Good morning, and welcome to Sabadell Results Webcast. My name is Betilia Romero, Head of Investor Relations. And today, we will be presenting our Q2 results. As usual, we are here today with the management, our Consejero del Elgardo and Mr. Jarmo Guardiola and our CFO, Mr.
Tomas Varela. Good morning, Mr. Varela. The floor is yours.
Good morning, everybody, and thank you for joining our results webcast. Our presentation today will follow a similar structure than other quarters. I will begin by going through the key highlights of the quarter, providing details our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Our profitability and commercial activity as well as our commercial transformation progress. And then Tomas will discuss our asset quality and solvency results. Well, I would like to begin my presentation by highlighting the 2 important previously outstanding issues that group has now addressed.
Our The announcement of the agreement to sell a substantial part of our problematic asset exposure and TSB migration to its new IT platform, Proteo4 UK. Both events are very significant in terms of their strategic implications and in terms of their contribution to enhancing the future profitability of Banco Sabade, despite having produced one off charges in this quarter P and L. The agreement to sell EUR 12,200,000,000 of NPAs to institutional investors that we have recently announced our [SPEAKER IGNACIO CUENCA ARAMBARRI:] We allow us to completely transform the bank's risk profile, accelerating the pace of disposal of strong assets ahead of our Sabadei 2020 business plan targets. These operations will substantially derisk our balance sheet, Reducing the potential uncertainty surrounding the valuation of problematic assets and the residual risk in our APS portfolios. Also, they will significantly improve profitability by reducing funding and carrying costs and the future need for provisions.
We estimate savings, including both other operating costs and cost of risk savings, of approximately €150,000,000 per year services, our business plan target. Furthermore, it is important to note that the deals announced Do not include the sale of Solvia, our real estate servicer, which will continue to manage the assets generating additional fee income that was strategy to the group's consolidation accounting. The agreement for the block sale of these assets our At a price below the net balance sheet value has required the recognition of additional provisions in the Q2 of €177,000,000 [SPEAKER IGNACIO CUENCA ARAMBARRI:] before taxes, but will have a positive impact of around 10 basis points on the fully loaded core equity Tier 1 ratio, Thanks to the reduction of risk weighted assets once the transaction are completed. The second milestone It's the migration of TSB to the new IT platform. As you know, in April, TSB moved from IT system rented From Lloyds Banking Group to a new IT system provided by Savvis.
This migration away from Lloyds What's critical for TSB and represents the final step of TSB becoming a truly independent bank. Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Despite the longer term benefits that the immigration will bring, problems were experienced by many customers in accessing different channels after the move strategy to the new system. These issues affected a large number of TSB customers to whom we were unable to provide the level of service That they have come to expect from TSB. It is important to note that we have made significant progress in addressing our strategy to address these problems since migration, as I will explain in more detail later on in the presentation. The efforts to resolve the migration related issues Have had an impact on cost in terms of resources and specialists deployed to address these problems and in terms of customer remediation.
Our The full cost, including foregone revenue and provisions for future charges as well as additional mitigation costs, amounts to €226,000,000 before tax and has been registered in the 2nd quarter result. Later on in the presentation, I will give you [SPEAKER IGNACIO CUENCA ARAMBARRI:] Year to date, net profit was our EUR 120,600,000 and excluding TSB one off items and our extraordinary provisions related to institutional NPA sales. Group net profit will have increased by 24.4% in the year, strategy to the strong commercial momentum of our business. Specifically, on this point, I would like to highlight our performing volumes ex TSB have recorded a particularly strong growth of 3.9% and 4.6% in the quarter and year on year, respectively. Overall, our core banking revenue ex TSB increased by 3.6% with commissions ex TSB growing by 9% year on year.
Please note that I will be referring to comparisons on a like for like basis to consistency purposes throughout the presentation. Finally, our pro form a core equity Tier 1 of the NPL sales ended the quarter At 11.2% fully loaded and 12.2% phase in, mainly impacted by several one off items, including sovereign volatility, ALCO portfolio rebalancing, EROS risk weighted assets growth and Sarep equity impairment. Well, as I said earlier, we have just announced the sale of EUR 12,200,000,000 of problematic assets. This was carried out in 4 transactions: Challenger, Coliseum, Galerna and Macalou, which included the vast majority of non performing assets in the asset protection scheme, non APS foreclosed assets as well as a number of write offs. Also, we announced our That the foreclosed assets sold will be transferred to 1 or more newly incorporated companies in which Sabade will hold an equity stake of 20%.
Therefore, Sanade will not consolidate any of these problematic exposures after the closing of the transactions. Through this Portfolio sales, San Diego, will spin off 43% of its problematic exposure and the net NPA ratio will fall from 2.9 percent to 1.7%. And our NPE exposure will be €8,300,000,000 Including approximately €7,100,000,000 of NPLs and €1,200,000,000 of foreclosed assets, of which 62% our Finnish buildings. Additionally, the total perimeter of assets included in the APS We'll be reduced to €3,700,000,000 including approximately €2,100,000,000 of performing credit and only EUR 0.9000000000 of problematic exposure. This will represent an 85% decrease from its original size of €24,600,000,000 As I said before, the overall impact on fully loaded core equity Tier 1 of the additional provisions registered in the quarter and the reduction in weight assets is positive for a total of 10 basis points.
[SPEAKER IGNACIO CUENCA ARAMBARRI:] As I explained earlier, after migration, many customers experienced problems in accessing their accounts through different channels. Since then, we have made significant progress in addressing these issues. By now, TSB mobile app and web logins are and have been Since early May, at the level we would normally expect. The wait times in TSB telephone channels Have consistently been in the single figure minutes on average on a daily basis since mid June. Transaction times in our branches, Which were previously slower than expected, are improving and customers are continuing to make and receive payments with normality.
Work is continuing to minimize the level of future service interruptions, and TSB is also focused on ensuring that customers our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Our compensated properly and on dealing with customer complaints. I would like to emphasize that the migration itself was a very complex project In fact, the migration of all customer records took place as expected with more than 1,400,000,000 records of 5,200,000 customers transferred to the new platform. The core banking product applications our [SPEAKER IGNACIO CUENCA ARAMBARRI:] That operate behind the scenes have also been functioning correctly, ensuring the integrity of the data and the accurate settlement of transactions. [SPEAKER IGNACIO CUENCA ARAMBARRI:] It remains the case that even with the issues experienced in the weeks after the event, the new platform will deliver benefits TSB and TSB customers in the future. TSB's new platform will be enabled to improve operational efficiency, provide operational independence and to develop a competitive value proposition, unleashing the capability to create innovative products and services.
Proteo 4 UK will also give a significant competitive advantage to TSB in terms of the time to market of new products, features and enhancements. Finally, from the point of view Of commercial activity, the problems experienced after the migration also had an impact. During the quarter, nearly 26,000 customers switched their bank account away from TSB out of more than 5,000,000 existing TSB customers. However, at the same time, over 20,000 customers opened a new bank account or switched their account to TSB during the quarter. Also, franchise lending continued to grow, increasing 1.6% quarter on quarter and deposit balances increased by 0.7% in the quarter.
Moving on to the next page. We can see, as I mentioned earlier, that group results were impacted by several extraordinary items in the quarter related to the incidents that emerged following the IT migration, which amounted to €203,000,000 in costs. Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] This amount includes the foregone income related to the temporary waiver of fees and charges, fraud and other costs and additional resource and advisory service costs. It also includes a provision of €92,000,000 for all future customer redress costs in relation to the immigration and the associated remediation resource cost. During the second half of the year, we expect final cost related to TSB migration to include additional resource cost in runoff through the rest of the year and foregone income of approximately 1.1 GBP 1,000,000 per month to cover the cost of the higher interest on the TSB Classic Plus account.
We expect 2019 to be a normalized year for TSB. Now I will move I will continue to reviewing our quarterly profitability and efficiency highlights. The key drivers of our profitability in the quarter included our A positive evolution of performing loans, which grew by 2.9% quarter on quarter at the group level and by 3.9% ex TSB, driven by a solid performance of SMB segment and positive mortgage growth in Spain. Net interest income performed very well ex TSB, Going by 1% quarter on quarter, underpinned by strong volumes and resilient SME yields, Despite the cost of strong liquidity levels and negative eurorebor rates. At the group level, NII decrease quarter on quarter impacted by the cost of TSB customer remedies.
Fees and commissions Grew by 9% 63% ex TSB for the group and for the group, respectively, year on year. [SPEAKER IGNACIO CUENCA ARAMBARRI:] In the quarter, they increased by 2.5% and 6.5% for the group and XGB respectively, supported by a positive performance in service and asset management fees. Overall, we saw strong core banking revenue ex TSB of 2.7% in the quarter and 3.6% in the year, which is a testimony of our strong commercial firepower in Spain. Moving on to the income statement. Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] It's important to note that net profit was impacted by several one offs and seasonal items in the quarter.
As I have explained before, the 2nd quarter P and L includes €177,000,000 in provisions related to the institutional our sales and one off related TSB migration for EUR 226,000,000 which impacted other operating results, operating costs provisions and impairments. Excluding these two one off charges, group net profit actually increased by 24 EUR 50,000,000 to the single resolution fund, which is included in other operating results, both at group and ex TSB level. This payment usually takes place in the Q2 and it impacts the comparability of quarter on quarter. Also, we have registered EUR 21,000,000 of additional provision on our Sarep subordinated debt, which impacted trading in the quarter. And finally, the change quarter on quarter of the trading income is affected by the fact that we materialize strategy.
[SPEAKER IGNACIO CUENCA ARAMBARRI:] In the Q1, most of the trading gains, including our plan for the year. We will now go into more detail. And as usual, We will provide you with a breakdown of Sabadell and TSB results. Firstly, net interest Income ex TSB increased quarter on quarter by 1%, driven by strong volumes and resilient spreads. In addition, TSB contribution to NII [SPEAKER IGNACIO CUENCA ARAMBARRI:] Decrease in the quarter impacted by EUR 30,500,000 of foregone income in relation to post IT immigration customer remedies.
Overall, group NII decreased by 1.6% in the quarter in constant FX, but increased by 1.9% when excluding Customer split ex TSB remained robust and stable at 2.72, despite the strong liquidity levels quarter on quarter and negative rates pressure. This was possible thanks to our ability to defend pricing and growth in the highest yielding geographies and customer segments. At TSB, spreads were down mainly due to the impact Excluding the impact of TSB 1 offs grew by 2 basis points in the quarter, helped by a lower wholesale funding cost, which fell TSB remained robust and stable but was impacted by TSB one offs at a group level. Customer loan yields ex TSB and for the group, excluding TSB, one offs remain reasonably flat, thanks to a positive volumemix evolution. This positive performance of our customer loan yield was possible in spite of the negative effect of the rebar repressing downwards by 6 basis points strategy over the previous 12 months.
On the cost side, the cost of customer funds, ex TV and group ex TV one offs, increased by 1 basis points quarter on quarter due to the higher volume growth of foreign currency deposits in the quarter. Now we will move to on to fees and commissions, which is an important pillar of our path to profitability presented in our Sabade 2020 strategic plan. Commissions recorded a strong performance, accelerating the pace from previous quarter and are on track to deliver the double digit growth targeted for the full year. In fact, fees and commissions grew by 6.3% year on year for the group, 7% for the group excluding TSB customer remedies our And by 9%, ex TSB. In the quarter, commissions were up by 2.5% for the group, 4.2% for the group excluding TSB customer remedies and 6.5% ex TSB.
Both Asset Management and Service fees recorded a positive performance. For TSB, the quarter on quarter decrease was mainly due to TSB post IT immigration customer remedies, which had a one off of negative impact of €5,500,000 in commissions. In this slide, we take a closer look to at ad trading strong financial performance in the quarter. The size of our fixed income portfolio Was reduced from €27,600,000,000 to €24,700,000,000 in the quarter, including a decrease our exposure to Italian government bonds from €9,700,000,000 to €5,900,000,000 with no Italian exposure remaining in our fair value portfolio. This was achieved while recording a trading gain of €28,000,000 We was partially offset by the increase in provisioning of our Sarep subordinated debt structure.
We had a negative impact of trading of €21,000,000 Finally, market volatility together with the sale of some of our fair value portfolio decrease our valuation adjustments in the fixed income portfolio to €36,000,000 in the quarter. We had our strategy to expand our strategy to the company. [SPEAKER IGNACIO CUENCA ARAMBARRI:] A negative impact of approximately 30 basis points on fully loaded core equity Tier 1. Regarding expenses, as I mentioned earlier, this quarter, our operating cost line has been impacted €66,000,000 of non recurring expenses, of which €35,000,000 correspond to TSB post migration issues cost and EUR 23,000,000 to additional IT migration costs. [SPEAKER IGNACIO CUENCA ARAMBARRI:] Excluding these nonrecurring items, group recurring costs were actually down by 2.6% in costs and FX quarter on quarter 2 to lower payments as TSB completed the immigration to its new technological platform.
Ex TSB, costs were relatively stable strategy in the quarter. Well, we will move now on to commercial activity and transformation. As I highlighted before, our banking business commercial performance across the group continues to show very encouraging signs. In Spain, we delivered strong commercial results with performing loans increasing by 3.6% in the quarter, Boosted by very positive dynamics in the SMB segment, where we have grown our business our volumes In addition, our mortgage portfolio growth was positive, something that had not occurred in the last few years. We also saw positive balance sheet momentum with funds growing by 1.2% in the quarter and mutual funds growing by 1.7%.
In the UK, as expected, TSB growth was slightly slower as the main focus was on migration, our And it continues with positive balance sheet trend, recording 1.6% net franchise lending growth in the quarter. And in Mexico, we continue to see strong growth in customer lending and customer funds with a double digit increase of 15.9 percent in performing loans volumes during the quarter. The following slide shows a more detailed breakdown of the evolution of customer loans and funds that I just highlighted. On the asset side, performing loans volumes, excluding the APS NPL runoff, Had a very positive performance and grew in the quarter by 2.9% for the group and 3.9% ex TSB. Additionally, it's important to note the reduction in our fixed income portfolio of €3,000,000,000 as explained earlier.
Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] On the liability side, we registered strong liquidity inflows quarter on quarter, both at the group and ex TSB levels, driven mostly by site accounts. Also, Central Bank deposits went down by €600,000,000 in the quarter. Of balance sheets also had a positive evolution, which was mainly driven by mutual funds and third party insurance products. Looking at the performing loads by region, including the impact of FX, it is in this slide, you can see That there was a positive performance across geographies in constant FX. In the quarter, Spain grew by 3.6%, 3.8% in the year, while TSB fell by 1.1% in the year, mostly due to the negative effect of FX.
TSB volumes actually increased by 0.7% quarter on quarter, 2.8% in the year when excluding the FX impact. And Mexico grew even more in the last quarter with performing volumes increasing by 14.4 percent, Now looking at the performing loans ex TSB by segments. We can see the very good performance of SMEs and Corporate segments, which increased by 2.4% and 7.4% in the quarterly, respectively. And also, it's important, as I said before, our [SPEAKER IGNACIO CUENCA ARAMBARRI:] The positive trend in mortgages with the segment showing a growth of 0.4% in the quarter. Regarding pricing, a lower front book in mortgages and the effect of negative rates on yields were offset our by a positive evolution in the lending mix and the spread increases in SMEs and corporate segments across products.
Consumer loans from book yields also regain stability in the quarter. It's also important to note that front book yields continue to stand above back book strategy to grow in the highest yielding segments, which will continue to support the evolution our profitability going forward. Looking at the commercial activity in Spain, Our performance continues to be very positive. I would like to highlight our double digit growth in new lending in both companies and individuals. We have also been able to generate double digit growth rates our relevant commercial areas such as pension accounts, car turnover, point of rate turnover and new insurance premiums.
This positive performance is reflected once again in our market shares. As you can see in this slide, since the beginning of 2018, we have increased our market shares in customer loans and assets under management. We have also grown across products for both companies and individuals. In the company's segment, I would like to highlight the year to date increase in the market share of point of sale turnover and loans to SMEs. Growing in the SME segment is one of our key focus areas.
And I would like to point out that more than 50% of Spanish SMEs work our [SPEAKER IGNACIO CUENCA ARAMBARRI:] With Banco Salvade. In the individual segment, year to date, credit card turnover, loans to households market share performed very positively, Regarding customers' experience and service quality, once again, we hold the top position in Accenture Net Promoter Score ranking for both SMEs And large companies where we achieved our best score ever. And in Personal Banking, we were ranked 2nd. We also continued to surpass the industry average in terms of Maintaining the Gap Between Ourselves and the Rest of the Sector. In the U.
K, as I mentioned earlier, it's important to note that [SPEAKER IGNACIO CUENCA ARAMBARRI:] TSB intentionally slowed down some of its sales capability to focus on migration. Nevertheless, net lending growth increased by 0.7% in the quarter, Which has which was above the growth recorded last quarter. Additionally, quarterly growth increased by 1.6% for franchise Mortgage lending when excluding the runoff of Whistle 3 portfolio. Overall, TSB extended 1,400,000,000 in new mortgage loans in the quarter. Mortgage portfolio loan to value also continued to be low at 45%.
On the liability side, current accounts grew by 0.6% quarter on quarter and 9.1% year on year. Saving deposits were down quarter on quarter, reflecting mostly pricing decisions taken early in 2018 to manage deposit volumes through our 2018 dividend in the world saving account season, given TSB strong liquidity position. Overall, TSB LCR increased to 314% in the quarter. Moving on to Mexico. Our commercial activity continues to deliver Our first question comes from the line of Tullia
Romeron, Head of Investor Relations.
And today, we will be presenting our our as a result of our focus on deposit gathering to accelerate the local funding gap. We also continue to open new business centers in the country major cities system, which we launched in the beginning of 2018 and has already reached more than 2,000 customers with very positive satisfaction rates. We will now turn to commercial and digital transformation, looking first at the key performance indicators. Our Sabade has increased the number of its digital and mobile customers by 12% and 22%, respectively, year on year. Digital sales remain
at
high levels, And I would like to highlight the increase in sales through digital channels of unsecured loans in Spain, which increased by 52% year on year. Lastly, approximately 800,000 individuals are under remote management in Spain. 89% of transactions are executed through digital channels and commercial impacts based on business intelligence have increased strategy by 43% year on year. And to end this section of the presentation, let me briefly explain some of the initiatives during the quarter related to our progress in commercial and digital transformation. First, We have continued to simplify customers' interaction with the bank with a view to improving customer experience with the launch of immediate loans and dedicated Mortgage Service Centers.
In terms of the digital offering, we have continued to improve the user experience of our digital channels. In addition, last month, Solvia launched Solvia Price Index and Location Intelligence, 2 intelligent tools to help users to determine our [SPEAKER IGNACIO CUENCA ARAMBARRI:] The price of real estate property and to assist people in their decision to buy, sell or rent a house. And finally, we have continued to our strategic investments through Innocells, our digital hub, to bring Banco Sabade a step Closer to the early identification of disruptive technologies, we are applicable in the financial environment. Inozel has acquired Instant Credit, a multi lender online platform for consumer finance, and it has also made an investment in Cardumeb Capital, our venture capital fund focused on Israeli startups. I will now hand over to Tomas, who will discuss solvency and asset quality.
Thank you, Xiaoma. Yes, I turn now to Solvency and Asset Quality, and we'll start with the Quarter highlights. The reduction in the quarter of total NMPAs has been notable both in terms of our The organic and non organic activities, it's been EUR 7,000,000,000 which drove down our The NPA ratio pro form a, the net NPA ratio pro form a to 1.7%, our below our guidance, our targets in our business plan for the end of the plan in 2020, already achieved now though. Our Therefore, the NPL ratio pro form a stands after the sales of the portfolios and the organic activity our It stands at 4.5 percent with a pro form a NPA coverage of 54.6%. As I said also, the organic NPA reduction in the quarter was outstanding with EUR755,000,000 reduction, which included €511,000,000 in NPL reduction our €439,000,000 well above the average of many quarters in a row before our Our foreclosed assets sales by Solvia.
Those sales, again, were our Don at a premium. At the end of all this, at the quarter, the pro form a Fully loaded CED ratio stands at 11.2%. That our We will explain, I will explain later the analysis of change between the end of March and the quarter, our [SPEAKER MARCO TRONCHETTI PROVERA:] Which have encompassed several factors, but still Sound capital position, well set in our forward looking financial planning, our [SPEAKER IGNACIO CUENCA ARAMBARRI:] And we will discuss this afterwards. Here is the analysis of change. We started the quarter at 12%, our 6 basis points have been reduced by the addition of intangibles, the organic addition of intangibles throughout the quarter.
11 basis points have been our [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] impacted by the impairment of our stake in Sarep, both in terms of Equity and sovereign debt. This actually [SPEAKER IGNACIO CUENCA ARAMBARRI:] Represents the crystallization of an embedded risk that we had in this exposure. Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] The occurrence of this crystallization means that we've used this capital, of course, but it means that our The exposure, of course, has been derisked. The net exposure now is 77,000,000 our [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And therefore, the risk represented by it has been substantially, strategy. 32 basis points have been impacted by valuation adjustments in the ALCO portfolio throughout the quarter, where we've explained that we reduced our exposure to our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Italy and we manage the portfolio also actively in terms of other exposures.
Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] The impact of the volatility that we've seen in the quarter in the prices of those assets has meant our [SPEAKER IGNACIO CUENCA ARAMBARRI:] That the impact has represented 32 basis points, as I said. There are further 25 basis points that have been taken by the change in the criteria, the policy of recognition of NPLs in TSB from the Standard there of 180 days past due to 90 days as aligned with the SSM our Expectations are the own group's expectations. This represents 25 basis points. And then other factors, including organic growth, have taken 12 basis points. Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Therefore, the resulting ratio previous to the impact of the sale of the portfolios gets down to 11.1%.
The impact of the additional provisions that have been caused by the sale of portfolios our It's 15 basis points down. And pro form a, if we impact the release of the related RWAs, the our RWA related to these portfolios, we get we obtained a gain of 25 basis points. That sets the pro form a ratio at the end of the quarter in 11.2% that in terms of phase in It's 12.2%. This is a level that situates us in the back our of our peers in Spain and is a comfortable capital level for us, our especially our After having so substantially derisked the balance sheet and our risk exposures our And also, by the same reason, improved our profitability outlook our throughout the rest of the business plan as compared with the figures that we presented. So therefore, enhancing our capacity of our organically generating capital through this improved profitability outlook.
In terms of the evolution of the NPL ratio, after we can see here how we our How is it looks like in the accounts, but also the pro form a after the impact of the sale of the portfolios. So it goes down to substantially to 4.71% and 4 0.5% when the portfolios are impacted. The evolution of the stocks our [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Of NPLs, foreclosed assets are the total NPAs here reflect The activity that I just described in the quarter, so the reduction in the organic reduction of 755,000,000 our Total reduction in NPAs with the €511,000,000 reduction in NPLs our And the EUR 244,000,000 reduction in foreclosed assets as the result of the more than EUR 400,000,000 of sales, I guess that, As I said, well above the average of the previous quarters, less the increase our [SPEAKER CARLOS GOMES DA SILVA:] That the foreclosure of some of the collaterals linked to reduction in NPLs meant for the stock. The sale of portfolios meant a reduction of EUR 6,200,000,000. Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Therefore, we can see here in the light gray blocks how pro form a the stocks after the consideration of the impact of the sales, the portfolio sales.
So our The total NPLs stand at less than €7,000,000,000 They already our went down this level of €7,000,000,000 only through the organic activity to €6,900,000,000 our The portfolios here has an additional further reduction to EUR 6,600,000,000 EUR 6,700,000,000 actually. Our The bulk of the reduction looks shows up more importantly in foreclosed assets, our Where the remaining amount after the sale is €1,200,000,000 62% of this our It's a finished product. And of course, we present here also the EUR 1,300,000,000 our [SPEAKER IGNACIO CUENCA ARAMBARRI:] of land or assets, not only land, but assets under the split activity our that we presented at the end of 2017 for Solvya Developments. All in all, year on year, we've seen a reduction of EUR 9,500,000,000 as can be seen in the that I just described. In terms of the evolution of the sales, our So to speak, organic sales of foreclosed assets in the quarter, we can say here exactly what I our So €439,000,000 in sales that compare with the previous quarters at 2.83 our So well above this average.
So the underlying activity has been strong and the trends continue to be strong in terms of number of properties we can see in the left hand side our Also in terms of number of properties, the quarter was significantly better than the previous quarters. And also, as I said, we've continued to sell these properties at a premium. Here is the breakdown of the coverage, our So showing both the stocks, the gross stocks and the provisions levels with coverage in the different our lines of the NPAs. Pro form a, we can see that as seen before, the coverage of NPLs remains at 56 our [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Present the EUR 1,200,000,000 of foreclosed assets are still to Remain in the stock, pro form a will have 46.6 percent coverage ratio our That I will remind everybody that this is basically 62% of it is finished product. And then the resulting pro form a coverage for the NPAs is 54.6%.
And the ratios of problematic assets over gross loans to customers plus for gross assets is pro form a at the end of the quarter, 5.6% our And as I presented already earlier, 1.7% in terms of the net NPA exposure to the real assets after A reminder of the low risk profile of DSV that It keeps progressing the same as positive as it's been our Overall these quarters, so just to remind, buy to let represents only 15% of the portfolio. Our The mortgage lending has an average LTV of 45%. Interest only concentration is circa 27%, our Excluding WISIL 3, this compares very positively with the average of the industry our And a strong capital position with CET1 ratio of 19.2%, a levered ratio of 5.3% our And high proportion of the funding, which is embedded in TSB's culture, in PCAs, current accounts, our [SPEAKER MARCO TRONCHETTI PROVERA:] It's higher than 35%. And with this, Chioma, I end this section of the presentation. Thank you.
Our Back to Cecilia.
Yes. Thank you, Tomas. I will start now with the questions that we received from our audience throughout the webcast. And the first question is to you, Thomas. Could you please give us an indication of the additional costs related to CV expected for the second half of the year.
And could you also comment if there was any there will be any additional costs for 2019?
Yes. Thank you, Cecilia. We've presented the provisions that TSB has posted at the end our There are some items there that still will have a run rate. Of course, the our Increase of interest rate from 3% to 5% for Classic Plus current accounts our still is on and this represents EUR 1,200,000 per month as compared with the business plan that has been presented. Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] And in terms of cost, there are other items in terms of the cost to fixing the our Problems created after migration with advisers, 3rd party suppliers, some items there still have run cost, our Running costs.
So the initial view on the departure view on the average running cost for those concepts our It's around €7,000,000 per month and the management has clear targets and goals to reduce this over the coming months as quickly as possible our [SPEAKER MARCO TRONCHETTI PROVERA:] Sorry, I yes, about 2019, our We don't see now any reason. So all these the costs related to our Solving the situation, as we've stated already, are considered to be absorbed within 2018. So we don't see any reason now to further costs unfolding into 2019 our And therefore, nothing to make me say now that our view on 2019 should be changed
our And regarding the provision for customer redress, could you explain a little bit further what are the concepts involved. And also, can you comment on the possibility of or whether you expect signed from the U. K. Regulator.
Yes. So the position for the customer address includes our position on the thorough screening of the causes of complaints our from TSB's customers and the associated costs related to any of these circumstances And also includes the expectations of costs related to our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Handling the whole process. A huge priority has been put in solving this as soon as possible our [SPEAKER IGNACIO CUENCA ARAMBARRI:] With the clear, committed principles of TSB towards TSB's customers in terms of Solving and not letting them with something without being remediated and compensated appropriately. So this also includes this our assessment of the associated costs to handling all this process. And in terms of any potential fines, the process our by which these fines are determined by the regulators is based on investigation.
The investigation is in the very early stages. TSB's convincement is that our The quality assurance and the governance of the process was thorough and sound. This will be Put forward in TSB's participation in the investigation. Our So it's the very early stages to form an opinion on whether fines are likely or not. Our [SPEAKER MARCO TRONCHETTI PROVERA:]
And also on TSP to you, Thomas, Mr. Guardiola already discussed a little bit on the presentation, but our audience was also interested in maybe perhaps hearing again undecurring status, maybe in more detail of TSB services. [SPEAKER MARCO
TRONCHETTI PROVERA:] Well, yes, as you say, I think it was Jean already our Refer to these TSB's mobile app, online banking, telephone banking and branch service levels are now much improved after the issues caused, our [SPEAKER IGNACIO CUENCA ARAMBARRI:] After migration and have been so for some time, we continue to work to minimize the level of potential our And we keep keeping our customers our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Updated on the status through different channels. The mobile logins and web logins are at the level that we would expect our And have been so since early May, the wait times in our telephone channel have our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Consistently been in the single feature minutes on average on a daily basis since mid June. All branches are Working as usual with transaction times much improved from the levels that our [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] We're on for some time that were slower than our expectations and what they used to be pre migration our [SPEAKER IGNACIO CUENCA ARAMBARRI:] And our improving and transactionality, including cash flows in and out the bank our We are working and functioning normally with the usual transaction for customers happening our [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] So this is a more detailed description of the status
Thank you very much. And to you, Mr. Guardiola Jarma. Our audience is also asking if you could a little bit describe what has been the impact in clients and volumes and overall to TSB franchise strategy coming from the events that unfolded after the migration.
[SPEAKER IGNACIO CUENCA
ARAMBARRI:] Okay. Well, as I said before in the presentation, From the point of view of the number of customers, around 26,000 customers reached their account our [SPEAKER IGNACIO CUENCA ARAMBARRI:] away from TSB during the Q2, but at the same time, 20,000 customers opened a new bank account or switched their account to TSB. [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] Also in terms of volumes, as I said, mortgage and PCAs are slightly up in the quarter. But obviously, this is as a result of a great effort and [SPEAKER IGNACIO CUENCA ARAMBARRI:] In terms of commercial decisions that we have taken to convince customers that were affected by the problems of the infrastructure To remain with us, like for example, waiving the overdrafts and credit cards, fees and interest, especially during our The weeks where we suffered most of the problems in the fracture service. Also, there has been a very strong and incredible effort that has been done by our people in TSB, our TSB partners to serve their customers, to deal with the problems, to deal with the complaints.
And my conclusion is that I think that we expect to retain the most of our customers and to regain the confidence that they have our [SPEAKER IGNACIO CUENCA ARAMBARRI:] With the service that was given by TSB and we are really positive in terms of expectations because the platform is, as Tomas has said a moment ago, is really improving very quickly. So I think that we will be able
Thank you very much. And now moving on to capital. Tomas, the audience is asking how comfortable argue with the 11% or 11.2% CET1 percent ratio?
I think I I also referred to this in a previous also throughout the presentation. We are comfortable. We are now we were ahead our Above the average of our peers in Spain, we are now in the pack. Those are comfortable levels for us, and we expect the ratio to remain stable broadly Throughout the year. And even if there are our our but this can always have an impact, but also there are positives.
And therefore, we think our The outlook for the ratio is broadly stable. And particularly, as I said, our Since we are at this stage after the huge derisking that we've seen in our Our balance sheet and our exposure and this also boosts an improvement in organic profitability for the remaining our 2 years of the business plan and therefore the capacity to organically generate capital It's been also enhanced. Our position, as I said, is comfortable with these levels.
Thank you. And also regarding capital, what are the reasons for TSB Retail IRB models adjustment. And could we expect further changes?
Our This is something is a difference in the standards used for recognition of non performing loans. Our Yes, we was using the standard there, which is 180 days and group has always worked on our 90 days and also the SSM expectations are 90 days. So therefore, this is not that it has had an impact our on NPL's recognition in a change. It means that the models include This change of earlier recognition of NPLs and therefore, this represents an impact our on the RWAs outcome of the models after incorporating this change. Our Going forward, of course, as the TSB models are subject to the approval reviews, continuous approval reviews of the PRA in the U.
K. And the SSM, our group regulator. Our But at this stage, and we are throughout this process, but at this stage, we don't see any reason for this Meaning, further changes in the models.
Thank you very much. And now, Mr. Guardiola, we're moving on to commercial activity in Spain. And top line trends look good this quarter. Do you think this will continue?
Yes, we expect this to continue. I think there is a combination of very good our performance of the Spanish economy, at the same time, a strong 5 power commercial 5 power of Banco Salare that we have shown during the last [SPEAKER MARCO TRONCHETTI PROVERA:] Yes. And that's why this quarter, our business in Spain has shown an strong performance, both in volumes, also in commissions, in fees. And we expect this trend to continue Through the year, in fact, we have said in the presentation that this acceleration in fees and commission our [SPEAKER MARCO TRONCHETTI PROVERA:] It's in the track of our expectations for the year. There was a double digit growth for fees.
And so we are absolutely confident to meet our targets for 2018 in terms of volumes, in terms of revenues And also throughout the Strategic Plan 2020.
Thank you. And also, Mr. Guardiola, in regards to yields, while we managed to keep yields more or less stable during the quarter, we saw some pressure in mortgages. The audience is wondering whether you see this continuing or your overall outlook on competition.
Yes. As I said, there has been a strong competition in the first half of the year, especially given the positive current economic environment in Spain, and this is especially clear in mortgages. At the same time, the euro rates bottom. [SPEAKER MARCO TRONCHETTI PROVERA:] So looking forward, we expect some stability in price competition and therefore, yields to remain broadly at the current levels.
Okay. Thank you. And also for you, Mr. Guardiola, the and the Aries is asking now on regards to potentials or whether you will consider selling Solvia. [SPEAKER MARCO TRONCHETTI PROVERA:]
Well, as I said also our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Also, the presentation, Saudi is not included in the perimeter of our NPA sales. There's a difference with other transactions. We have seen them in the Spanish market. But it's very important to note, I think that we have said permanently in our presentation that Solvia It's a special real estate service, so Perketiteli has not only serves the portfolio of the bank, is they have other customers. [SPEAKER IGNACIO CUENCA ARAMBARRI:] So
we consider that
Solvio has for saying, let's say, an industrial value. And we are very proud of the job that we had in Solvia. So as we have said, obviously, during the last The option of selling Solvio is an option that we may we would make consider. Probably, it's not there are nothing concrete in the table, but it's an option that could be done.
Thank you very much. Mr. Rivarella, on we're coming back to the U. K. And our audience was asking if strategy.
Do you predict any cost inflation as a result of further investment in the IT and the IT platform during the second half?
Our [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] No, the platform after the problems that we've experienced are solved, our TSV's management are fully convinced of the power of the platform to our Create an improved service to our customers and benefits for our customers our And also its power to drive cost efficiency. And as I said our Before, the costs associated to fixing the problems that we've experienced our In these figures that we've provided in terms of the provision created and the guidance for the second half [SPEAKER IGNACIO CUENCA ARAMBARRI:] include the absorption of the total cost in 2018 of fixing the situation. Our [SPEAKER IGNACIO CUENCA ARAMBARRI:] And nothing at this stage makes me think that out of this fixing of the situation, There will be additional cost for the future. So basically, I don't have reasons to believe now that The story that we presented for the performance of the platform and the cost efficiency our
Thank you. And talking about capital gain. And we have been asked, what's the sensitivity of your capital to changes in the risk premium. And what is the dilution that we should expect on NII for Q3 after rebalancing our ALCO portfolio, including reducing its size and whether you think we can mitigate this lower contribution somehow.
The sensitivity of our capital ratio to our 100 basis points increase our Derived from the fair value OCI portfolio is circa 25 basis points For the Spanish risk, for the Spanish exposures, for all the yield curves in our portfolio, our It is 20 basis points. We don't have now any exposure to Italy in this portfolio. Our Our remaining exposure to Italy is in the amortized cost portfolio. Our And therefore, for the total exposure, as I said, the sensitivity is 20 basis points. Our We don't expect any dilution in the NII coming from this since any potential decrease on the contribution of the portfolio due to the management of the exposures that we've performed throughout the quarter.
Our We see potentially more than offset by the strength of the core banking business that we've seen our And also the performance of the rest of the balance sheet. So we don't expect effects on NII coming from this.
Thank you very much. And on NII guidance, the audience is asking if you could update us what you expect for NII for the end of 2019.
I'm not changing substantially the guidance that we already
Now moving on, Mr. Guardiola, to TSB, to the U. K. Are you still willing to consider bidding for some of the portfolios of RBS, given the difficult integration and the problems we have experienced in TSB.
Well, we remain committed to our mission to make banking better for small businesses. We have our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Large and old experience in Spain doing that. In fact, this is what explains more our [SPEAKER IGNACIO CUENCA ARAMBARRI:] So and now we have obviously, we have suffered a lot of bumps To arrive to this moment, we have but we have the platform, the perfect platform to serve small businesses in U. K. So We will continue with our application to apply and bid for the RBS remedies.
Perfect. Thank you. Tomas, the audience is asking what's your best estimate about TSB cost basing in 2018 and what about 2019?
I think I've already covered in Trigga's answers. So our The cost estimates for 2019 would be basically what we our [SPEAKER IGNACIO CUENCA ARAMBARRI:] So in the business front for the year, plus the impact of the costs related to fixing the our situation that we've experienced post migration. And through 2019, our The evolution that we should see given that those costs are one offs shouldn't our significantly changed from what we saw in the business plan with the impact or the full impact of the expected synergies.
And also regarding guidance, on net profit, we are asked what's your estimate for the end of the year?
For 2018, as we've seen the core banking business performance is being strong results. In terms of NII, we are faring our A bit better than expected in terms of volumes, definitely, in Spain. And in terms of our Fees and commissions, whilst we have been behind in the Q1, the catch up, I think it's been notable in the Q2. So we expect that in the second half of the year, we will achieve double digit growth. Our And as I said, with volumes trading above expectations, I think it's clear that the underlying core banking business performance in the year has been good.
So exit for the impact of the situation in TSB and the impact of The sale of the portfolios that on the other hand have represented this huge de risking. All the other things are in line with the guidance that we gave for 2018. Therefore, we could expect that the net income for the year should be our What we had anticipated with the adjustments of what we've seen in terms of both the TSB situation and our
Thank you. And going back again to the U. K, we've been asked around the customer redress for provision that we've made on the quarter. And the audience is interested to know what makes you comfortable that the size is the right one and how do you went about to calculating or deciding how much this would be.
If anything, in the assessment of the provisions and the outlook for the additional cost in the Q2. DSV's management have wanted To make sure that there is no lack of cautiousness and prudency. And in terms of the redress provision itself, it's
our [SPEAKER JOSE
ANTONIO ALVAREZ ALVAREZ ALVAREZ:] It's been based on the, as I said, the screening of the root causes of the customers' complaints, understanding the impacts our on the customers complying with the principles that TSB announced for our of the cost has been made taking into account this and all the, as I said, screening of the different causes for complaints of our Therefore, as I said, since I see that there is no aim to there is no appetite for falling our [SPEAKER MARCO TRONCHETTI PROVERA:] In lack of cautiousness and prudency, I think these
Thank you. Mr. Guardiola, we have received a lot of questions on dividend policy and whether would you consider changing your dividend policy?
Well, obviously, the decision the policy is the decision has to be taken by the Board of Directors, but we are not considering to change our payout policy.
Okay. Thank you. And we have one final question. And it's whether do you confirm the targets for 2020?
Yes, we will confirm the targets for our plan 2020, obviously, supported in the outstanding performance in Spain, also the retrace of the situation of TSB, also the de risking, the high risk that we have in our balance sheet. So I think that we have our A lot of reasons to expect to reach the targets that we have in our plan. Maybe.
Yes.
Let's now, Javier, even maybe mentioning that in terms of the NPA performance, We already achieved better levels than those embedded in our guidance for 2020 because our net NPA exposure It's now 1.7 pro form a, whilst we had guided towards 2. Our The level of NPAs is pro form a now below €9,000,000,000 towards which we had guided at the end of 2020. So in this, we are already here. And our aim and our potential is to keep reducing strongly our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Organically, this posture, so in this regard, this should be much better for in terms of the business, as you said. And our [SPEAKER IGNACIO CUENCA ARAMBARRI:] Yes, I think it's worth reminding the market that we are now already better in this regard than our what we have said for the plan.
Well, thank you very much, Mr. Varela, Mr. Guardiola. This brings our webcast to an end. Our Investor Relations department.
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