cecilia, of
I don't think so. I think it was NII on cost. Nacho, are we correct? Of Thank you, Nacho. Operator, business question.
Next question is coming from the line of Mario Ropero from DIC. Please go ahead.
Hi, good afternoon. My first question is if you can give some details of And then my second question is On the CET1 ratio expectations for 2020, an update on the regulatory impacts in the year of And whether you expect to generate capital in the next quarters. Thank you.
Of Okay. Thank you, Mario. The allocation of the COVID provision was 20,000,000 out of the EUR 213,000,000 in the UK, of A low amount in Mexico and around €190,000,000 in Spain. Of As for capital, with the guidance that Jaime described of And I also detailed on expectations for provisions. CET1 of Fully loaded at the end of this year with this scenario, with this view, of would be around relatively close or above 11.75 or something like this, Between 11.75 and 12.
This without taking into account the potential impacts of of The measure that has been recently disclosed, so whatever Finally, it's approved by the EBA on IT Software Intangibles. We have currently around €1,300,000,000 in this kind of intangibles. So the amount That will be subject to this will be will depend on how the EBA of Right. The issue for designs, the requirement for that, the rules. Then also the anticipation on the SMEs and present finance of Financial Services.
The support factor for us will mean around €2,000,000,000 in RWAs. This we were expecting for of End of 2021 or beginning of 2022. Now it's apparently, it will happen this year. Of This would represent close to 30 basis points. Then also the IFRS 9 transitional arrangement In our case, it might mean around 10 basis points.
So those are additional factors, but without taking into account those factors, of The consistent level of capital at the end of the year with the other pieces would be this one.
Of Thank you so much. Thank you, Mario. Operator, please, next question. The next question is coming from the line of Marta Sanchez Romero from Bank of America. Please go ahead.
Of
of Hello, sorry, I was on mute. The a clarification on your capital target. Of You are saying $11.75 to $12,000,000 Would that be reported or that includes of The potential impact from all the asset disposals that may not be booked this year. Of A follow-up on risk weighted assets. You said that you expect them to be of When do you update your PDs, LGDs and all the impact from rating migrations?
Is there Generally, a risk that banks in Spain will have an increase of risk weighted assets in 2021 that we of Everything on model updates will be delayed until 2021. And secondly, Could you please update us on the restructuring costs related to TSB? It seems you didn't book anything this quarter.
The capital will be reported with the closure of the 3 transactions that, as I pointed out In the presentation, are progressing well towards closing, even in some cases, of Before we expected. And in terms of RWAs, the review of of Ratings happen throughout the year. There is some seasonality, but it mostly It happens quarterly, so to speak. And part of it, yes, Part of it will happen in 2021 because there is always some delay. Of It will depend on the scenario.
So with this scenario, it necessarily won't be very significant. Of On the other hand, as I said, the ICO guarantees are providing of the new lending this year. So the loan growth of And this also plays a significant role in RWAs evolution. Of And the third one on restructuring cost in PSV, yes, we are progressing of The expected amount for that we announced in the Investor Day for the Communicating the plan in DSV hasn't changed significantly. We expect that we might have some of Savings there and the plan is progressing at and also could there is some possibility that we could even of Speed it up by the end of the year.
In the quarter, we've
of Thank you, Tomas. Thank you very much, Marta. Operator, please next question. The next question is coming from the line of Britta of SMEs from Autonomous Research. Please go ahead.
Yes. I've got three questions, please. 2 are very quick. One is Trading income expectations for 2020. Can you give us a view of what you expected for the year?
The second, just a clarification on the capital deductions. It did step up quite a bit this quarter. Maybe you can give us a bit of color what were the in euro millions, what were the moving parts? And then lastly, you do On one of your slides, the investment grade share of your corporate and SME portfolio is relatively high given that there's quite a bit of SME finance in there. What do you think explains that?
Is there a lot of collateral involved? Is there a lot of credit risk mitigation that you apply? Thank you.
Of Thank you, Britta. About Trading income, of course, a relevant part of it had to do with the sale of the Italian bonds, but we also had of Another part that came from also the sale of other bonds That were expected already in the Q1, and we actually had some of Negative items, we also it's usual that there are also negative items there. So the total of Trading income coming from the bond portfolio were in excess of EUR 100 and of EUR 65,000,000 I think. Expectations for the year, none in particular. So of We didn't sell these bonds looking for capital gains or trading income.
So the purpose of this portfolio is different. It's of is long term. So we actually rearrange of The weightings of the portfolio adapting to the environment, but not of trying to crystallize trading income. So we so far, we've exceeded the guidance that we gave for the whole year of In terms of trading income, there could be some other items, but We don't expect anything very relevant there. In terms of capital deductions, neither there is Something to call out, so the usual things.
So maybe in There were some more of how the DPAs played out in the quarter of And but nothing really that we can extrapolate or that is of Structural that will actually play out in the rest of the year. And yes, about we our proportion of investment grade of is high. This is structural to our business model. So we've always run with of This kind of structure, also in terms of collateral, it's true. We also Head of collateral, but the collateral doesn't determine the rating and therefore, of The asset the creditworthiness of the customer.
So the creditworthiness of the customer is of Established based on the customer or the obligor itself, the collateral, of Of course, reduces expected losses and so on and so forth. Of I couldn't say why this compares well in In particular with Odeo Piazza, because I don't know what they do or how they do it. Of Sorry for that, Britta.
Thank you, Tomas. Thank you, Britta. Operator, please next question. Next question is coming from the line of Fernando Hill from Barclays. Please go ahead.
Hi, hello. Thank you for taking my questions. Two quick questions from my side. First one is, on your cost of risk guidance of this 90 to 95 basis points, what GDP macro assumptions does it include? Of And the second question would be on TSB.
How much of the budget loan growth that was presented in the TSD plan last year, is it changing? Of And can you refresh the sensitivity to 100 basis points move in the rates in the UK? Thank you very much.
Of Thank you, Fernando. As we described,
of
of So we're aligned. We're consistent with the weighting of the recently announced scenarios by Bank of Spain. So it's GDP and it's also employment rate of and housing prices basically in 2021. The guidance for the year of is based basically on an evolution of the weightings of Of these scenarios towards a little bit biased towards the of More advanced scenarios amongst them. So I'm not of I'm not disclosing exactly the parameters, but I would say that they are aligned with this In terms of the growth, I don't remember well the of We can get back to you of With the exact growth level, but I would say it was between 2% 3%, of I'm not sure.
What we've seen in TSB is that for some time in this Q1 In the market, there has been a little bit of a slowdown in the mortgage market, whilst we've seen for TSB of Significant growth of new lending in Unsecured as products and Products Distributable in the different digital channels have become available. In mortgages, all banks for some time of pulled out of the higher LTV market. So there was some of Stop there. Now this has resumed, and the expectations are that there could be some, of Of course, some decrease in the evolution of this market, more coming from Customers demand done from liquidity or other market liquidity like it was in the last financial crisis, but this is still to be seen. Of Sorry, yes, the sensitivity to the 100 basis points in interest rates, we are providing The sensitivity to 10 basis points, it's 5,000,000 of Pounds, is that right?
Cecilia, can you confirm this?
Yes. It's all in the page of NII Fernando. You have the sensitivity to increase of 10 basis Points and also to all the Greece system business points.
Okay. Thank you, Cecilia.
No problem. Of So, thank you very much for joining us today.