Good morning, and welcome to Sabadell Results Webcast. My name is Cecilia Romero. I am Head of Investor Relations, and today we will be presenting our second quarter results. As usual, we are here today with the management. Our Consejero Delegado, Mr. Jaume Guardiola, and our CFO, Mr. Tomás Varela. Good morning, Mr. Guardiola. The floor is yours.
Good morning, everybody, 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 of our profitability and commercial activity, as well as our commercial transformation progress. Tomás will discuss our asset quality and solvency results. You will then be able to ask any questions you may have. Sorry. Well, I would like to begin my presentation by highlighting the two important previously outstanding issues that the group has now addressed. The announcement of the agreement to sell a substantial part of our problematic assets exposure and TSB migration to its new IT platform, Proteo4UK.
Both events are very significant in terms of their strategic implications and in terms of their contribution to enhancing the future profitability of Banco de Sabadell, despite having produced one-off charges in this quarter P&L. The agreement to sell EUR 12.2 billion of NPAs to institutional investors that we have recently announced will allow us to completely transform the bank's risk profile, accelerating the pace of disposal of problematic assets ahead of our Sabadell 2020 business plan targets. These operations will substantially de-risk our balance sheet, reducing the potential uncertainty surrounding the valuation of problematic assets and the residual risk in our APS portfolios. 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 EUR 150 million per year versus our business plan target.
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 previously eliminated from the group's consolidation accounting. The agreement for the block sale of these assets at a price below their net balance sheet value has required the recognition of additional provisions in the second quarter of EUR 177 million 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 transactions are completed. The second milestone is 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 Sabis.
This migration away from Lloyds was critical for TSB and represents the final step of TSB becoming a truly independent bank. Despite the longer-term benefits that the migration will bring, problems were experienced by many customers in accessing different channels after the move 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 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.
The full cost, including foregone revenue and provisions for future charges, as well as additional mitigation costs, amounts to EUR 226 million before tax and has been registered in the second quarter result. Later on in the presentation, I will give you some more detail on this. Year to date, net profit was EUR 120.6 million and excluding TSB one-off items and extraordinary provisions related to institutional NPA sales, group net profit will have increased by 24.4% in the year, thanks to the strong commercial momentum of our business. Specifically, on this point, I would like to highlight that 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 forma core equity Tier 1 of the NPA sales, 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, risk-weighted assets growth, and Sareb equity impairment. Well, as I said earlier, we have just announced the sale of EUR 12.2 billion of problematic assets. This was carried out in four transactions, Challenger, Coliseum, Galerna, and Makalu. 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 that the foreclosed assets sold will be transferred to one or more newly incorporated companies, in which Sabadell will hold an equity stake of 20%.
Therefore, Sabadell will not consolidate any of these problematic exposures after the closing of the transactions. Through these portfolio sales, Sabadell will spin off 43% of its problematic exposure, and the net NPA ratio will fall from 2.9% to 1.7%. And our NPA exposure will be EUR 8.3 billion, including approximately EUR 7.1 billion of NPLs, and EUR 1.2 billion of foreclosed assets, of which 62% are finished buildings. Additionally, the total perimeter of assets included in APS will be reduced to EUR 3.7 billion, including approximately EUR 2.1 billion of performing credit, and only EUR 9.9 billion of problematic exposure. This will represent an 85% decrease from its original size of EUR 24.6 billion. 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.
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. TSB is also focused on ensuring that customers are compensated properly, and on dealing with customer complaints. I would like to emphasize that the migration itself was a very complex project of unprecedented size and scope in the industry.
From the standpoint of data integrity, the migration went as planned. In fact, the migration of all customer records took place as expected, with more than 1.4 billion records of 5.2 million customers transferred to the new platform. The core banking product applications that operate behind the scenes have also been functioning correctly, ensuring the integrity of the data and the accurate settlement of transactions. It remains the case that even with the issues experienced in the weeks after the event, the new platform will deliver benefits for TSB and TSB customers in the future. TSB's new platform will be the enabler to improve operational efficiency, provide operational independence, and to develop a competitive value proposition, unleashing the capability to create innovative products and services.
Proteo4UK 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 million existing TSB customers. At the same time, over 20,000 customers opened a new bank account or switched their account to TSB during the quarter. 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 million EUR in cost. 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 million EUR for all future customer redress costs in relation to the migration and the associated remediation resource cost. During the second half of the year, we expect final costs related to TSB migration to include additional resource cost in run-off through the rest of the year. Foregone income of approximately 1.1 million GBP per month to cover the cost of the higher interest on the TSB Classic Plus account.
I will continue reviewing our quarterly profitability and efficiency highlights. The key drivers of our profitability in the quarter included 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 SME segment and positive mortgage growth in Spain. Net interest income performed very well ex-TSB, growing by 1% quarter-on-quarter, underpinned by strong volumes and resilient SME yields, despite the cost of strong liquidity levels and negative Euribor rates. At the group level, NNI decreased quarter-on-quarter, impacted by the cost of TSB customer remedies. Fees and commissions grew by 9% and 63% ex-TSB for the group, respectively, year-on-year.
In the quarter, they increased by 2.5% and 6.5% for the group and ex-TSB 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, it is important to note that net profit was impacted by several one-offs and seasonal items in the quarter. As I have explained before, the second quarter P&L includes EUR 177 million in provisions related to the institutional NPA sales and one-off related TSB migration for EUR 226 million, which impacted other operating results, operating costs, and provisions and impairments. Excluding these two one-off charges, group net profit actually increased by 24.4% in the year and 24.6% ex-TSB.
It is worth noting the payment of our contribution of EUR 50 million 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 second quarter, it impacts the comparability of quarter-on-quarter. We have registered EUR 21 million of additional provision on our Sareb subordinated debt, which impacted trading in the quarter. Finally, the change quarter-on-quarter of the trading income is affected by the fact that we materialize in the first quarter most of the trading gains, including our plan for the year. We will now go into more detail, 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 NNI decreased in the quarter, impacted by EUR 30.5 million of foregone income in relation to post-IT migration customer remedies. Overall, group NNI decreased by 1.6% in the quarter in constant effects, increased by 1.9% when excluding TSB one-offs. Customer spread 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 of post-migration one-offs and to an increasingly competitive U.K. mortgage market. Group net interest margin, excluding the impact of TSB one-offs, grew by two basis points in the quarter, helped by a lower wholesale funding cost, which fell by four basis points, as you can see on the following page.
Overall, as I mentioned before, our customer profitability ex-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, remained reasonably flat, thanks to a positive volume mix evolution. This positive performance of our customer loan yield was possible in spite of the negative effect of a repricing downwards by 6 basis points over the previous 12 months. On the cost side, the cost of customer funds, ex-TSB and group TSB one-offs, increased by one basis point quarter-on-quarter due to the higher volume growth of foreign currency deposits in the quarter. Now we will move on to fees and commissions, which is an important pillar of our path to profitability presented in our Sabadell 2020 strategic plan.
Commissions recorded a strong performance, accelerating the pace from the 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, 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 migration customer remedies, which had a one-off negative impact of EUR 5.5 million in commissions. In this slide, we take a closer look at trading income and Forex and the evolution of our fixed income portfolio in the quarter.
The size of our fixed income portfolio was reduced from EUR 27.6 billion to EUR 24.7 billion in the quarter, including a decrease in our exposure to Italian government bonds from EUR 9.7 billion to EUR 5.9 billion, with no Italian exposure remaining in our fair value portfolio. This was achieved while recording a trading gain of EUR 28 million. We was partially offset by the increase in provisioning of our Sareb subordinated debt exposure. We've had a negative impact of trading of EUR 21 million. Finally, market volatility, together with the sale of some of our fair value portfolio, decreased our valuation adjustments in the fixed income portfolio to EUR 36 million in the quarter. We had 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 by EUR 66 million of non-recurring expenses, of which EUR 35 million correspond to TSB post-migration issues cost, and EUR 23 million to additional IT migration costs. Excluding these non-recurring items, group recurring costs were actually down by 2.6% in constant FX quarter-on-quarter due to lower payments as TSB completed the migration to its new technological platform. Ex-TSB costs were relatively stable 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 deliver strong commercial results with performing loans increasing by 3.6% in the quarter, boosted by very positive dynamics in the SME segment, where we have grown our volumes by 2.4% in the quarter, while simultaneously defending yields.
In addition, our mortgage portfolio growth was positive, something that had not occurred in the last few years. We also saw positive off-balance sheet momentum, with funds growing by 1.2% in the quarter, and mutual funds growing by 1.7%. In the U.K., as expected, TSB growth was slightly slower as the main focus was on migration, but it continues with positive balance sheet trend, recording 1.6% net franchise lending growth in the quarter. In Mexico, we continue to see strong growth in customer lending and customer funds with a double-digit increase of 15.9% 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 and PL 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 EUR 3 billion, as explained earlier. On the liability side, we register strong liquidity inflows quarter-on-quarter, both at the group and ex-TSB levels, driven mostly by sight accounts . Also, central bank deposits went down by EUR 600 million in the quarter. Off-balance sheets also had a positive evolution, which was mainly driven by mutual funds and third-party insurance products. Looking at the performing loans by region, including the impact of FX, 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%, 0.1% 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. Mexico grew even more in the last quarter, with performing volumes increasing by 14.4%, 41.4% year-on-year. 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 quarter, respectively. Also, it's important, as I said before, 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 from deals were offset 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 regained stability in the quarter. It's also important to note that front book yields continue to stand above back book levels across most products, and that we continue to grow in the highest yielding segments, which will continue to support the evolution of 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 in other relevant commercial areas, such as pension accounts, card turnover, point-of-sale 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 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 with Banco Sabadell. In the individual segment, year-to-date, credit card turnover, loans to households market share performed very positively, while mutual fund share remains stable.
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. In personal banking, we were ranked second. We also continue to surpass the industry average in terms of quality of service, 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 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 was above the growth recorded last quarter. Additionally, quarterly growth increased by 1.6% for franchise mortgage lending when excluding the run-off of Whistletree portfolio. Overall, TSB extended GBP 1.4 billion 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 the 2018 individual savings account season, giving TSB a strong liquidity position. Overall, TSB LCR increased to 314% in the quarter. Moving on to Mexico, our commercial activity continues to deliver impressive results. Customer loans grew by 57% year-on-year, and customer funds grew by more than four-fold as a result of our focus on deposit gathering to calibrate the local funding gap. We also continue to open new business centers in the country's major cities, with three new openings in the second quarter, now reaching a total of 19 locations.
We have continued to grow our new 100 digital affluent banking 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. Sabadell 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 by 43% year-on-year.
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, two intelligent tools to help users to determine the price of real estate property and to assist people in their decision to buy, sell, or rent a house. Finally, we have continued our strategic investments through InnoCells, our digital hub, to bring Banco de Sabadell a step closer to the early identification of disruptive technologies applicable in the financial environment.
InnoCells has acquired Instant Credit, a multi-lender online platform for consumer finance, and it has also made an investment in Cardumen Capital, a venture capital fund focused on Israeli startups. I will now hand over to Tomás, who will discuss solvency and asset quality.
Thank you, Jaume. Yes, I turn now to solvency and asset quality, and we'll start with the quarter highlights. The reduction in the quarter of total NPAs has been notable both in terms of the organic and non-organic activities. It's been EUR 7 billion, which drove down the NPA ratio pro forma, the net NPA ratio pro forma to 1.7%, below our guidance, our targets in our business plan for the end of the plan in 2020. Already achieved now, though. Therefore, the NPL ratio pro forma stands, after the sales of the portfolios and the organic activity, stands at 4.5% with a pro forma NPA coverage of 54.6%.
As I said, also, the organic NPA reduction in the quarter was outstanding, with EUR 755 million reduction, which included EUR 511 million in NPL reduction and EUR 439 million well above the average of many quarters in a row before of foreclosed assets sales by Solvia. Those sales, again, were done at a premium. At the end of all this, at the quarter, the pro forma fully loaded ratio stands at 11.2%. I will explain later the analysis of change between the end of March and the quarter, which have encompassed several factors, but still sound capital position, well set in our forward-looking financial planning, and we will discuss this afterwards. Here is the analysis of change. We started the quarter at 12%. Six basis points have been reduced by the addition of intangibles, the organic addition of intangibles throughout the quarter.
11 basis points have been impacted by the impairment of our stake in Sareb, both in terms of equity and subordinate debt. This actually represents the crystallization of an embedded risk that we had in this exposure. The occurrence of this crystallization means that we've used this capital, of course, but it means that this exposure, of course, has been de-risked. The net exposure now is EUR 77 million, and therefore, the risk represented by it has been substantially, if not all, reduced. 32 basis points have been impacted by valuation adjustments in the ALCO portfolio throughout the quarter, where we have explained that we reduced our exposure to Italy, and we manage the portfolio also actively in terms of other exposures.
The impact of the volatility that we've seen in the quarter in the prices of those assets has meant 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 expectations or their own group's expectations. This represents 25 basis points. Other factors, including organic growth, have taken 12 basis points. 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 is 15 basis points down.
Pro forma, if we impact the release of the related RWAs, the RWA related to these portfolios, we obtain a gain of 25 basis points. That sets the pro forma ratio at the end of the quarter in 11.2%, that in terms of phase-in, is 12.2%. This is a level that situates us in the pack of our peers in Spain and is a comfortable capital level for us, especially after having so substantially de-risked the balance sheet and our risk exposures, and also, by the same reason, improved our profitability outlook throughout the rest of the business plan, as compared with the figures that we presented. Enhancing our capacity of organically generating capital through this improved profitability outlook.
In terms of the evolution of the NPL ratio, after we can see here how it looks like in the accounts, but also the pro forma after the impact of the sale of the portfolios. It goes down substantially to 4.71% and 4.5% when the portfolios are impacted. The evolution of the stocks of NPLs fore closed assets are the total NPAs here reflect the activity that I just described in the quarter. The organic reduction of EUR 755 million, total reduction in NPAs, with the EUR 511 million reduction in NPLs, and the EUR 244 million reduction in foreclosed assets as a result of the more than EUR 400 million of sales, as I said, were well above the average of the previous quarters, less the increase 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 6.2 billion. We can see here, in the light gray blocks, how pro forma the stocks stand after the consideration of the impact of the portfolio sale. The total NPAs stand at less than EUR 7 billion. They already went down this level of EUR 7 billion only through the organic activity to EUR 6.9 billion. The portfolios here has an additional further reduction to EUR 6.6 billion, EUR 6.7 billion, actually. The bulk of the reduction shows up more importantly in foreclosed assets, where the remaining amount after the sale is EUR 1.2 billion. 62% of this is finished product. Of course, we present here also the EUR 1.3 billion of land or assets, not only land, but assets under the split activity that we presented at the end of 2017 for Solvia Developments.
All in all, year-on-year, we've seen a reduction of EUR 9.5 billion, as can be seen in the lower right-hand side chart, which represents the substantial de-risking in our exposures that I just described. In terms of the evolution of the sales, so to speak, organic sales of foreclosed assets in the quarter, we can say here exactly what I referred to before. EUR 439 million in sales that compare with the previous quarters at EUR 283 million, EUR 342 million, EUR 325 million, well above this average. 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 of the chart. Also in terms of number of properties, the quarter was significantly better than the previous quarters. Also, as I said, we've continued to sell these properties at a premium.
Here is the breakdown of the coverage, showing both the stocks, the gross stocks, and the provisions levels with the coverage in the different lines of the NPAs. Pro forma, we can see that, as seen before, the coverage of NPLs remains at 56%. The EUR 1.2 billion of foreclosed assets are still to remain in the stock. Pro forma will have a 46.6% coverage ratio that I will remind everybody that this is basically 62% of it is finished product, then the resulting pro forma coverage for the NPAs is 54.6%. The ratios of problematic assets over gross loans to customers, plus for gross assets, is pro forma at the end of the quarter, 5.6%. As I presented already earlier, 1.7% in terms of the net NPA exposure to real assets after the activity of the quarter.
A reminder of the low risk profile of TSB that keeps progressing the same as positive as it's been over all these quarters. Just to remind, buy-to-let represents only 15% of the portfolio. The mortgage lending has an average LTV of 45%. Interest-only concentration is circa 27%, excluding Whistletree. This compares very positively with the average of the industry, a strong capital position with a CET1 ratio of 19.2%, a leverage ratio of 5.3%, a high proportion of the funding, which is embedded in TSB's culture in PCAs, current accounts, is higher than 35%. With this, Jaume, I end this section of the presentation. Thank you. Back to Cecilia.
Yes. Thank you, Tomás. I will start now with the questions that we received from our audience throughout the webcast. The first question is to you, Tomás. Could you please give us an indication of the additional costs related to TSB expected for the second half of the year? Could you also comment if there will be any additional costs for 2019?
Yes. Thank you, Cecilia. We've presented the provisions that TSB has posted at the end of the quarter. There are some items there that still will have a run rate. Of course, the increase of interest rate from 3% to 5% for Classic Plus current accounts, still is on. This represents EUR 1.2 million per month as compared with the business plan that had been presented. In terms of cost, there are other items, in terms of the cost to fixing the problems created after migration with advisors and third-party suppliers. Some items there still have a running cost.
The initial view on the departure view on the average running cost for those concepts is around EUR 7 million per month. The management has clear targets and goals to reduce these over the coming months as quickly as possible, as we see progress in the stabilization of the situation.
Thank you.
Sorry. Yeah. About 2019, we don't see now any reason. All the costs related to solving the situation, as we've stated already, are considered to be absorbed within 2018. We don't see any reason now to further costs unfolding into 2019, therefore, nothing to make me say now that our view on 2019 should be changed in relation to this.
Regarding the provision for customer redress, could you explain a little bit further, what are the concepts involved? Also, can you comment on the possibility of whether you expect a fine from the U.K. regulator?
Yeah. The provision for the customer redress includes our position on the thorough screening of the causes of complaints from TSB's customers and the associated costs related to any of these circumstances. Also includes the expectations of costs related to handling the whole process. A huge priority has been put in solving this as soon as possible, 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. This also includes this assessment of the associated cost to handling all this process. In terms of any potential fines, the process 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 the quality assurance and the governance of the process was thorough and sound.
This will be put forward in TSB's defense. Participation in the investigation. It's the very early stages to form an opinion on whether fines are likely or not. Therefore, at this stage, no provision for this is being created.
Also on TSB to you, Tomás. Mr. Guardiola already discussed a little bit on the presentation, our audience was also interested in maybe perhaps hearing again on the current status, maybe in more detail of TSB services.
Well, yes, as you say, I think Jaume already referred to this, TSB's mobile app, online banking, telephone banking, and branch service levels are now much improved after the issues caused after migration, and have been so for some time. We continue to work to minimize the level of potential future service interruptions. We keep our customers updated on the status through the different channels. The mobile logins and web logins are at the level that we would expect and have been so since early May. The wait times in our telephone channel have consistently been in the single-digit 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 were on for some time, that were lower than our expectations and what they used to be pre-migration, and are improving.
Transactionality, including cash flows in and out the bank, are working and functioning normally, with the usual transaction for customers happening under normality. This is a more detailed description of the status of the service, which already was described before.
Thank you very much. To you, Mr. Guardiola, Jaume. 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, coming from the events that unfolded after the migration.
Well, as I said before in the presentation, from a point of view of number of customers, around 26,000 customers switched their account away from TSB during the second quarter. At the same time, 20,000 customers opened a new bank account or switched their account to TSB. Also, in terms of volumes, as I said, mortgage and PCAs are slightly up in the quarter. Obviously, this is as a result of a great effort, and 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 the weeks where we suffered most of the problems in the infrastructure service.
There has been a very strong and incredible effort that has been done by our people in TSB, the TSB partners, to serve their customers, to deal with the problems, to deal with the complaints. My conclusion is that, I think that we expect to retain most of our customers and to regain the confidence that they have with the service that was given by TSB. We are really positive in terms of expectations because the platform is, as Tomás has said a moment ago, is really improving very quickly. I think that we will be able to reduce the damage very much. That's our expectation at this moment.
Thank you very much. Now moving on to capital. Tomás, the audience is asking, how comfortable are you with the 11 or 11.2% CET1 ratio?
I think I also referred to this throughout the presentation. We are comfortable. We were ahead, above the average of our peers in Spain. We are now in the pack. Those are comfortable levels for us. We expect the ratio to remain stable broadly throughout the year. Even if there are- Over and unders because, of course, the TRIM exercises are going on, we don't expect anything in particular, but this can always have an impact. Also there are positives, therefore, we think the outlook for the ratio is broadly stable. Particularly, as I said, since we are at this stage after the huge de-risking that we've seen in our balance sheet, in our exposure, this also boosts an improvement in organic profitability for the remaining two years of the business plan.
Therefore, the capacity to organically generate capital has been also enhanced. Our position, as I said, is comfortable with these levels.
Thank you. Also regarding capital, what are the reasons for TSB retail IRB models adjustment, and could we expect further changes?
This is something is a difference in the standards used for recognition of non-performing loans. TSB was using the standard there, which is 180 days. Group has always worked on 90 days. Also the SSM expectations are 90 days. Therefore, this is not that it has had an impact 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 on the RWA's outcome of the models after incorporating this change. Going forward, of course, as the TSB models are subject to the continuous approval reviews of the PRA in the U.K. and the SSM, our group regulator. 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. Now, Mr. Guardiola, we're moving on to commercial activity in Spain. Top-line trends look good this quarter. Do you think this will continue?
Yes, we expect this continue. I think there is a combination of a very good performance of the Spanish economy, at the same time, a strong commercial firepower of Banco de Sabadell that we have shown during the last years. That's why this quarter our business in Spain has shown a astounding performance, both in volumes, also in commission, in fees. We expect this trend to continue through the year. In fact, we have said in the presentation that this acceleration in fees and commission is in the track of our expectations for the year. There was a double-digit growth for fees. We are absolutely confident to meet our targets for 2018 in terms of volumes, in terms of revenues, and also throughout the strategic plan 2020-2020.
Thank you. 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, it has been a strong competition the first half of the year, especially given the positive current economic environment in Spain, it's especially clear in mortgages. At the same time, the Euro rates bottom, looking forward, we expect some stability in price competition, and therefore yields to remain broadly at the current levels.
Okay, thank you. Also for you, Mr. Guardiola, the audience is asking now on regards to potential or whether you will consider selling Solvia.
Well, as I said also in the presentation, Solvia is not included in the perimeter of our NPA sales. It's a difference with other transactions we have seen in the Spanish market. It's very important to note a thing that we have said permanently in our presentation, that Solvia is a special real estate servicer because it has not only serves the portfolio of the bank, is they have other customers. We consider that Solvia has, let's say, an industrial value. And we are very proud of the job that we have done in Solvia. As we have said, obviously, during the last time, the option of selling Solvia is an option that we would may consider. Probably there are nothing concrete in the table, but is an option that could be done.
Thank you very much. Mr. Varela, coming back to the U.K., Our audience was asking if do you predict any cost inflation as a result of further investment in the IT and the IT platform during the second half?
No. The platform after the problems that we've experienced are solved, TSB's management are absolutely convinced of the power of the platform to create an improved service to our customers and benefits for our customers, and also its power to drive cost efficiency. As I said before, the costs associated to fixing the problems that we've experienced are in these figures that we've provided in terms of the provision created and the guidance for the second half, include the absorption of the total cost in 2018 of fixing the situation. Nothing at this stage makes me think that out of this fixing of the situation, there will be additional costs for the future. 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 from 2019 on should be modified.
Thank you. 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? Whether you think we can mitigate this lower contribution somehow.
The sensitivity of our capital ratio to our 100 basis points increase, 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, it is 20 basis points. We don't have now any exposure to Italy in this portfolio. Our remaining exposure to Italy is in the amortized cost portfolio. Therefore, for the total exposure, as I said, the sensitivity is 20 basis points. 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. We see potentially more than offset by the strength of the core banking business that we've seen and also the performance of the rest of the balance sheet.
We don't expect effects on NII coming from this.
Thank you very much. On NII guidance, the audience is asking if you could update us what you expect for NII, for the end of 2018.
I am not changing substantially the guidance that we already gave on NII at this stage.
Thank you. 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 a large and an old experience in Spain doing that. In fact, it's what explains more what Banco de Sabadell is. Now obviously, we have suffered a lot of bumps to arrive to this moment. We have the platform, the perfect platform to serve small businesses in U.K. We will continue with our application to apply and bid for the RBS remedies.
Perfect. Thank you. Tomás, the audience is asking, what's your best estimate about TSB cost base in 2018, and what about 2019?
I think I have already covered in previous answers. The cost estimates for 2018 would be basically what we saw in the business plan for the year plus the impact of the costs related to fixing the situation that we've experienced post-migration. To 2019, the evolution that we should see, given that those costs are one-offs, shouldn't significantly change from what we saw in the business plan with the full impact of the expected synergies.
Also regarding guidance. On net profit, we are asked what's your estimate for the end of the year?
For 2018, as we have seen, the core banking business performance is being strong. In terms of NII, we are faring a bit better than expected in terms of volumes, definitely in Spain. In terms of fees and commissions, whilst we have been behind in the first quarter, the catch-up, I think, has been notable in the second quarter. We expect that in the second half of the year, we will achieve double-digit growth. As I said, with volumes trending above expectations, I think it's clear that the underlying core banking business performance in the year is being good. Except 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 what we had anticipated with the adjustments of what we have seen in terms of both the TSB situation and the impact of the sales of the portfolios.
Thank you. Going back again to the U.K., we have been asked around the customer redress for our provision that we have made on the quarter. 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 second quarter, TSB's management have wanted to make sure that there is no lack of cautiousness and prudency. In terms of the redress provision itself, it's been based on the, as I said, the screening of the root causes of the customers' complaints, understanding the impacts on the customers, complying with the principles that TSB announced for its customers, not falling shy of any of the principles announced. It means that the quantification 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 customers. As I said, since I see that there is no appetite for falling in lack of cautiousness and prudency, I think these figures are good enough.
Thank you. Mr. Guardiola, we have received a lot of questions on dividend policy, whether would you consider changing your dividend policy?
Well, obviously, the decision of the dividend policy is a decision that has to be taken by the board of directors, we are not considering to change our payout policy.
Okay, thank you. We have one final question, it's whether do you confirm the targets for 2020?
Yes, we confirm the targets for our plan 2020, obviously supported in the outstanding performance in Spain, also the redress of the situation of TSB, and also the de-risking, the high de-risking that we have in our balance sheet. I think that we have a lot of reasons to expect to reach the target that we have in our plan.
Maybe.
Yes.
No, Jaume, even maybe mentioning that in terms of the NPA performance
Yes
We already achieved better levels than those embedded in our guidance for 2020 because our net NPA exposure is now 1.7 pro forma, whilst we had guided towards
2%
two. The level of NPAs is pro forma now below EUR 9 billion, towards which we had guided at the end of 2020. In this, we are already here, our aim and our potential is to keep reducing strongly organically the exposure. In this regard, this should be much better in terms of the business, as you said. I think it's worth reminding the market that we are now already better in this regard than what we had set for the plan.
Thank you very much, Mr. Varela, Mr. Guardiola. This brings our webcast to an end. At the investor relations department, we're obviously remain available to help you with any questions that you may have.