Good morning, everyone. Thanks for joining this Banco Santander first Q of 2021 earnings call. As always, we have our Group CEO, José Antonio Álvarez, and the Group CFO, José García Cantera , who will address the presentation, the slide that we published earlier today at 7:00 A.M. Madrid time. Before jumping to the questions, obviously, the CEO will address the highlights for the first quarter and the group performance. The CFO in detail, the different business areas review before handing over back to José Antonio for the key takeaways and the Q&A. With no further delays, José Antonio, please.
Good morning to everyone. Thank you for making the time to attend this conference call. I should say that we have had a good performance in the first quarter. We have delivered growth in the quarter. Net operating income, the pre-provision profit increased 15% on the back of revenues on growing 8% and costs being flat in constant EUR. This was driven by greater volumes, repricing deposits, and strong cost control. In this environment, naturally, in the middle of the pandemia, digital adoption keep accelerating, and now more than 50% of our sales were made through digital channels compared with the 41% in Q1 2020. Compared with the first quarter of 2020, revenue was higher, efficiency improved a lot, mainly driven by Europe, and the cost of credit also improved, notably to 108 basis points. Loan loss reserves stood at EUR 24 billion, while non-performing loan coverage at of 74%.
We have barely used the provisions overlay that we made last year. As a result, underlying attributable profit reached EUR 2.1 billion and underlying return on tangible equity stood at 13%. In addition, we recorded expected restructuring charge for the whole year, for the whole 2021, EUR 530 million net of taxes, resulting in attributable profit of EUR 1.6 billion. The Common Equity Tier 1 ratios was 12.3% with an organic generation in the quarter, strong organic generation on the quarter of 28 basis points, including 15 basis points that we accrue to remunerate the shareholders, equivalent to 40% of Q1 2021 underlying profit. The bank is accruing through the year or is intention to accrue through the year the proportional amount of 40% to remuneration holders once the supervisors allow to do so. The tangible net asset value per share grew 2% quarter on quarter.
While it's true that we still live in an environment with significant uncertainties going forward, particularly those related with the vaccination process and when the economy is going to go back to normal. On top of this, as you already know, we announced our intention to make a cash offer to repurchase our outstanding shares in Santander Mexico, around 8% of the stake in the company. This transaction is expected to be completed in the second or third quarter of this year. If we look at the quarter, I should say that we've been living in an environment in which we have had still expansionary fiscal and monetary policy with very low rates, although we should say that we start to see some changes in the quarter.
Brazil, in our footprint, raised rates in the first Q. In general, we still have very low rates across the board. In relation on the social front, lockdowns and restrictive measures with different density in different countries and different time. This has affected significantly, particularly household and individuals and consumer activity in the countries in which we operate. On the other hand, state guarantee programs had a negative impact on the revenue, although even if it respect to benefit the cost of credit. We have different speeds in the vaccination that while it's producing different outcomes among major economies, we are seeing already a significant rebound in the activity in the U.S. U.K. has had significant volume levels. In the EU, we are starting to see some rebound starting back in March and accelerating a bit in Brazil. Sorry, in April.
Going to the group performance, I should say, starting with the income statement, exchange rates, and you have two columns there in the presentation, had a strong negative impact year-on-year, 12 percentage points in revenue and eight percentage points in cost. Excluding then, revenue grew driven by all the P&L lines. We continue to deliver an excellent cost performance in all the regions, and we are doing especially well in Europe. As a result, net operating income, as I mentioned before, grew 15% year-on-year. In addition, lower loan loss provisions compared with previous quarters and lower cost of credit, which I will describe later in more detail.
All in all, the first quarter underlying attributable profit reached what I already mentioned, EUR 2.1 billion. Finally, we recorded EUR 330 million expected restructuring charges for the year as a whole, mainly in U.K., around EUR 300 million, Portugal, around EUR 160 million, and corporate center and others, around the remaining EUR 70 million. Following this, Q1 attributable profit is EUR 1.6 billion.
Overall, all income statement lines perform well, supported, as can be seen in the slide, by our diversification. Our lower geographies show virtually the same weight in the regions and recorded a strong profit increase. Of note, probably was the U.S., with net profit of EUR 660 million in the quarter. Digital Consumer Bank, which contributes to 11% of the group's underlying profit, also increased its profit significantly. This is also the case for our global business, as CIB had an excellent quarter, with a result above of EUR 700 million profit.
If we look at the trends in the P&L, we see revenues going up 3% quarter-on-quarter due to the strong performance in CIB on the back of our strong activity with our corporate customers and the continued recovery in net fee income, 4%, that came mainly from CIB and other activities because, as I said before, the activity with household was somehow subdued in the quarter due to the lockdowns. Costs were down 3%, mainly driven by falls in North and South America, as the fourth quarter is usually affected by seasonal factors. As a result, net operating income increased 8% quarter-on-quarter. Loan loss provisions plummeted by 25%, with broad- based fall across regions and most markets. Digital Consumer Bank also recorded sharp falls. Finally, underlying profit exceeded EUR 2 billion, notably higher than in the previous quarters. I am focused more in the NII.
I should say that while NII grew 5%, it's a result of higher volumes, +2% in loans, +8% in deposits, cost of deposits management that I mentioned before, positive impact from the TLTRO, and while it's one of the highest figures in the last couple of quarters. Moreover, it's worth recalling that the first quarter has always some seasonality compared with the Q4. As for year-on-year performance by country, I should remark the good performance in the U.K., +24%, on the back of higher customer balances, deposit repricing actions that were partially offset by lower asset yields. Spain, +10%, driven by higher volumes and TLTRO. Brazil, +6%, due to greater volumes that offset lower interest rates. The U.S. remained flat despite interest rate cuts.
On the other hand, Mexico fell 6% due to lower interest rates and lower portfolio volumes impacted by the pandemic and having a relatively cautious approach to the credit risk. When we go to net fee income, while continuing to be affected, particularly on the households, by the lockdowns in most countries and seasonality as every year in Brazil, despite this environment, the upturn in net fee income quarter after quarter from the lows of Q2 2020 allow us to recover Q1 2020 pre-pandemic levels. From here, we expect to start to grow if the pandemic behaves as we are expecting on the back of better activity on the consumer household side of the business. Our strategy has remained focused on growing loyal customers and higher value-added services and products. These were reflected in a positive performance in CIB, insurance, wealth management, and other business.
In total, they account for 50% of the group total fee income. Cards and transactional fees were dampened by the pandemic. The U.K. reflected the impact from regulatory changes to overdraft since April 2020. By region, North America grew 7%, with rises both in U.S. and Mexico. South America, 2%, with growth recorded in Chile and Argentina, while Brazil start to recover. Europe, minus 4%, with generalized declines as Poland due to lower activity on the household side that I've been commenting across the presentation. On the cost side, very positive performance. We see Europe, because falling 4%, and North America, although they grow 2.8%, inflation, as you know, in Mexico is relatively high. South America is performing similarly well when you see in real terms. Efficiency improved a lot. At the group level, now stays at 45%, slightly below 45%.
I want to remark, significant productivity gains in Europe, where cost-income ratio stays now at 50%, when last year at this period, we were close to 60%. We are building a new operating model across the group that will enable us to accelerate our transformation and further increase in productivity and remain one of the most efficient global banks in the world. Going to credit quality. We have here the NPL is basically flat. Improved cost of credit to 108 basis points, driven by lower loan loss provisions in most countries, particularly in the U.S., Brazil, the U.K., and also in Spain. Looking at the three-month annualized provision, the cost of credit quarter was 84 basis points. That, while in Q1 2020, was almost double due to the provision overlay we took at this time.
Loan loss reserves stood at EUR 24 billion, while non-performing loans coverage at 74%. As I said, the overlay is still in the balance sheet that we did last year is mainly in the balance sheet. In summary, amid the system uncertainties, especially in Europe, we see areas that are performing better than expected, such as the U.S. Looking forward, we also expect an improvement in individuals. We are seeing consistent trends on individuals' household credit quality, and we are somewhat more prudent about corporates, particularly SMEs, that is going to depend very much on the recovery of the economy that we expect to start in second and third main quarters of this year. All this enabled the group cost of credit to perform better than expected, and while this is moving towards our average cost across the cycle.
While this strong operating performance translate into the ratio of the return on equities in the return tangible equity in the quarter, 13% EPS growing nicely and tangible net asset value that also reflect before they translate the good results, the good consistent, I will say, sustainable results towards the ratios, the main financial ratios. On capital, I already comment on the strong organic generation, 28 basis points in the quarter due to the net effect of the 43 basis points increase from profit and risk-weighted asset management, and the negative impact from the shareholder remuneration of 15 basis points. This positive performance was offset by regulatory impact. Six basis points is the IFRS 9 phase-out, and markets impacts on the AFS portfolio. Full year 2021 expected restructuring charges of 10 basis points that we bring forward to the first quarter.
Now we hand it to the CFO, José García Cantera , that is going to elaborate about the different areas of the group.
Thank you, José Antonio, and good morning, everyone. I'll start by our global scale, our customer focus, and our diversification really help once again our business and profit growth in the quarter. In Europe, we are executing our business transformation to accelerate growth through a more efficient operating model that should allow us to progress towards our medium-term return on tangible equity target of 10%-12%. In the first quarter, it was 8%. Loans grew 2% and customers 7% with positive trends since the beginning of the year in all markets. Revenue growth was 13% versus the first quarter of last year, with strong cost control and efficiency improvements. In addition, we had lower cost of risk at 51 basis points in the quarter.
In North America, a sharp increase in deposits in both the U.S. and Mexico, while loans fell due to the negative economic impact from the pandemic and more importantly from the disposals of Puerto Rico and Bluestem. Underlying attributable profit was up strongly year-on-year, driven by good net operating income and lower provisions in the U.S. Return on tangible equity was 14%, 22% if we adjust for the excess capital in the U.S. In South America, double-digit growth in both loans and deposits. Net operating income and profits were up, driven by strong revenue growth and lower loan loss provisions in most markets. Return on tangible equity rose to 19%. Our Digital Consumer Bank had a 12% return on tangible equity, and we saw a significant pickup in activity in March.
In summary, we've delivered robust performance in all regions in the quarter with a strong business generation, positive trends in all lines of the P&L. Moving to the countries, starting with Spain, our strategy remains focused on Santander One, where customer migration is advancing according to plan. In activity, we saw positive commercial trends in individuals, notably in residential mortgages that were up 17% year-on-year, and consumer finance. Loans fell slightly in the quarter, mainly driven by wholesale banking, in line with global corporate deleveraging. On a year-on-year basis, growth was 3% due to SMEs and corporates. Customer funds were 10% higher year-on-year, and of note here, mutual funds that were up 23%. In terms of results, underlying profit amounted to EUR 243 million, almost three times higher than last year.
We had resilient total income growing 10% in NII, although this was negatively affected by lower fee income from reduced economic activity from the pandemic. Quarter-on-quarter, NII was negatively affected by lower day count, lower ALCO portfolio, and reduced volumes. We continued with the transformation of our distribution model, which enabled us to grow the net operating income 9%. Loan loss provisions down 29% and cost of risk improving relative to the previous quarter. Going forward, and despite the uncertainty that still remains in the quarter, we expect NII growing at mid-single digits and a cost of risk below 2020, while operating costs should perform as expected. In the U.K., we had a very positive quarter based on volume growth, lower cost of deposits, and efficiency improvements.
In volumes, continued year-on-year growth in lending driven by mortgages and SMEs, and customer funds were also up, boosted by retail banking deposits and mutual funds. Profits were 6% higher year-on-year. Here, total income increased 12%. Of note was again net interest income up 24%, mainly from deposit repricing actions as well as higher customer balances, especially in mortgages. Fee income was lower due to regulatory charges affecting overdrafts. Costs decreased, reflecting progress on our transformation program, and cost of credit was 21 basis points in the quarter. In 2021, we expect to grow net interest income close to double digits, benefiting from new business pricing dynamics and lower funding costs. The 1|2|3 account latest changes introduced in April will drive additional improvements in our Q2 NII.
We remain confident on being able to reduce the cost base by mid-single digits in 2021. We are not seeing any signs of asset quality deterioration in the U.K. If we move to Brazil, which had an excellent performance at the beginning of the year, both in terms of volumes and results. We saw commercial activity recovering pre-COVID levels. We took advantage of that increase in our market share in lending. We hit the highest number of mortgage sales in the first quarter. In auto, we remained a leader in individuals, and we increased our current account customer base. All the above was reflected in greater volumes. Loans grew 13% year-on-year, mainly in individuals and government-backed SMEs, while customer funds rose 12%. In terms of results, profit was up 47% year-on-year, and return on tangible equity increased to 21%.
Total income was backed by very strong NII and higher gains on financial transactions. We had higher productivity and strong expense management, which enabled costs to drop 3% in real terms and reach record efficiency levels. Loan loss provisions decreased strongly with a very positive cost of credit performance, which fell to 3.8% if we look at 12 months, 3.3% in the first quarter. Compared to the fourth quarter, profits up 3%, again driven by strong NII and cost reduction, which offset lower fee income, which is affected by insurance seasonality. If we look at 2021, we expect loans to grow faster than the market, while customer revenue should increase moderately and costs maintain a good trend. We would expect the cost of risk to be lower than last year and in no scenario higher than 4%.
Moving to the U.S., where we believe that the work that we have conducted over the last few years is showing in these numbers. Beyond the improved macro conditions, that obviously is helping, we believe that the work again that we've done in the last few years is helping our performance in the U.S. Volumes was impacted by the divestiture of Bluestem and Puerto Rico that I referred to before. Excluding these perimeter changes, loans were up 1% year-on-year, with auto originations increasing 24%. Also, deposits continued to perform very strongly. We had very good and positive P&L performance with underlying profit of EUR 616 million, the highest of any country in the first quarter. Net operating income increased 13% of the back of strong NII from strong lease income, capital markets fee income, and expense management. Excluding the disposals impact, net operating income was up 19%.
On top of that, loan loss provisions decreased 81%. We've made significant regulatory progress as the Fed terminated its 2017 written agreement with SHUSA, the OCC upgraded Santander Bank's Community Reinvestment Act rating to outstanding. In private banking, BSI announced a transaction to acquire EUR 4.3 billion in customer assets and liabilities from Crédit Agricole, improving our competitive position in this highly profitable market. For 2021, we would expect these trends to continue all throughout the P&L and maintain a positive performance in asset quality. We move to Mexico. We continue to invest in digital channels, that is strengthening our value proposition with new products and services. Year-on-year volume performance reflects the normalization of the corporate portfolio following the uptick at the beginning of the pandemic. Profit was down year-on-year, impacted by NII pressure due to lower rates and volumes. Total income was down.
NII was pressured, but this was more than compensated fee income and gains on financial transactions. Costs were slightly up due to higher technology investments, but in real terms, costs were down 3%. Loan loss provisions dropped 7%, despite some charges recorded for certain corporate customers. We look at 2021, we would expect to see flattish NII, while net fee income is expected to grow, supported by credit cards, insurance, funds, and investment banking. Cost of credit should start to improve in the coming quarters, with non-performing loans around 3% by year-end. Moving to our Digital Consumer Bank. Remember that we created this as the leading digital consumer finance bank in Europe, combining the scale and leadership of Santander Consumer Finance and Openbank's digital capabilities. A result of the health crisis, new lending fell 3% year-on-year, especially in January and February.
As I said before, we saw strong recovery in the month of March. In results, underlying profit was EUR 291 million, 25% higher year-on-year. Total income increased slightly compared to 2020. NII was down mainly due to lower outstanding balances in Spain and interest rate limitations in Poland, which were offset by higher income from operational leasing activity following the acquisition of Sixt Lease in Germany in 2020. Cost increased 1%, mainly due to digital investments in technology in Openbank. Excluding the acquisition of Sixt in Germany, costs fell 4% year-on-year. We had a strong reduction in loan loss provisions with quite strong credit quality performance. Cost of risk was at 0.69% in the quarter.
For the coming quarters, we expect a strong cyclical growth in consumer finance after one year of the pandemic, with a gradual recovery of volumes and a solid credit quality across the European customer footprint. Moving quickly to the global businesses, SCIB, Santander Corporate & Investment Banking, delivered a very excellent quarter. We held leading positions in the rankings of structured finance, DCM, and ECM. Outstanding results in the quarter, which hit a record high. Revenue was up 44% year-on-year, driven by customer-related activities. Costs 8% higher, the efficiency ratio improved to an outstanding 31.8%. This quarter results are unlikely to be repeated in the coming quarters, we expect a positive performance for 2021. The wealth asset management and insurance business continued to perform well in the quarter. Total assets under management amounted to EUR 370 billion, to 12% higher year-on-year.
For insurance, fee income rose 5%. Total fee income generated accounted for 31% of the group's total and grew 3% year-on-year. Looking ahead, we expect continued growth in line with volumes in this business. This is the first quarter in which we report PagoNxt. I'm going to just stop here for maybe a bit longer than for the other countries. Payments, as you know, are the cornerstone of our strategy to grow and reinforce our customer loyalty. Santander serves more customers than any other bank, over almost 150 million, including 4 million SMEs, of which more than 200,000 are international customers in Europe and Latin America. PagoNxt comprises three different businesses. First, Merchant Solutions. Getnet is already one of the top three acquirers in Latin America. As you know, it started in Brazil. That is a highly competitive market. The business is growing.
We are taking advantage of that, gaining market share, reaching 15% in December 2020 from 11.5% in 2019. In the first quarter, we launched Getnet Chile, providing differential features in the local market that generating strong demand. Getnet in Latin America already operates in Brazil, Chile, Mexico, and Argentina, has 1.1 million active merchants, and this figure is growing 14% year-on-year. Total payment volume was 22.5 billion in the first quarter, up 26% year-on-year. We would expect to achieve 20%-30% growth in the medium term for these two metrics. This year is an investment year for the company. We will start generating revenues in Europe in the second half of the year. To this end, obviously, we will rely on the newly acquired technology assets of Wirecard that have been purchased at a good price, and we aim at unlocking their value quickly.
The second component of PagoNxt is Trade Solutions. As I said, we have 207,000 clients with international activities in the last 12 months. Let me focus on the two most representative businesses here. The first is One Trade, which is our global trade and international payments platform. It already connects our customers in Brazil, Spain, U.K., Chile, Portugal, and Colombia, and we have over 4,000 active customers. We expect to double the transaction volume yearly going forward here. Ebury, which has a presence in 20 countries, offers financial solutions to simplify international trade. It has already 15,000 customers, active clients, and we would expect its revenues to grow 30%-40% a year in the medium term. The third component of PagoNxt is Consumer Solutions. Here, Superdigital, our platform to address the financial needs of the underbanked population, is being rolled out across seven countries in Latin America.
This provides obviously huge growth opportunities for us, and we believe we can double business year-on-year. To this end, Superdigital in Brazil already have almost 600,000 active customers, with a transaction volume growing 30% year-on-year. Now let me finish with the Corporate Center, where we see results improve 49% year-on-year, mainly due to the positive impact of income tax from the release carried out this year and the charges recorded in the first quarter of 2020 and the positive trend in operating expenses, which improved 7% compared to the first quarter of last year, driven by ongoing streamlining and simplification measures. On the other hand, net interest income was impacted by the increase in the liquidity buffer. We had lower trading gains because of the positive hedging results recorded last year, and we had higher provisions.
The net loan loss provision line includes a charge of EUR 150 million gross, EUR 105 million net, which has not been allocated to any specific portfolio so far, and it was billed due to the lack of visibility as to the timing, pace, and strength of the economic recovery. With this, I'll turn it over José Antonio. Thank you.
Thank you, José. I'm going to elaborate just to finish. Just give me one minute. On the back of the first quarter results, I should say that while the results were solid, consistent, and sustainable, revenue grew 8%, it will improve the efficiency, and as a result of this, I already said that net operating income growth grew nicely. We continue to build on our customer base. Digital customers keep growing. The loyal digital customers keep growing, and our customer satisfaction, we are top three in six markets in which we operate. We already recorded the restructuring charge for the whole year and continue to focus on cost control and improving our efficiency ratio. We also improved the cost of credit with an underlying profit of EUR 2.1 billion.
The core equity Tier 1 ratio is above our target, and the underlying return on equity rebound to 13% in the quarter. Let me take a look forward for 2021, and I should say that we are increasingly constructive. Taking a look to the business environment, we expect activity to increase as vaccination progresses, although at different speeds depending on the vaccination progress in different countries. Amid some remaining uncertainty, we see lower cost of credit with better performance in individuals than in corporate. We believe that the demand for individuals and consumption will rebound, especially in countries with a faster vaccination rate. This will allow higher fee income generation as activity increases. Regarding the outlook for the main regions, in Europe, we expect high single-digit underlying return on tangible equity on the back of a strong household activity rebound, margin management, net fee income recovery, and savings plan execution.
North America underlying profit trends should be better than initially expected in the U.S., as shown with Q1 excellent results. The auto business is well-positioned to benefit from strong demand for vehicles, leveraging our deposit franchise in the U.S. South America, amid the challenging environment, we should deliver continued growth in Brazil with an underlying return on tangible equity projected around 20%. The Digital Consumer Bank, we've already seen some recovery of volumes toward normalization and solid credit quality, as seen in the U.S. Potential growth in digital retail banking across Europe with operations in Spain, Portugal, Netherlands, and Germany through the Openbank. Expect double-digit return on tangible equity in 2021, as seen in Q1.
As we progress through the year, we are more confident that we will deliver on our medium-term goals. We remain very constructive on our target for 2021, improve the efficiency ratio, reduce the cost of credit, and increase significant increase of our profitability. Thank you very much. Now we will remain at your disposal for the questions you may have.
Thank you, José Antonio. Thank you, José. Indeed time now to jump to the Q&A session. Please, operator, we can proceed with the first question.
Much everyone. If you wish to ask a question, please key star one on your telephone, and we already have a couple of questions. The first one coming from Alvaro Serrano, representing Morgan Stanley. Your line is now open. Please proceed.
Good morning. Thanks for taking my questions. Two questions for me. The first one is on growth. Look, it's clear that provisions on the whole are much better. Beyond that, it does look like the market, the multiple suggests that the market is not buying the growth outlook. My question is on that, what do you think is missing from consensus numbers? Because beyond the currency, if I look at your medium-term target, it does look like Europe is the biggest disconnect. If I think about the Digital Consumer Bank, you obviously at the end of the year with the full year results, you were looking to double profits medium term. If I look at the cost to coverage share, that's more than EUR 1 billion delta in revenues. Your European operation, there's also a delta there. What's consensus not grasping there?
Are you that optimistic that you can grow consumer business there? Is it purely Openbank? Are you going to do add-on acquisitions that we don't fully appreciate? Maybe a comment in growth generally and in particular with a European skew. The second question is on capital. You're 11.9% fully loaded. It looks like the capital build is going to be better for the remainder of the year. Would you consider buying back last year's scrip as a way to maybe sort of gain back some of the institutional investors that were disappointed last year? Thank you.
Thank you, Alvaro. Thank you for your questions. Growth, a very general question. You know that our business, in many areas and dimensions in the medium long term, is posed to growth, because we have the vision that we have, and we are in the geographies we have with plenty of growth in front of us. This is by geographies in Latin America. This year probably, the visibility on this is poor. Yes? The massive depreciation of the currencies in 2020 naturally affects the translation of the growth we have had. You see the numbers in Brazil, you see the numbers in Mexico, and then you see the numbers in Chile. We are growing nicely, even in the middle of the pandemia, the translation into EUR was not so good.
In the consumer side, that where we do think that we can grow, naturally, with the lockdowns, we are not growing. What we are seeing already in March and April is a rebound on these activities, and provided the vaccination goes as expected, we expect to start to show significant growth. We can capture growth on the Digital Consumer Bank. On the auto space, where we are market leader, we were not working in the leasing space. We can start to grow there. The Digital Consumer Bank offer us opportunities in the non-auto related consumer space that we are starting to take. On top of this, you have PagoNXT, José already elaborate on the growth prospects of PagoNXT that we expect to capture in the coming years. This is, we continue remarks our growth outlook.
Naturally, it's difficult to talk about growth in the middle of an economic meltdown due to the pandemia. You see our results. The main difference I should say, compared with what I've seen in the market, is that we are growing revenues and controlling costs. The main difference is our operating income is growing 15%. The P&L is not made out of the reduction in provisions. We have reduction in provisions, but we have top line growth that we expect this to rebound, from now onwards due to the improvement in the economic activity. The capital, the second question, you said a specific question. We accrue, as you see in the quarter, our intention is to accrue 40% of the underlying profit to remunerate shareholders. It can be dividend, it can be buybacks. Okay. This depends.
It's up to the board to take the appropriate decision, if we are allowed to do so naturally by the regulator. Our intention is to continue with this accrual because we think that this is sustainable, and that's our intention.
Thank you, Alvaro. Next question, please.
The next question is coming from the line of Francisco Riquel, representing Alantra. Please proceed.
Yes. I wanted to ask about Spain. First on the top line, NII falls 4.5% quarter-on-quarter beyond the 2% of the day count. I wonder if you can update on your guidance. It seems to me that the mid-single digit growth might be a bit challenging. You can update on the trends in the quarter and the drivers for the coming quarters. Also in Spain, on the cost of risk, it remains high for another quarter, which makes sense because, obviously the Spanish macro is underperforming other geographies. You can update on how do you see the credit cycle in Spain and your cost of risk? When do you see the normalization, at what levels? Thank you.
Thank you, Francisco. First question about NII, well, revenue in general in Spain, particularly on NII. Well, our guidance remains the same. We expect to grow NII a lot during the year around mid-single digit. The quarter you mentioned already, the day count, and was some reduction in volumes, and those two affected this. For the whole year, we remain confident that we reach the mid, the kind of mid-single digit growth in NII. Naturally in Fincon, we expect to make significant progress, starting probably, well, starting the second quarter and progressing along the third and fourth quarter of the year. We remain constructive on our outlook for revenues in Spain. In the cost of credit, that is your second question on the credit cycle. This is a very interesting question.
As I mentioned in the presentation, we are constructive on the credit quality on the households, individuals, consumer space, where we are seeing good trends. The moratoria has expired, and we are seeing good trends, and we remain confident on this side of the business. While in SMEs, particularly in those economies that are not performing not so well on that due to the relative specialization of these economies, simply we don't have enough visibility at this point. There are several factors, some of them seasonal, the tourist season, how is going to be the tourist season, strong uncertainty in relation with this, and when the business is going to come back to normal. The second question is the credit cycle, probably is the right question. When we're going to have visibility on this?
Probably, if you ask me, as of today, I should say to you that we need at least, I don't know, two quarters of normalization before we have a clear visibility of the damage of the pandemia in the SME space. Probably is, well, it's my guess or is the best guess I have. Couple of quarters to see this, but make sure that we keep updating you. Now, visibility is relatively poor, because while there's a significant number of customers affected by the lockdowns in the SME space, micro business and self-employed people. As you know, we have a large portfolio protected by state warranty schemes. This affect mainly in our portfolio in Spain, Portugal somehow, but the largest portfolio is Spain.
Thanks. Back on next question, please.
It is coming from Ignacio Ulargui, representing Exane BNP Paribas. Your line is now open. Please proceed.
Thanks very much for taking my questions. I just have two questions. One on cost performance. How do you expect the EUR 1 billion savings to perform now that you have a separate Digital Consumer Bank? When should we start to see the benefits of all the restructuring charges in Spain particularly, and in the U.K.? Second one is on cost of risk in the U.S. We have a very good performance of secondhand car indexes that makes a lot of good performance of provisions. What would be the normalized level of provisions that you will expect out of the U.S., going forward? Thank you.
Okay. Thank you, Ignacio. Thank you for the question. The whole issue of cost performance, the EUR 1 billion commitment in Europe, and the restructuring charge. I mentioned the restructuring charge. We took all the restructuring charge expected for Spain last year. I think it was the fourth quarter, José. It was the fourth quarter last year. In this quarter, we are taking the one we expect for the U.K., Portugal, I think a small part, like EUR 20 million for Digital Consumer Bank and like EUR 50 million for the corporate center. On the back of this, we expect Spain to be the cost decrease in high single digit, U.K. mid-single digit. The same can be applied Portugal and less so in Poland. The consumer bank is a different story because it's a growth. As I mentioned before to the question of Alvaro Serrano, it's a growth story.
We're going to have the two dimensions. One dimension in which we reorganize our business in Europe. Remember that we have 15 banking licenses that we're going to reduce to We're going to transform into branches, and this allow us to reduce costs. On the other side, we want to grow the retail bank and the non-auto related business to grow faster than with the buy now, pay later kind of new activities and with the leasing the auto activities. We're going to have two dimension. On one side, we're going to save costs due to a reorganization. On the other side, we're going to increase the business, and we're going to grow the business in this dimension. The EUR 1 billion will come mainly in the proportions of the cost we have.
The majority will come from Spain, U.K., two-thirds and the other 30% comes from all other units. The second question was the cost of risk in the U.S., the normalized level. I should say, we have two effects in the U.S. One is the cost of risk that naturally goes to the loan loss provision. Remember that we are not releasing provision in U.S. We are still providing for the business. It's true that the cost of risk is significantly lower on the back of the fiscal stimulus that provide support to households, individuals along the U.S. On top of that, we have what you already rightly mentioned, the used car prices that support. We have leases, and we have residual value. When we dispose the cars, once the lease is expired, we are making some gains out of this business.
The two go in the same direction. Having said that, we expect the cost of risk, the first part on the back of the fiscal stimulus to remain well below the traditional standards, while the leases, the used car, for the time being, much more difficult to forecast. It's probably relatively easy to forecast one quarter, but much more difficult to forecast the long term. It's true that we are pricing the leases in a conservative way to try to protect when the downturn of the used car prices happen. That for sure is going to happen. Yeah. Those are the two engines. For this year, the business continue to show for the whole year, I expect very good trends in the business.
Thank you, Ignacio. Next question, please.
Thank you. It is coming from Daragh Quinn, representing KBW. Please proceed.
Hi. Good morning. Thank you for the presentation and taking my questions. I'd like to go back or stick with the provision charge in the U.S., please, and specifically the consumer business, so a loan loss charge of just at 300 basis points this quarter versus a historical number of closer to 10%. Clearly, we've seen over the last few quarters that number has come down. I just wonder, apart from this year and maybe the shorter term impacts of the stimulus, what do you think is an appropriate medium term outlook for the provision charge in the U.S. consumer business? A second question on Brazil and cost growth. I think historically, your guidance there has been to grow costs below inflation. In the first quarter, we've actually seen a nominal reduction in costs.
Is that just down to specific trends in this quarter, or is it a reflection of a greater focus on cost control in Brazil? Sorry, if I may, just a final question on capital. Small amount of regulatory charges this quarter. Maybe if you could just remind us of what we could expect on that front for the rest of the year. Thank you.
Thank you, Daragh, for the questions. I pass to José, to the CFO, the question in relation with the capital. The provision charge in U.S., as you rightly said, is low for this quarter in the region of 300 basis points. We've been more on the high single digit. This largely depends also on the mix. As you know, that depends on what we retain on the back, on the balance sheet. Normally, we dispose a significant chunk of the prime business that we originate. Some of this goes to the market. We securitize, we dispose. Some of this goes to SBNA, to our commercial bank that use the deposits to fund this business. What remains in the balance sheet, the mix is very important.
Provide that we have the same mix that in the past that was in the region of, if I remember well, I am not sure. We had EUR 20 billion of subprime and another EUR 20 billion of between near-prime and prime. The cost of this should be in the region of seven, eight. This region has been make sense that I don't know when, probably not this year, maybe next year. I don't know, difficult to forecast this. With the economy of the U.S. is going to perform very well on the back of the infrastructure investment program, the fiscal stimulus is very difficult to say when this is going back to normal, provided we keep the same mix. That's extremely important, Daragh, because the difference in cost of credit between the two businesses is very large. The second question, if I remember well, was Brazil costs. Yeah.
The general cost in Brazil. In Brazil, productivity is improving dramatically. Our digital sales are performing extremely well. On the back of this, we are able to increase significantly the productivity. You're seeing it's not the same transformation that the one we are doing in Europe. It's not about closing branches and all these things. As a matter of fact, we are still opening some branches in areas in which we don't have presence. It's true that we also close some branches in other areas that are more crowded. In general, it's more internal organization of the business and the capacity to increase digital sales and remote sales.
Remote sales from specialized call centers that we incorporate in the last six months ago, a new contact center in the south of the country that is far cheaper than it is São Paulo for having this business and is performing extremely well. We are optimistic that we can continue to design new ways to reach customers in a market that offer good opportunities to grow. We are capturing some of them. You see that we are reducing costs at the same time, gaining significant share in the most interesting products in the country. Brazil is not, and is not going to be a cost story. It's going to be a revenue growth story more than a cost story. Having said that, we want to increase our productivity.
In March, for example, we sold 630,000 cars in this month with the economy being in the middle of a lockdown. We're going to be focusing continue to grow in the country. Naturally, with good cost control. Now, I hand it back to José.
Yes, please.
Capital.
Expected regulatory charges in capital. The sum of some small charges could be between 5-10. There are the two largest charges that we would expect this year come from the low default portfolios, which is coming in the second quarter, and that will be around eight basis points. The new definition of default, which is uncertain, when it will have to be taken and the amount that that will represent. We believe it will be, in any case, less than 10 basis points. More or less, we would expect to see 25-30 basis points of charges from regulation in the three quarters this year.
Thanks, Daragh. Next question, please.
Thank you, everyone. Just as a reminder, if you wish to ask a question, please key star one on your telephone. The next question is coming from Carlos Cobo Catena, representing Societe Generale . Your line is open. Please proceed.
Hi. Thank you very much for the presentation and taking my questions. Two quick ones and then just a clarification. First one on the U.K. I was expecting probably a better performance in net interest income, maybe same as the performance in Spain, as in probably on the low end of expectations. In the U.K. in particular, where the business dynamics in terms of volumes on front book spreads were more encouraging. Could you elaborate a little bit on why the net interest income declined in the quarter? I understand there's a calendar effect, are there other drivers that you could elaborate there? Second question on legacy assets in Spain. It's not you only, I think the whole sector is providing only for the pandemic cost with not much attention on legacy assets, you still carry a high stock of non-performing assets in Spain.
I would like you to elaborate a little bit on how do you think about that portfolio, how do you plan to divest it, and if that will demand a top-up in coverage to accelerate the exit from this portfolio. Also, another query in Spain. If you could, discuss how much of, well, Spain and this is for the whole group. How much of the restructured loans on payment holidays do you keep as performing in your Stage 3, sorry, in your Stage 1 portfolio? This is just a thought for the sector in general. If you maintain the bulk of the potential problematic exposures as performing, obviously the modeling and the provisioning models will demand lower provisions. When shall we have a clear view on how much NPL formation you provided for to compare with how much potential deterioration could be coming?
I know it's a complex question, but if you could elaborate a little bit on how much of the payment holidays still is on the performing Stage 1 portfolio, that would be very helpful. Thank you very much.
Okay. Thank you, Carlos, for the questions. The first point was U.K. NII. I think José already elaborate on this. We expect still the NIM to accelerate a bit in the second quarter as a result of on the back of further deposit cost reduction. We're having good activity on the volume side in mortgages make us positive on this, and for the whole year, we should be north of 10% in NII growth in the U.K. We guide you, I think last quarter, in this direction, and we remain confident that this is going to be the case. You elaborate, the question about NII that was also raised by Francisco before.
You try to understand the first Q, as Francisco said, well, it's 2%, mainly 2% of the drop is day count and another, you see the loan book fell like 2% in the quarter, and those are the On top of having less activity. Yeah, the activity, the new activity, the activity in the quarters with the lockdown was somehow reduced. This activity, partially, the fee income generated at the beginning, at the origination, goes to NII, and those are the factors from this. When you refer to legacy assets, well, our provisioning policy, and, well, we being, I would say, in the quarter conservative provisioning policy in Spain, the provisioning remains pretty high because of risk, if I remember well, is close to 100 basis points. Remember that before the pandemic, we were in 30 basis points, 35. Now we are close, 100.
We are taking another provision for prudential reasons due to the uncertainty and poor visibility on the corporate center. We think that we are providing, we are being prudent in our provisioning in the P&L for the potential events that may come in, including the legacy asset, naturally, that we take into account in our provisioning policy, naturally. It's not only about the scenarios, it's also about what we have in the balance sheet and in the situation in which they are. Restructuring loans, you refer to payment holidays. I don't know if I understood you well. The question, when a customer asks for a payment holiday for a moratoria remains in Stage 1, naturally. For the time in which the company or the majority individual stay in moratoria.
Once the moratoria expires, some of these moratoria were mandatory by the government, particularly this happened in Portugal, in U.K., and half and half in Spain. In Spain, half was granted by the bank, half was mandatory by the government. The majority of these moratoria expire. When the moratoria expires, if the customer start to pay again normally, remains in Stage 1, naturally. If the customer asks for another extension, that may be in some cases not, but we start to classify accordingly. If the customer doesn't pay, goes to Stage 3. You know that this is not as straightforward as before. This is how we are classifying. That's the reason why you are seeing progressively since the pandemic started, you are seeing Stage 2, particularly Stage 2. Also Stage 2 growing accordingly with the behavior of these payment holidays.
Having said that, while the majority of the moratoria already expired, you have the numbers in the presentation, what remains in moratoria is basically the ones who were mandatory in Portugal that expired at, I think, I am speaking from memory, is in September. The ones in Spain that are expiring around now, because were granted one year ago, in April, May, June, and in this second quarter will expire the majority. We classify accordingly with the payment behavior shown by the customer. I hope I answered your question.
Thank you, Carlos. Next question, please.
Thank you. The next one is coming from Fernando Gil de Santivañes, representing Barclays. Please proceed.
Hi. Good morning. Thank you for taking my questions. Just two questions, please. Elaborating a little bit more on the NII in Spain and Europe, I just want to refresh the contribution from the TLTRO programs and how do you see the evolution during the year? This would be the first question. Related to that, especially in Spain and the U.K., I just would like to know a comment on the changes in management that we have seen so far, the strategy with the new management teams. I guess it's not cost related. It should be more revenue related, but just want to know if there's any strategic change in those areas, in those regions. Finally, on the restructuring charges, you mentioned that we're done for 2021.
I just want to know if there could be some moving on into 2022, given these recent changes in these specific regions that we mentioned. Thank you very much.
Okay, thank you Fernando for the questions. Starting from the very last one, we do not expect, on the back of the cost, the One Europe program, additional restructuring charges. That is done for the EUR 1 billion cost savings that we announced, I don't know when, it was in October. That's all. This is related with the changes in management and the strategy that you mentioned before. Well, when we announced the One Europe, the One Europe is, on the back of One Santander is the intention to become more integrated in order to gain significant efficiencies operating together. That means that in several products, you're seeing the news flow of, you know, you follow this, the news flow in the organization in Europe is becoming an organization where some products, not all the products, there are people, executives that have European responsibility.
In mortgages, in cars, and in some other areas. There are also developments in the transformation and the digitalization that are in Europe. The new app is going to be the same in one year for all the group in Europe. Those are this transformation program, having a new head of Europe, make advisable to do the change that we announced today in order to create the organization that fit for purpose in this regard. We have both Nathan Bostock as the CEO of U.K. and Rami, as we announced this morning. They remain in the group doing different roles, this is to accommodate the European organization to the transformation program that we announced, we are progressing well on this. NII in Spain, I said mid-single digit, while also in U.K., double digit, a little bit weaker in Portugal.
Well, I don't have a specific guidance for Poland. Probably you have José, and the TLTRO programs, you can elaborate on this, yeah.
Yeah, the year over year increase in revenues from the TLTRO is going to be 2021 over 2020, between EUR 300 million-EUR 350 million.
Thank you. Next question, please.
Yes. The next question is coming from Sofie Peterzens, representing JP Morgan. Please proceed.
Hi, here is Sofie Peterzens from JP Morgan. Just a follow-up on the previous question. Unfortunately, I couldn't hear what the TLTRO benefit is. If you could just repeat that. My first question would be, last week there were some headlines around Santander potentially looking at LeasePlan. Could you just discuss, what your view is on M&A and disposals and has anything changed here? How should we think about any potential strategic M&A, if you could just remind us what your key ambitions here are. My second question would be, if you could just talk a little bit about Brazil. What's your outlook in terms of rate hikes in Brazil? Where do you expect interest rates to go in Brazil?
How, if you could also remind us of your rate sensitivity in Brazil, and how do you think about NII progression in Brazil? Thank you.
Thank you, Sofie, for your question. The question on the TLTRO, José.
Yeah. It's, as I said, 21 over 20, EUR 300 million-EUR 350 million increase.
Okay. M&A activity. Strategic M&A activity, well, we have nothing to add. Yeah, we are focused 100% in organic growth. We are not looking at any kind of deals that can be deemed as strategic. Unless naturally we made the tender offer in Mexico, but those are small, nothing that change the profile of the group. Brazil. It's true that the rates, the market expect that the rates keep going up. They already raised the rates by 75 basis points. The market is more to come, and I agree that is more to come on the back of relatively high inflation. This affect the business in a way that, do you have the figures, José, how much is the sensitivity to higher rates in Brazil?
Brazil is very much balanced. It's slightly negative. 100 basis points parallel shift in the interest rate curve is less than EUR 100 million. It's very much balanced. For the group as a whole, again, a parallel shift upwards of 100 basis points is a positive EUR 1.75 billion.
Next question, please. Thanks, Sofie.
The next question is coming from Adrian Cighi, representing Credit Suisse. Please proceed.
Hi there. Thank you very much. Two questions for me, one on capital and one on asset quality. On capital, specifically on capital requirements, how do you see the impact of the upcoming stress test on Santander? You've previously mentioned that you expect the stress test to be harsher than previous ones, do you have any visibility at this stage on the contours of the outcome? On asset quality, can you give us maybe the moving parts of the overlay provisions you've made last year, and how much of these provisions remain unutilized? Thank you.
The first question, capital stress test. We are doing this exercise. It's too early to provide you with any numbers. We send the first numbers. As you know, we tend to perform very well on the stress test on the back of our diversification. Knowing that the scenario is harsh. I remain confident that we're going to continue to perform very well on the stress test. It's too early to call. The discussion with the regulator are about to start, and we'll see the different interpretations they have in relation with our numbers. The second, asset quality. The overlay, I said in the presentation that we barely used the overlay. I think on the EUR 1.6 billion, probably we used EUR 100.
150.
150, he's telling me. The majority remain on the books. Well, I gave you already my outlook for the credit quality. The majority of this is related with consumer, and consumer is evolving very well. Well, we'll see. Significant uncertainties remain, and we prefer to be prudent at this stage, and remaining with the capacity to offset potential future losses, just in case something goes wrong with the vaccination and the recovery that everybody expect, including ourselves. The situation advise you to be prudent, yeah.
Thanks, Adrian. Next question please.
Thank you. The next question is coming from Jernej Omahen, representing Goldman Sachs. Please proceed.
Okay. Good morning from my side as well. I'd like to ask a couple of questions, and they're all related to the capital return prospects. The first question, you gave us an update at the end of the fourth quarter on your interaction with the SSM on the dividends, and the prospect of restrictions being lifted. I guess we are three months closer now to the 30th of September. I was just wondering if there's anything more that you can share or perhaps give us insight as to the discussion with the relevant authorities on this topic. Do you feel more, less confident, or is the situation exactly the same as it was at the end of the year?
The second question I would like to ask is, when you think about risk-weighted asset growth for this year and then perhaps further out, what kind of number do you think is realistic for the group?
The capital return, if we have additional information than the one we shared with you at the end of the last year. In reality, we have got any additional information other than the one that was made public. At some point was the interpretation of the market, the SSM was more constructive, and they are pointing towards the provisioning levels vis-à-vis of the potential, the uncertainty surrounding the economic activity. That what we have is one quarter of more visibility. As I said in the presentation, I'm more constructive on the consumer individual side, but I remain with significant uncertainties on the SMEs and corporate books. For that reason, I think I repeat a couple of times, we keep providing and not releasing provisions in the quarter. Yeah. That is what I can share with you in this regard.
In relation with risk-weighted asset growth, I do not expect a lot of growth on the back of the market remains in very good shape to release capital through securitizations. The implicit cost of equity at which you can release capital, at least up to today, is well below the cost of capital. At least this is clear on the more granular type of portfolios. If that remains, our risk-weighted asset growth is going to be somehow limited, and probably José can give you a number, on the back of being pretty active in securitizations as we've been doing in the last, I don't know, couple of quarters. We always look at the market in this direction. If we can release capital significantly below the cost of capital, we do. The market now is in good shape.
For that reason, I do not expect significant growth in risk-weighted assets. José, you want to say some?
No, this year, like José Antonio is saying, we don't see risk-weighted asset growth. We are working to compensate the regulatory charges that we discussed earlier on. Looking forward, we think over the long term, we can have. Obviously, this is excluding regulatory changes. We think we could sustain more or less a 3%, 4% risk-weighted asset growth over time.
Thanks, Jernej . I'm afraid we are running out of time. We have time for one last question, please. Let's proceed with the last question.
All right. It is coming from Ignacio Cerezo. Ignacio is representing UBS. Your line is now open. Please proceed.
Yeah, hello. Good morning. Most of the questions have been answered, but I have two on capital left. If you have any view or color on the impact of the U.S. fiscal reform, I'm thinking of DTAs in the country, if any. The second one, I've seen a higher charge, non-recurring payment in Poland, which I think is related to the FX mortgages. How much more is coming, do you think, actually, throughout the year on that one? Thank you.
To tell about the fiscal reform, you can do the math. The main information is the rate, the final rate, and naturally, if this increase is going to have an impact, not very significant. I don't have a specific number because I don't have which rate we should expect. I don't know if this is already known or not. People tell me that it's unknown. The high charge in Poland, you are right, absolutely right. It's due to the Swiss franc. Our provisions there staying around EUR 200 million. Well, as you know, this is subject to the Supreme Court ruling or decision that is going to come, if I am well informed, next month, but has been delayed already twice and is expected to come in 15 days, José, or something like that?
Thirteenth.
Yeah, 13th of May is expected, and while the provisions you mentioned were made on the back of this.
Okay, we need to leave it here, everyone. Thanks very much for attending this call. Obviously, the entire team is at your disposal for any follow-up. Thanks. Keep safe.
Thank you, guys. Take care. Bye.