Good morning, everyone, and welcome to the 9 month 2020 earnings presentation of Banco Santander. As every quarter, we have as speakers, our group CEO, Mr. Alvarez and our group Chief Financial Officer, Mr. Garcia Cantera. Our CEO will address the group performance for the 9 months of 2020, and then our CFO will follow-up with business I'll review in more detail before jumping to the key takeaways of the quarter by our CEO and obviously Happy to answer your questions during the Q and A session after work.
So Jose Antonio, please, the mic is yours.
Okay. Thank you, Sergio, and good morning to everyone. First of all, I hope that you and your families, friends and relatives are doing well. Let me to go straight to the Q3 results. I will qualify these results This quarter, a very positive quarter within the environment arising from the COVID crisis.
We have improved significantly the quarterly trends in business activity and results on activity. If the second quarter was pretty strong on the corporate side, the third quarter will recover significantly the activity coming more for individuals, and this reflects the in the underwriting of both mortgages and consumer lending as long as the growth in deposits. The profit in the quarter was EUR 1,750,000,000, 14% increase in underlying terms compared with the previous quarter, 18% higher in constant euros. All the regions are performing better than in the previous quarter. In the 1st 9 months, we maintained a solid top line performance.
The pre provision profit Andrew, this is Gennaro, and I want to stress you this in constant euros grew 3%, driven by resilient customer revenue and our cost reduction plan. In credit quality, I will elaborate later on in more detail. Euros 76 €1,000,000,000 out of the EUR 115,000,000,000 or EUR 14,000,000,000 that we had in moratorium of payment holidays already expired and the behavior has been pretty good. Only 2% went into Stage 3. Well, the future continued to be highly uncertain, But for this year, we expect a lower cost of return than the one we guide you.
We guide you in the first Q, there was 1.4%, 1.5% cost of risk, now probably going to be more around 1.3% for 2020. On the capital side, we continue to build capital with strong capital generation, 40 basis points in the quarter after the dividend accrual of 13 basis points. This morning, the AGM, we present to shareholders and they approve The script dividend of 10 shares per share and a cash dividend for next year to be paid in cash next year, provided that the regulators allow us to do so. So If we go to the P and L, straight to the P and L, what we see is first, I should mention exchange rates. The impact was significant in the quarter.
You see both revenues is between 6 9 points in the different lines of the account. This has been particularly strong in the real in Brazil, the impact, and you see the difference in those two figures. Excluding the impact of looking at the business in constant euros, The income remained stable as the decrease in activity and lower interest rates were offset by higher volumes, Some management of market volatility and lower cost of deposits. We accelerate our cost reduction and we have Good news, good perspectives for the coming quarters. As a result of our underlying profits show significant resilient and net operating income rose 3% year on year in constant euros.
Finally, higher loan loss provisions due to COVID-nineteen related provisions, Although this quarter came more in line with the second than with the Q1 where we did the overlay that you already know. In the chart on the right, you can see how earnings peaked strongly in the quarter with the following detail. By lines, the revenue grew 7% quarter on quarter, while growth in net interest income, highest NII in the last 7 quarters, mainly driven by Spain, UK, U. S. And Brazil, so pretty well spread across the board.
Uptown in net income as a result of higher activity, and this happens all across our 10 markets. We recorded lower gains in financial transactions in the second quarter. CIBD did a very good quarter that we couldn't repeat in the Q3. Costs were up 3% And this partly reflect adjustments that we did in the Q2 due to the expectation of lower personnel costs in the year related with the expected performance. As a result, net operating income was up 11% quarter on quarter and higher than the Q3 2019 that I will say, as I said at the beginning, is remarkable.
Loan loss provisions fell 14% due to the high level of provisions related to COVID-nineteen in the second quarter. The main trends of the last quarter are supported by all the regions. You see all the regions growing revenues, all the regions having a good cost control and very positive pre provision profit performance increasing in all the regions with highly resilient NII and efficiency improvement. Going to capital in the quarter. We finished the previous quarter in 1184.
We continue to generate capital and a strong generation, 40 basis points organic generation in the quarter. We accrued 13 in order to be able to pay dividend next year if we are able to do so. Additionally, we've had several positive impacts from corporate transactions of 10 mainly related with the share buyback of Scusa and negative impact from regulation, market and exchange rates. In Q4, we could have a potential positive impact from the software of around 20 basis points or slightly higher and a negative Change around 10 basis points for another regulatory impact. This is our so that's the reason why we Expect to finish at the end of the year around 12%.
That is at the low at the top end of our target range. Raising with profitability ratios, remarkable that our efficiency ratio improved a little bit compared with 2019. This is again remarkable. The underlying return on tangible equity recovers from the first half of the year is still far away from what the one we had in 2019 And the tangible net asset value stay basically flat but is suffering from the continuous depreciation of the currencies, particularly those currencies in Latin America and mainly the real Brazilian real. If you go to the business activity on the group, normally, we don't Go in that much detail with the activity, but let me to guide given the current situation in which we are living, Let me to guide you where is the activity.
The average new lending is coming back to a more normalized levels. In the previous quarter, we have a strong government support that underpinned the growth in the quarter. Now You see that we are lending EUR 1,100,000,000 a day in constant euros. That was pretty much the same figure that we had back in February. So some kind of normalization in the volume of lending and compared with the previous quarter.
If you go into more specific details, you have the mortgage and new mortgage lending By regions, and it's a significant recovery from the previous quarter, and the consumer lending happens pretty much the same. It happens all across the regions, and we saw a substantial recovery in the 2nd quarter in the 3rd quarter, sorry, compared with the 2nd quarter. Well, in relation with SMEs and corporate lendings, you will see that we came back after the spike In the Q2, when we were pretty active providing loans warranty by different governments to particularly to SMEs and corporates, It's coming back to a more normalized level where the government supported programs is nonmaterial at the end of the quarter in September. In CIB, large corporates, after the spike that happened mainly in March, The situation is back to normal and is fairly stable at this point. It may not Surprise you, everybody expect digital sales booming as a result of The pandemia and the digital adoption of more and more customers by the day, yes?
You have the figures in the screen, the Digital customers, digital sales are growing and the mobile is the preferred channel that the customers are using more and more. And this, in my view, will come here to stay in the future. I will now ask a little bit the details of the P and L. Well, NII was around EUR EUR 24,000,000,000 no material change year on year. Net income was strongly impacted In the second quarter by lower transactions volumes and regulatory changes in several units.
From the global business point of view, both Wealth Management and Insurance JV increased fee income and represented 46% of the total group fee income. This quarter, we can again perceive a gradual recovery of net fee income associated with normalization of activity. When it comes to costs, I will say good developments here. Costs nominal costs are falling in Europe around 6 percent, North America 2.3 percent and South America are growing 1.9%. Overall, the group nominal costs are falling 2.1%, and we continue to expect positive developments in this front.
In relation with Europe, we expect to The EUR 1,000,000,000 target we established last year in April, we expect to achieve at the end of this year since April 2019 till December 2020, probably we're going to be there. In relation with credit quality, at this stage, you see like 2 fronts. From where we are providing much more based on the models and the scenarios. The scenarios we are using are not far away or not mimetic, but they are not Far away from the ones the IMF is using. And as a result of this, our provisions, loan loss provisions are going up 58% year on year.
And this is still the extra provisions basically remain in the balance sheet based on the models and the scenarios we are using. On the other side, on the credit quality side, we are not seeing a significant deterioration on the credit quality. So the cost of credit went up as a result of the provisions based on scenarios and models. NPLs, traditional definition, still performing very well. And loan loss reservicing the book, in the balance sheet stood at around EUR 24,000,000,000 which represents 2.6% of the total loan book.
On top of that, and this is the first line of defense in this situation, our pre provision profit is around 20 EUR 5,000,000,000 and is fairly stable the last couple of years. So finally, let me to elaborate a little bit on the Moratorias, the payment holidays, you have the figures that probably you are familiar with. The total group moratoria was EUR 114,000,000,000. You have By products and by regions, the main amount was in mortgages. The twothree of the moratorium more than twothree is already expired.
And well, if you see the behavior of those customers you have where are those customers, 82 percent are Stage 1, 16% Stage 2 and 2%, as I already mentioned before, in the Stage 3. You see by regions, you have pretty much, with some variations of the same picture. What remains and this is a behavior that, well, probably is better than the one we were expecting a couple of months ago. And this is well, You may say that the government programs protecting incomes is helping a lot in this regard. The amount of loans still in moratorium is close to EUR 40,000,000,000.
You have The split there, out of this EUR 39,000,000,000 EUR 24,000,000,000 are mortgages, EUR 3,000,000,000 consumer loans and EUR 12,000,000,000 SMEs and Corporate. Did you see where this payment holiday is moratoria? By countries, you have 2 countries that are relatively small in terms of the loan book, Portugal and Chile, where the government extend moratoriums for a longer period of time, usually 1 year. So you're going to see This moratorium stay there. And the other 2 is UK and Spain that you see the figures compared with the loan book both in UK and Spain In the region of 2% 3% to 4% or 5% of the total loan book.
So and this is we don't expect a behavior materially different than the ones That despite mainly taking into account that you have the figures in light blue, that around 89% in Spain and 93% in UK as secure loans to individuals. So I'll hand it now to Jose Garcia Cantera, our CFO, to elaborate about the trends in the regions and the countries. And I come back at the end to sum up and to give you our vision for 2021. Thank you.
Thank you, Jose Antonio. Good morning, everyone. Despite the global nature of the pandemic, our geographical and business diversification continues to work. The very strong results that we had in the Q1 are predicated upon a very our diversification between the three regions and the businesses that Jose Antonio has commented. We had positive year on year volume performance across all geographic regions and global businesses.
The decrease in the quarter is explained by the sale of Puerto Rico, the sale of a nonperforming loan mortgage portfolio in Spain, I will refer to these 2 in a minute and also lower volumes in CIB. We had increase in pre provision profit in North America, South American or global businesses and the only decreases that were recorded were in Europe. Excellent underlying profit of Our global units, with CIB growing 30% year on year and Wealth Management and Private Banking with stable year on year profits, But activity clearly picking up in recent months. Now if we turn to Spain, We have reached already 13,000,000 customers, and we continue to support families and businesses through many initiatives for the recovery of the economy. For example, we have 100 and 80,000 payment holidays in mortgages and consumer loans, and we had a market share in the government support program for SMEs and of 27%.
All the while, we remain prudent, ensuring no deterioration in the portfolio's risk profile. We reached more than 5,000,000 digital customers with more than 300,000,000 accesses in the quarter, leading in customer experience rankings. In terms of commercial activity, loans fell 2% in the quarter due to the sale of this nonperforming loan mortgage portfolio that I mentioned That accounted to EUR 1,500,000,000 but obviously, we had an increase year on year boosted by SMEs and corporate loans. If we move to the income statement, profit was 53% higher in the quarter due to the positive performance of customer revenue, In turn, due to the sharp increases in net interest income, up 11%, fee income up 5% quarter on quarter. On a year on year basis, we recorded a decline in total income, which was obviously the result of low interest income, Smaller ALCO portfolio, the fall in net fee income due to reduced transaction volumes and also lower income from our real estate subsidiaries.
We had a positive cost performance, dropping cost down 10% year on year. And the nonperforming oil ratio That dropped by 125 basis points in recent months, mainly due to the sale of this nonperforming loan mortgage portfolio. Looking ahead, we remain positive about the top line performance, net interest income and net fee income and more positive towards credit quality in individuals, although somewhat less so for SMEs given the current environment and the uncertainty. If we move to Santander Consumer Finance, we continue to see a strong signs of recovery in most of the countries where Santander Consumer Finance operates, while with new businesses actually outperforming the market. In the 3rd quarter, underlying profits increased 10%, thanks to a almost 30 Jump in net fee income, which is linked to volumes returning to precrisis levels.
In the quarter, new business volumes were up 37%. Looking at 9 months, underlying profits continued to be heavily impacted by provisions. However, net interest income increased 1% And costs were down 3%, thanks to our efficiency programs and COVID-nineteen actions implemented in the 2nd quarter. Cost of credit remains low for this type of business. Looking forward, we would expect the new business in the coming quarters at similar levels to those recorded in the Q3 with costs and loan loss provisions under control.
In the UK, we had a strong quarterly uptick in underlying attributable profit, driven by a continued increase in volumes. We are We've actually seen very, very strong new demand for mortgages. Mortgage applications in recent weeks has been very strong, and this should be reflected in the net interest in coming quarters, also driven by bounce back loans. We reduced the cost of the 123 account in May August, and this can be seen in the reduced cost of funding increased fee income, mainly due to CIB activity and costs that remain under control, while loan loss provisions were significantly lower in the quarter, down 19% with the cost of credit below 30 basis points. In terms of 9 months results, continue to be impacted by COVID.
In addition to regulatory Chart regulatory changes affecting overdrafts, although somewhat compensated by lower costs. Looking forward, we expect to see similar trends to those that we've seen this quarter, improving net interest income and continued efficiency savings with no significant changes in loan loss provisions. This, of course, is conditioned by the Brexit negotiations. If we move to Brazil, has once again recorded an excellent quarter, both in terms of results and volumes, while we remain focused on capturing growth Positive performance in mortgages, reaching record high in new mortgage lending in the last month, in the month of September. In cards, just in September, for instance, we sold 450,000 cards and in Wholesale Banking, very positive evolution also in GetNet and the auto finance subsidiary.
Underlying attributable profit rose 21% quarter on quarter, driven by consumer revenues. Costs were 3% higher. Half of the growth in costs is explained by the collective labor agreement. Provisions declined in the quarter. We don't foresee a worsening in the cost of credit in the coming quarters.
We expect it to remain stable or even improved slightly given the current economic forecast. Brazil economic outlook continues to improve. The IMF forecast Regarding GDP growth in 2020 improved from minus 9% in June to minus 5.8% recently. Analyst consensus actually is even better than this, expecting a drop in GDP this year between 3% 4%, And the current account deficit is 1%. These with all of these, we would expect the Brazilian real to show a better performance in the coming quarters.
In short, Brazil has again proved its balance sheet and results strength despite the current environment, and we remain optimistic about the future, both in terms of profits and absolute amount of profits and also in terms of profitability. In the United States, during the quarter, Xucha increased its ownership stake in the consumer finance entity to 80.25%, and we completed the sale of the Retail and Commercial Bank in Puerto Rico. This sale amounts to EUR 2,200,000,000 in loans and EUR 3,500,000,000 in deposits, which obviously explains why volumes show this performance. However, we had a strong year on year growth, excluding these, in loans and consumer loans and consumer funds, boosted by corporate demand and incentive programs. In the quarter, profits were 79% higher, mainly due to lower provisions, Lower cost of debt, better performance in leasing and control costs.
Underlying attributable profit decreased 24% year on year, primarily due, obviously, to COVID provisions. Net operating income was flat, and the reduction of costs, down 5%, offset total income decrease. In Mexico, most branches the bank continued to Normally, we reduce staff, and we also saw digital activity picking up substantially. Loan growth year on year was driven by the corporate side, while credit cards continue to be affected by lower activity arising from lockdown measures. Compared to the previous quarter, the profit increased slightly as lower loan loss provisions and higher customer revenue were offset by the fall in gains on financial transactions, which were especially or exceptionally high in the second quarter and the rising costs, driven by several projects and higher IT expense.
On the other hand, we had good performance year on year due to better revenue We expect a stable or even decreasing ratio in the coming quarters. These results show a very positive trend in customer revenue, reflecting the improvement in our franchise and high profitability with a return on tangible equity of 15%. Lastly, in the Corporate Center, we can see results improved 11% compared to 2019. On the one hand, we had positive impacts It's coming from gains from financial transactions amounting to EUR 440,000,000, basically foreign currency hedging And the positive trend in operating expenses continued, improving 12% compared to last year. On the other hand, we had a negative impact on NII of the larger liquidity buffer, and other results and provisions increased due to [SPEAKER MARCO TRONCHETTI PROVERA:] Thank you, Jose.
I'll take a couple of minutes.
Couple of minutes. Conclusions for 2020 Results, I will say, a strong capital build following continued organic capital generation, Strong operating performance, taking into account the scenario, increasing underlying profit in the quarter. We have robust credit quality and we set a new cost of credit estimation for the full year 2020. As our Chairman said in the AGM, with these trends and with the results we already got, We expect in the whole year to be around the EUR 5,000,000,000 mark net profit for the very, very and a very, very complex year. Talking about the outlook for 2021, I should recognize that it's a very brave exercise given the uncertainty that surround coming from the Health situation, the effects on how long it's going to last, the COVID-nineteen.
We expect Positive turns in revenues, particularly in Europe due to we expect The repricing on liabilities continue to go forward and also Some help for higher lending volumes, mainly in the Americas in 2021. In net fee income, while CIB and Wealth Management should continue to deliver relatively well. In cash, I already told you last This quarter that we were more optimistic about our capacity to reduce costs, And we are committing now an additional EUR 1,000,000,000 net savings reduction in the next 2 years in Europe as a result of our 1 Europe project. Thanks to the quality and diversification of our balance sheet, Better than expected customer behavior, as I explained before. And based on, well, The current estimations mainly coming from IMF, we are confident that we will maintain or continue to improve the cost of credit in the P and L once we use the overlays we build along this year.
Regarding capital, we are at the top end of the range in our target range, and we will have more flexibility going forward in the way we match and allocate capital and the way we remunerate our shareholders. We continue to generate capital organically without sacrificing either business growth or the improvement of our long term return, and we expect an underlying return on equity in line with our traditional cost of equity. As the Chairman explained this morning in the AGM, we are unlocking our potential for organic growth going forward. Our scale creates significant opportunities for organic value creation, which we realized through 3 structural changes. 1, Santander, that we are starting in Europe, the combination of open ban and consumer finance and creating one of large payment platforms in the world on the back of Getnet and with the project of trade for SMEs.
This will allow us To generate more revenues and additional cost efficiencies, in summary, I would say our business model, diversification and the change we are doing provide a strong platform to continue to generate value for shareholders. Thank you. And now We remain at your disposal for the questions you may have.
Thank you, Jose Antonio. Thanks, Jose. Indeed, we have around half an hour, 40 minutes for Q and A. So please, operator, go ahead with the first question.
Francisco Riquel from Alantra.
Yes. Hello. Thank you for taking my questions. I would like to start with asset quality. If I may, in particular, the new cost of risk guidance of 1.3%, if you can give us details of what shall we expect For the main business areas and where the reduction comes from, I understand this is mainly from Brazil and And Escusa, what will be the new cost of risk that you are expecting in these two regions?
And what makes you more comfortable For these two units, also any other relevant changes in other units for the gut or for the VAT consumer finance in Europe or UK, Mexico. And then also, in particular, Spain, the transformation ratio into NPLs from the moratorium is the highest of all the units, 7% on the macro itself. So what shall we expect in terms of cost of risk for Spain for this year and next year? Thank you.
Okay. Let me take to elaborate on the asset quality, the new cost of risk guidance, as you rightly elaborated. If we look backwards, the quarter, the main business areas that came better That expected particularly was SCUSA in the U. S, where the behavior both in originations and recoveries on the back of the price of the used cars in the U. S.
Produced significant reduction in the net cost of risk. The same happened in Brazil. Probably, You see this morning, the Central Bank of Brazil published that the number of families In default, now is the lowest in the last 9 years. So it shouldn't surprise you That as a result of this, our view about the cost of risk in Brazil going forward is fairly positive. And I would say that we'll remain stable or maybe may go down in the next year.
We As you know, we build the overlay. We haven't used the overlay. And with the current trends we are seeing, we are fairly optimistic on this. So all relevant changes that you mentioned, you mentioned UK, you mentioned Mexico, we don't see major change there. And finally, you mentioned Spain, where while the provisions this quarter went up.
And while, as you know, we have a large SME book in Spain, in which we did a significant overlay, but it's the most sensitive area going forward, the SME books. And well, we need to be prudent on this because, as I elaborate at the beginning, uncertainties are still pretty It's not the same to have a pandemic that lasts for another 6 months, that having a pandemic that lasts for 9 months or 1 year, mainly in Spain where the tourist sector plays a significant role in the overall economy and while Small variations in the timing of the pandemia may produce significant impacts on this. But overall, I feel confident with the trends in relation with the asset quality overall. Well, you mentioned, I forget to elaborate in consumer finance in Europe, the behavior has been pretty, pretty good, yes? So I'm Relatively confident that with the scenario we are in, the scenario we are marching at this stage, the cost of risk will go down next year in the consumer finance in Europe.
So those are the trends we are seeing across the board. Overall, we remain constructive, recognizing again that the uncertainty of this scenario is pretty high.
Thanks, Paco. Next question, please.
Alvaro Serrano from Morgan Stanley. Please go ahead.
Good morning. Good morning, good afternoon. Actually, I'm confused with the time. Two questions on costs And capital, please. On costs, you've announced the €1,000,000,000 for the cost synergies.
Can you maybe give us a bit of color Where that's coming from in terms of regions of businesses, if that's going to materialize in a big charge to fund that In Q4 maybe? And related to that, is your consideration, because it's a very, very material cost cutting exercise, Is that should we expect any impacts in terms of market share volumes? Your ability your commercial sort of reach could be affected by such a cost cutting plan? And second, the question on capital. You've had 15 basis points regulatory impact in the quarter.
I think you've called out a further 10 basis points left. If I look beyond Q4, what are the regulatory impacts that are left if we put aside Basel IV. And in general, what you've obviously accrued a dividend. What gives you Such a high confidence that you've proposed it to the AGM, which they've approved the €0.10 dividend. You're I think the 2nd bank in Europe that does that.
How confident are you that the SSM is going to allow those dividend payments? Thank you.
Let me take the first question and I will pass Jose the capital one and maybe elaborate about the the dividend and the ECB. On the cost, the EUR 1,000,000,000 I was referring to was EUR 1,000,000,000 for the project, EUR 1,000,000 project. And where this cost reduction comes from is mainly from the UK and Spain, although we have some also some cost reductions in Portugal and Poland, but given the size of the different franchises, I will think I will tell you that it's more or less related with the current size of the franchise. Probably, you're going to accelerate a bit more in the UK and Spain that is now minus 10%, is going to be the pace of the reduction is going to be lower than the current 10% and the UK happening the opposite. And the others, some costs cutting in the Portugal and Poland.
So you raised up a good point, the commercial reach and how much this may affect our capacity to keep volumes and market share. I do expect that with the current trends and the current trends are Fairly well established, I will say. So it's not just the pandemia. Before the pandemia, transactions in the branches were falling at 8% a year. Digital transactions were growing at 40%.
The pandemic accelerated this. And on top of this, when you look at sales, the volume of sales to digital channels continue to increase and more and more enter into territories of high value added products like the ones you have The OpenBank example and you look at OpenBank operating in pure 100% digital mortgages, you see that OpenBank is doing the same volume of mortgages equivalent at 200 branches or something like that, yes? So this tells you that digitalization produced a commercial reach that well, given the granularity of The branches in Spain, the large number of branches, you can create a different morphology of the branches, yes? So it's not just The number of point of sale is the type of point of sale you have, yes? So probably, it's less number more Size per branch, yes.
So now, Jose, do you want to elaborate on capital?
Yes. Alvaro, the Some of the inspections that were scheduled for this year following COVID were postponed for next year. They haven't started yet. So we don't know for sure at this point which ones will be closed next year. A conservative estimate would put the impact well below the regulatory impact that we had in 2020.
So we see we continue to see our capital ratio moving at the upper end of the 11% to 12% range over the next 12 months at least.
How confident are we about the ECB or the SSM allowing to pay dividends? Well, We are making our case, yes? So in our case, it's what we are telling you right now. So Strong pre provision profit that is on hold. We are not decreasing our pre provision profit.
That give us enough firepower as the first line of defense in order to offset potential negative outcomes coming from the credit side, given the uncertainty of the scenario. And this is our case and, well, not to Subordinate bank shareholders to other shareholders of other sectors or companies asking us to Keep the lending going at the cost of potential dividends for the shareholders, yes? So we are making our case, well, based on the What we've done since the pandemic started, we increased the lending, we provide liquidity all across the board, we continue to generate results. And based on this, we are asking them to allow us to pay dividends. It's 100% up to them to allow us to do so or not, yes.
Thanks, Alvaro. Next question, please.
The next question comes from Carlos Cobo from Societe Generale. Please go ahead.
Hello. Thank you very much for the presentation. One question on NII and your outlook for next year, Specifically, Spain and the U. K. In the U.
K, in particular, we're seeing some pickup in new pricing and also lower swap costs. So do you see a recovery in NII from here? Or we should take it out. In Spain, same thing, but on the opposite, the arrival is putting some pressure on the sector. How do you see NII evolving in 2021?
And that's pretty much it. Well, maybe a quick question on mortgage from monetization costs. We've seen recently A new sentence in a first instance quote, but it's kind of going Following a collective lawsuit like a class action against the Spanish banks and This seems to be a read across for the sector. Do you see that as a potential risk that could increase the post potential Provisioning needs here, contrary to the previous jurisprudence where courts has been ruling on a case by case basis. Thank you very much.
Okay. Let me to elaborate on NII both in UK and Spain. As you've seen in the quarter, positive developments there that within the in the UK will be translated in the future. In Spain, we remain I'll show positive, not as strong as in UK on the back of what you already mentioned, the driver is getting more 12 months is getting more and more into the negative territory. But in both cases, we think with different extension that we're going to remain in positive territory going forward.
When you're referring to the mortgages, well, I think you referred to the upfront fee we charge on the mortgages. That was one case. I don't see this having the capacity to progress on the upper courts and being a case, a overall case as the others that we have seen. But well, again, this is a Fairly common practice, not only in mortgages, it's also in consumer loans, it's also in lending to corporates, is everywhere. So but well, I do not expect this to come an issue for the industry.
Thank you, Carlos. Next question please.
Thank you. The next question comes from Fernando Guindesantivane from Barclays. Please go ahead.
Hi, thank you for taking my questions. I would like to touch a little bit on fees and what is driving the new policy in Spain about fees and the Change, what do you expect in the change of fees from November on? This is the First question. And second question, you mentioned that the cost restructuring is coming mainly on Spain and the U. K.
Are we thinking in the U. K. On branch reduction only or people or what other measures could be done To try to make a good guess on what is coming in the UK. Thank you.
Okay. The new policy what you Call new policy in Spain, this is a formulation what we've done is a formulation of the current A strategy to have more Customers that work have the bank as the 1st bank, and this is a step in this direction Through but the most important is happening on the back. You say, we are betting on a significant not only in Spain, also across Europe in a significant Simplification of the product range that will allow us to have a more transparent offer at the same time to reduce We don't expect a big deal in fees out of this reformulation of our current Product mix is more simplification of the product range as a result of the simplification, a significant cost reduction and more transparent relationship with the customer. The second question was about The details, of course, in the UK. So in UK, well, we are doing already this.
Some of the costs till now came basically from some significant remediation process That add complexity at the corporate center and headquarters level like the PPIs and others came to an end and are coming to an end. At some point, we got Significant number of people, thousands of people working on this, and this is coming to an end and we are reducing cost there. On top of this, we have a restructuring of the call centers that is going on. This restructuring is Through incorporation of new technology, the number of people working in call centers in the UK is 1,000, 4, 5,000, we are introducing new technology, and this allow us to simplify and to provide better service the customer on the back of the new technology we're including there. The same can be applied to other areas in the headquarters.
It's not that much about branches where the number of branches was already reduced Significantly, it's more about central services, IT and the way we serve customers at the corporate Not exactly at the corporate center, at the different corporate centers level or centers of services that we have across UK. And in the case of Spain, nothing to add particularly on this,
Thanks, Fernando. Next question, please.
The next question comes from Sophie Bortezanes From JPMorgan.
Here is Sophie from JPMorgan. So In your presentation, you mentioned that you're combining OpenBank with Santander Consumer Finance. Does this mean that you're going to start offering mortgages in the markets that Santander Consumer Finance is currently present in, But where OpenBank is not, so for example, Scandinavia, Germany, Italy. And then how should we think about this That kind of merger between Openbank and Santander Consumer Finance, what does it really mean for Santander? My second question would be around the financial transaction tax that is coming, the same from January next year.
What impact, if any, do you expect this to have on Santander? And do you think there is a risk That Spain could also introduce the bank impacts in Spain. Thank you.
Thank you, Sophie, for your question. The first question, the combination of OpenBank and Consumer Finance. As you know, Consumer Finance is a Large consumer finance platform across Europe with 15 we are working in 15 countries, all the large countries in Europe. And on the other side, we have a retail bank, full pledged retail bank through OpenBank. What we try to get Out of this combination is on Santander Consumer Finance, we got EUR 20,000,000 I should call them I shouldn't I cannot call them customers at this stage because they are basically borrowers that got along from Santander through 3rd party channels.
With this combination, we try to provide a full offer, Not only a long a full offer in the combination with open bond. You mentioned specifically mortgages. Mortgages is Not at this stage the main task. So we continue to produce consumer loans. We're going to develop The point of sale, the checkout lending and all these things at the beginning and having a retail offer in the different banks we have across Europe.
At the same time, these banks, we have I don't know exactly the number of banking licenses we have in Europe, but we're going to reduce Significantly, and we're going to operate through a limited number of banks, probably 3 is not yet established. And the others will be branches of those banks with a technology of OpenBank and with the capabilities through 3rd party channels of consumer finance. I think this combination is powerful, will allow us to grow The business and transform many of these, I called before, borrowers into customers of the new entity. You mentioned the financial transaction tax impact on Santander, non or marginal. We're going to pass to the customers.
Naturally, it's true that the volumes may get reduced and this may affect fees on brokerage, but those are so small that in any case it's immaterial in terms of the P and L, yes.
Thanks, Sophie. Next question, please.
Thank you. The next question comes from Jernej Omahen from Goldman Sachs. Please go
ahead. Good afternoon from my side as well. I have two questions, please. The first one is the follow on on the dividend. And I'd like to understand better, Or if you could share with us, rather, how does the process work currently between a bank like Santander And the SSM supervisor, I started to imagine that Santander would put A dividend proposal on the AGM and make it public as a consequence without at least having A very extensive discussion with the supervisor, but that's appropriate to know.
I would like to comment on that. And then the second question on the processes, when are you actually I think to hear from the SSM on the decision on dividend. And then just a follow-up. Jose Antonio, you talked about how Santander makes the case to the SSM for dividend approval. And you referenced strong pre provision profits, increased lending and generated results.
And I think everybody on this call agrees with this. But I guess that the key feature of the SSM Then was that it didn't discriminate amongst banks and it doesn't discriminate amongst banks Regardless of their operating and financial strength, implied in your answer, I think, is a notion that this will change. So are you expecting the SSM to start differentiating amongst banks that can and can't distribute in the future. Thank you very much.
Thank you, Jarnek. You asked me how the process work with SSM. Well, we have our own responsibilities and SSM has They have their own responsibilities. And what based what we've done this morning in our AGM was based on the current result generation and our expectation for the future, we put for approval at the shareholders meeting A cash dividend for next year. This is our assessment of the situation, yes?
So what do we It's Bert from the SSM. The SSM is going to do data analysis. On the what I don't know if this is Already established, but what I heard is they're going to have some outcome by December this year, yes? So they're going to say something in December. The recommendation or no recommendation or, as you say, they are They may be worried about discriminating between banks and well and not in a position to Elaborate about their thinking.
We make our case. We think our case is strong. On the basis of this, we propose this to the shareholders, yes? So it's what I can tell you at this stage. It's No more, nonetheless done.
We are responsible on behalf of our shareholders and Also, we do need to take care naturally of bondholders and the clients and the customers and all these things, but the numbers support Our claim and this is what we think and what we expect to be recognized by the SSM at the appropriate time and My expectation will be by December, yes?
If I may, just remember that our minimum capital requirement is now 8.5%. So At 11.5% fully loaded, we have 300 basis points of capital. And in the worst crisis that we've had in decades, the bank is generating capital. So even before or even after accruing for the dividend, the capital ratio is going up, And we are not leaving any request from any client without being attended. So I think it's all of these, It's a strong case to allow Banco Santander to pay dividends going forward.
Thanks, Jernie. Next question, please.
The next question comes from Ignacio Largie from Exane BNP. Please go ahead.
Hi, good afternoon. Thanks for the presentations and for taking my questions. I just have two questions. One is, What should we expect in terms of the current revenue growth in LatAm? You have commented a lot about U.
K. And Spain. How do you see Latam, in terms of consumer volumes that we have seen a recovery, so a bit of outlook on Fees and NII in Brazil, Mexico mainly, to be honest. And the second one, it's on the restructuring charges That are associated to the €1,000,000,000 of cost savings? And then do you plan sort of like a Similar level to the ones that you took in 2019 for the previous €1,000,000,000 around €600,000,000 or how do we Expect them to happen.
And just a very quick one, what is the level of cost of equity that you have in mind historically the bank has had on an annualized level? Thanks.
Okay. The first question, Nathal, your question was about revenue growth in Latin. So we see good opportunity to see and speaking in local currencies, yes? So the exchange rate comes on top of this, yes? And local currency, I expect the volume growth to be significant.
You have seen the numbers in Brazil. Our volume growth is significant. Also some growth in Mexico, although the economic Situation right now in Mexico is significantly worse than it is in Brazil, but positive volume growth. We're translating this into higher revenue. Basically, I do expect some negatives coming from what Happened this year with the special check-in Brazil where the regulator, particularly in the payments space, may act in some direction.
So overall, I'm positive in growing revenues there, but probably we're going to grow much faster revenue sorry, volumes Dan, NII on the back of probably some margin compression and regulators stepping in some areas, particularly related probably with fee income, maybe also with some pricing like they did in Brazil at the beginning of this year. Restructuring charge, well, we have don't take this for granted. We need to go into a process with established all the negotiation, but what I have in mind is a payback of 1.5 to 1.7, 1.8 years in the restructuring cost in relation with with the cost reduction. The cost of equity, I was referring in our annual report we present every year, And I don't know how it's called IRP. I don't know how do you call it.
Every year, we publish our cost of equity there. And you take the last couple of years, if I remember, well, the lowest has been in the 8 something percent and the highest that have been in the 9% something percent, yes? So this is the range we have had and this is the take this as a range to use when we're referring to the cost of equity. Naturally, it's not the case right now, yes? But now There is a significant interaction going on that distorts all these metrics, yes.
Thanks, Natchez. Next question please.
Thank you. The next question comes from Adrian Ciek from Credit Suisse. Please go ahead.
Hi, there. Thank you very much. Two follow-up questions, please. 1 on the 2021 outlook. You now expect the underlying RoTE to be in line with your cost of equity, which you just defined as the 8% to 9% range.
Current consensus is expecting an RoTE of less than 6% despite already incorporating a cost of risk Around 130 basis points, which is in line with your guidance. Can you maybe help us bridge the gap just on Broad strokes. And the second one is on inorganic growth. The Santander Chairman supports consolidation, but remains reluctant to be a part of it at the moment. What catalyst would be necessary for Santander to be involved in M and A in Europe or the U.
S? Thank you.
In the first question, Guales, probably you have your expectations probably if the cost of risk is Pretty much the same. Probably, our view about revenues is more optimistic than yours, yes? So it's the only way and costs. So we continue to Expect cash reductions in Europe. I already mentioned this.
I already elaborated on this. On the other side, I also Elaborate on looking at seeing the NII both in UK and Spain stay in the positive territory and the fee income. Naturally, with all the caveats about the uncertainty related with the COVID being also positive, so we expect positive Revenues, cost cutting, negative nominal costs, and this should translate into a relatively healthy P and L Well, M and A in U. S, in Europe, okay, so we've been reluctant because at this stage, we struggle to be late. Equity story that works, yes, so in which we are able to secure properly in the middle of this scenario.
Now we are concentrated in margin what we have in front of us, And we don't need to get complicated in our and to devote our management capabilities to other things and the ones we are currently matching. And this is the main reason, yes, so not other than this one. And because traditionally we did plenty of inorganic growth On the back of getting the scale, yes? And well, we already got the scale in the majority of the markets, almost all the markets in which we are in. And when people ask me why not to go in Spain with 20% or around 20% mark per share, I don't need to scale.
And this happens in the majority The markets in which we are working, and we are much more focused in the internal transformation with the projects we mentioned, The Chairman mentioned in the AGM the 1 Europe project, the combination of consumer finance and OpenBank and finally, to build the payments platforms across the group, both for acquiring business and SME trade related business, yes? So this is the main focus. We're going to work on this on top of much in the current business in the in a highly uncertain environment that require all our attention, yes.
Thanks, Adrian. Now time for the last question, please.
The next question comes from Stefan Nedialco from Citigroup. Please go ahead.
Hi. Good afternoon, guys. Just wanted to probe a little bit the 2021 guidance. So when the pandemic started back in March, you came up with some guidance in terms of expected impact For 2020 and in retrospect, that ended up being quite optimistic. Obviously, it's been very uncertain times.
But what makes you more confident this time around in giving 2021 guidance, which is substantially above consensus, as Adrian noted. And related to that, When we look at your Stage 2 breakdown for loans that are under moratorium versus those that are not, It looks like the safety ratio was around 16% versus 6% for the group as a total. Can you just give us some color on how you're thinking about the potential transition from Stage 2 into 3 of the moratorium loans next year? Thank you.
Okay. The first question is a very first one, given the uncertainty Of the macro scenario in which we are living. So at the beginning of this pandemia, nobody was expecting what has already And maybe what is still in front of us. But what make us well, you're asking us about guidance. We give you first any scenario that is next or very much in line with IMF scenario.
And second, we already seen the reaction of the different actors in this crisis. We saw the reaction of the central banks. Central Bank reacted, in some cases, reducing, slashing dramatically rates in U. S, in UK, in Brazil, also in other markets, and this has an impact. At the same time, they provide liquidity.
They Provided TLTRO 3, and we saw the reaction of the central banks stabilizing the markets, and they're going to continue to do so based on what they are telling as almost on a daily basis. So this is one side. On the other side, the government is stepping in 2 directions. One direction was to provide warranties for lending to the SMEs and corporates. For example, in some countries, it's very important.
In Spain, we got we grew lending and we got EUR 27,000,000,000 of warranties for the SMEs and corporate book, now EUR 27,000,000,000 is warranted by the government, and the government showed his willingness to continue to support economic activity with new lines for investments. So this is we already know this. We didn't know before. And looking forward, my expectation and is Only my expectation is nothing. I do expect based that once the pandemia, Let's call comes to an end and coming to an end means that we have an effective treatment or a machine or a combination of both.
I do expect the governments to keep these schemes going for a while till the economy start to recover. We may be wrong naturally on this. I mentioned a couple of times uncertainty. Uncertainty is the worst problem I Repeat the most in this scenario, but we tell you our views and based on what views we are building Our impressions about the future and the trends about the future. When you mentioned the Stage 2 and Stage 3, Well, let me to remember, on the Moratoria, we have kind of 2 behind the Moratoria, we have kind of 2 different type of customers.
The ones who are taking a financial advantage because in some moratorium, there is a Financial advantage for the customer and some customers took it. So this means that it costs us money in our P and L because we are, in some cases, lending money for free, and they took this. Some other customers that they took because they fear about the future or they were in bad situation. Having more than twothree of the moratorium expired, and I showed you the behavior, and the remaining moratorium is still there. The majority is secured lending.
Keep in mind that, for example, in Spain, people in mortgages, it's much, much Steeper to pay the mortgage and to rent a house, yes? So but it's not 20% cheaper, maybe 60% cheaper or 70% cheaper. So I do not I expect a significant deterioration on mortgages. And as you saw in the presentation, the overwhelming majority of the moratoria stays in mortgages. Naturally, we are having significant rate immigration in our portfolio when we analyze this.
And as a result of this, risk weighted assets grew in the region of EUR 7,000,000,000, EUR 8,000,000,000. That means that Probably, we are downgrading EUR 30,000,000, EUR 40,000,000,000 of the loan book to different ratings, probably in the corporate large corporate And this is going from one stage to another. And this is a process that will continue based on our future expectations. But I'm not, At this stage, particularly worried about Moratoria. Maybe I need to make a caveat.
Scusa, What I mentioned at the beginning of I think it was in the first or second question one of your colleagues may That the behavior in Scusa in the auto market in U. S. Is extremely good, Much better than the one we were expecting, particularly on the back of the price of used cars in the U. S. That Currently, still is 15% above the prices of last year.
And this reduced dramatically the loss given default in this business. And I don't know, To be honest with you, how long it will last this. For this year, our projection is more less optimistic than the current situation, but it's what it is. But there is there are naturally significant levels of uncertainty around all our forecasting, Particularly on the cost of risk front, yes? Also maybe that, well, we may face more severe Pandemia and we have another lockdowns, like the ones we had back in the spring that we are not forecasting.
We are Somehow, you allow me to say, we are forecasting kind of current situation till the spring and having some Remedies after that, yes? So maybe treatment, machine or less incidence of the COVID. But I agree with you that what we are in unchartered territory and I am not particularly well equipped to forecast a Health issues, yes?
Okay. I'm afraid we need to leave it here.
Okay. Thanks,
everyone. And yes, obviously, the IR team is for your disposal anytime the rest of the day. So thanks very much and see you next quarter.
Please guys take care. Take care of yourself.