Thanks for attending the first-half earnings presentation for Grupo Santander. As we do every quarter, our Group CEO will address in detail the first half highlights, as well as the group performance. Our Group CFO will talk about the different business areas reviews, and obviously, the Group CEO will go into the key takeaways before jumping straight into the Q&A. The conference call should take us around one hour. Now, José Antonio Álvarez, the floor is yours.
Okay. Good morning to everyone. Thank you for attending this second-quarter results presentation. As you very well know, the quarter has been very challenging. The environment was significantly deteriorated by COVID-19. In this environment, this difficult environment, the bank has delivered solid operating performance despite the economic environment.
During the second quarter, we were able to continue the performance trend set during the previous quarters in activity and underlying results. In terms of activity, the bank has extended substantial financial support to its customers to help them through the pandemic. Stock continued to grow in our three regions, and our digital adoption has accelerated a lot. We are starting to see signs of normalization in retail new lending, particularly in Europe, with mortgage and consumer new business increasing. SMEs and corporates were supported by the existing government warranty programs.
CIB reviews from the peak in April. I will talk more in- depth about the different segments of the activity. A strong top-line performance given the current market context, with a net operating income increase of 2%, driven by resilient customer revenue and our cost reduction plan, minus 5% year-on-year in real terms.
The cost reductions are ahead of plan, driven by successful expense management in the last few years and additional savings measures adopted in the beginning of the crisis. Higher loan loss provisions based on the application of through-the-cycle models, the scenarios we outlined to you in the previous quarter. The total loan loss provisions are EUR 7 billion in the first half of the year, and an underlying profit of EUR 1.5 billion in the quarter, EUR 1.9 billion in the first half of 2020.
However, as a result of the pandemic, the bank has completed a review of the valuation of the bank's goodwill held against past acquisitions and of the tax credits carry forward. We've recorded a non-cash, non-recurring impairment charge of EUR 12.6 billion, resulting in a statutory attributable loss for first half of EUR 10.8 billion.
I will explain the details later. We have strengthened the balance sheet. We maintain the estimation of the cost of credit we gave to you in first Q, expecting to reach 1.41%-1.5% at year-end, with very good credit quality supported by mitigation measures that we've been taking. We reinforced our capital position in the quarter, delivering a strong organic capital generation of 28 basis points in the quarter, with group CET1 reaching 11.84% at the top end of the bank's 11%-12% target.
After the accrual of 6 basis points of Core Tier 1 capital in the quarter to allow the flexibility to pay a cash dividend from 2020 earnings. In addition, the board intention is to propose to shareholders the payment of a scrip dividend paid in shares in 2019. As soon as possible, depending on the macro and the regulatory requirements, the intention of the board is to go to full cash dividend, to 100% cash dividend, as I said, as soon as possible.
Going to the P&L. We deliver a strong performance. Exchange rate has had a significant impact, eight percentage points in revenues and six percentage points in costs. Resilient customer revenue, even with lower business activity. A strong performance on CIB space that is reflected in other income. We accelerate our cost reduction and higher loan loss provisions due to COVID-19-related provisions.
In Q1, these were within the provision overlay, which we included in the net capital gains and provisions, but have now been allocated by country in this line. You have the details in the appendix. As a result, second quarter underlying attributable profit of EUR 1,531 million, driven first half 2020 results of EUR 1.9 billion after absorbing EUR 7 billion of loan loss provision. We have also recorded non-recurring charges, which I am going to explain and break down in the following slide. Every year, usually in the Q4, Group evaluates whether the adjustment of the goodwill generated in the acquisition of the subsidiaries is necessary. In the quarter following the trigger events occurred requiring an earlier review. This is a very special economic situation. The changes in the economic environment has been very high.
We expect GDP to contract in all the countries in which we operate and anticipate a two-, three-year recovery period. At the same time, we have a lower for longer interest rates with significant decreases in many jurisdictions. We also increased the discount rates to reflect market volatility and higher risk premiums when we discounted the future cash flows. The analysis of value in use guidance and its comparison with group value results in a total goodwill impairment of EUR 10.1 billion, of which EUR 4 billion is the result of a one percentage point increase in the discount rate. By country, you can see the significance is like Santander U.K., EUR 6.1 billion, U.S., EUR 2.1 billion, Poland, EUR 1.2 billion, and consumer finance, EUR 500 million, some in Nordic, some in Germany.
Additionally, the economic environment also affects our capacity to use the tax credits carry forward in the short run, especially those that are registered in Spain, the Spanish consolidated fiscal group. As a result, we also recorded a EUR 2.5 billion impairment to deferred tax assets. The impairments, as you know, are non-cash items, have no impact on our market position and credit risk position, and are neutral in CET1 capital.
Nevertheless, we remain optimistic that the growth potential in the markets in which we operate, and this impairment does not reflect in any case the importance of the markets in which we operate and how core are for us. Going for capital, we continue to build capital. In the quarter, we generated 28 basis points organic capital in the quarter due to higher net profit, management of risk-weighted assets, and increased securitizations.
This, together with the positive regulatory impact driven by the expected European regulation of capital requirements, CRR2, quick fix measures, led to a total increase of 52 basis points. On the other hand, there were several non-recurring impacts in the quarters, such as Ebury acquisition and negative impacts coming from FX mainly, and some from pensions.
All of this results in a CET1 of 11.84% and the management buffer of circa 300 basis points versus 189 basis points pre-COVID-19. Today, we have greater visibility than a few months ago. We do not believe that we're going to destroy capital. Comparatively, we think it's more feasible to pay dividends. We haven't included in this capital position the sale of Puerto Rico, nor the sale of Puerto Rico, nor the potential impact of the software deduction that may come at the end of the year.
That will be in the region of north of 20 basis points impact. Going to the activity, let me guide you through the activity in the quarter. First, on the operational side, the bank has operated remarkably well in all the geographic areas. The business continuity was not compromised, and we haven't had any relevant incidents. At the same time, we continue to serve our customers with the attention they deserve. Currently, nearly 90% of our branches are open. We strengthened our corporate center's capabilities, and we are over 37,500 ATMs available with the group working as usual. Our point of sale turnover has recovered near to pre-crisis levels, following 25% turnover growth from the low reached in April.
We started to gradually return to our usual workplace in some countries at the end of May, always following the recommendation of the local government, respecting the individual's needs of each employee. When it goes to the activity, to the financial activity, you have on the screen the new retail new lending. We are seeing some signs of normalization, particularly intense in Europe, also in the U.S., less intense in Latin America.
In Europe, as you can see, mortgage lending, new business is recovering, particularly in U.K. and Spain. North America and South America are below pre-crisis levels, with South America more affected as some restrictions still apply. In consumer lending, recovering quickly in all the European countries, with Nordics above pre-COVID activity and Germany near 100%, and Spain and Italy over 70%. We had strong origination volumes in the U.S., particularly in prime, boosted by FCA campaign.
In South America, volumes still below pre-COVID-19, despite having spike in April. When we go to the corporate and CIB lending, let me to remember that this has been a quarter in which we've been using the credit facilities through the government warranty programs. Over 630,000 operations have been formalized, amounting for more than EUR 25 billion, mainly in Spain, also in U.K., and some in U.S. In lending to SMEs and corporations in Europe, growth was driven mainly by Spain, in large part due to ICO loans, and also in the U.K.,
Bounce Back Loans & CBILS. North America, volumes returning to pre-COVID-19 levels. South America is still an earlier phase of the crisis and continues to have mixed performance across countries. Brazil declining month-to-month, while Chile and Argentina having some growth. In CIB, credit growth of EUR 16 billion since February.
Such in drop-downs across countries in March and the first weeks of April, thought normalizing in the latter half of the quarter. Much of this liquidity has been placed directly in deposits that grew EUR 24 billion in the quarter. If we go for geographic areas, you see the activity. In June, group new lending was similar to pre-COVID levels. In the second quarter, stock continued to grow in our three regions, resulting in a 6% year-on-year increase in loans and 7% growth in customer funds.
You have the stock there. Basically, retail loans remained fairly stable while corporate and wholesale balance increased across the board. Finally, as a result of the health crisis, digital adoption has accelerated a lot. Our digital products and services are becoming more important than ever. We have increased six million mobile customers since June 2019, growing 22%, and we reached 40 million digital customers.
In the first half of 2020, we grew 50% more than in the first half of 2019. Our digital sales penetration increased to 47% in Q2 versus 36% in 2019. Of note was Santander U.K., with an exceptional 92% of digital sales of the total in Q2, 76% in the first half of 2020. As a result, we have again achieved record quarterly figures in the number of digital accesses and transactions.
Going to the group earnings, let me start with revenue. I will qualify the revenue as I did at the beginning. Very resilient, with significant growth in the Americas. North America is still growing, and Europe some decrease mainly due to the fee income line as a result of lower activity. Well, overall, as I said at the beginning, very resilient revenue is the result of our business model that is characterized by a strong relationship with our customers.
If we go to different parts of the revenue lines, NII was EUR 16.2 billion, basically flat compared with the previous year. Although internally we have significant changes, higher volumes, the impact of lower interest rates, some regulatory impact, particularly in Brazil with overdrafts and the very high liquidity buffer, the highest ever, that has implications in the cost. Overall, flat NII in constant currencies. Going to the fee income, we have like three walls here.
The retail banking that suffer naturally the lack of activity in the quarter, the lower volumes of transactions mainly in Europe, and regulatory changes in several units. The Americas remained broadly stable. From the business point of view, of note is wealth management and insurance, CIB increased fees, and represent 47% of the group fees. This quarter, we can perceive a gradual recovery in fee income associated with the normalization of the activity.
In retail, point of sale and card turnover increased 25% and 28% between April and June after the sharp plunge of 24% year-on-year in April. In wealth management and insurance, volumes show positive year-on-year growth. In Santander Asset Management, driven by market movements and positive net sales in May and June. In insurance, new production started to recover pre-crisis levels in the second quarter, mainly in Latin America. In CIB, the evolution has been very good, 20% up the fee income, driven by global transaction banking, global debt financing, and the global markets. Our strategy remains focused on increasing loyalty and growing higher value-added products and services, and we are more optimistic for the coming quarters. Costs, as I mentioned at the beginning, 5% lower in real terms, reflecting our successful management in this space.
We are accelerating the cost reduction trends in most markets, notably in Spain, -10%, U.K., -6%, and U.S., -4%. This allows us to be ahead of schedule in our cost reduction plan, and we captured incremental cost efficiency. We have already achieved efficiencies in Europe over EUR 300 million year to date, which represents 75% of the initial full year 2020 target. The efficiency ratio remained broadly in line with the previous year at 47%, but is remarkable in this environment. We believe that the management that we plan to do by region and the lessons learned from the management of the pandemic will enable us to accelerate our transformation plan in the future, and consequently, further optimize costs while improving customer experience. We are optimistic about the cost evolution in the coming quarters.
Going to credit quality, we recorded our loan loss provisions, as I mentioned before, at EUR 7 billion, EUR 3.9 billion first quarter, EUR 3.1 billion second quarter. As a result, we still expect the cost of risk of the group to be in the region of 1.4%- 1.5%, as we had already mentioned. The traditional measures of credit quality at this stage do not apply that much. NPL remained fairly flat.
All these provisions are based on the models plus applying the scenarios to the model, as you know. Let me, having said that, let me give you some color about what's going on in our loan book. As we mentioned in the previous quarter, the amount of customers affected by payment holidays has been significant. More than five million customers got some kind of moratoria for a total amount of EUR 116 billion.
Close to 80% of this amount is granted to individuals, of which around 90% is secured lending. The vast majority is mortgage-related , and it represents 60% and is mostly concentrated in our highly collateralized U.K. portfolio. Moreover, as 100% are legislative moratoria, a large majority of the customers in the U.K. have requested the payment holidays as a way to benefit favorable financial conditions. Indeed, circa 90% of these customers do not have any arrears on record.
Consumer accounts for 20% of the moratoria, of which two-thirds is auto loans. Such a moratoria is short-term, typically two, three months, and is starting to expire, and I will provide you some data immediately. Just 6% of the SME and corporate portfolio is under moratoria, and it's complemented with new liquidity facilities backed by government guarantees by more than EUR 20 billion, as I mentioned before.
In summary, according to our internal risk analysis, 75% of the portfolio subject to moratoria is defined as a low risk, and to still as early, given the uncertainty levels, to draw final conditions. Let me to share with you what's going on with this portfolio as the current moratoria expire. As you can observe, close to 90% of the moratoria will mature in 2020. Of which 25% had already expired as of June 30, and 50% more will do so in the next three months.
Although it's still too early to draw any conclusions on expired volumes, we can see that the current expirations are behaving with no material deviation from their normal behavior. Of the total expired at June 30, circa EUR 29 billion, 98% remains performing. More than 60% are residential mortgage, mainly concentrated in the U.K., EUR 18 billion.
30% is consumer, of which 90%, EUR 8 billion, is short term mainly in SCUSA. Concerning SMEs and corporates as of June, the expired loans are concentrated mainly in Brazil. We are reinforcing local recovery teams. This moratoria and the early performance of expired payment holidays were taken into account when calculated the estimated cost of credit at the end of 140, 150 basis points. As of July 15, more than EUR 40 billion of these loans had expired, maintaining similar credit quality, and only 2% of the total had entered into stage three. Let me to hand it now to Jos é García Cantera , that is going to elaborate to different business areas, regions, and business areas in the quarter.
Thank you, Jos é Antonio, and good morning, everyone. As previously mentioned, group net operating income was again supported by the bank's geographic and business diversification. North and South America grew their operating income, while the performance of Europe was impacted by the economic environment, showing the different stages in the evolution of the pandemic. We had an outstanding performance in our global businesses, both in net operating income and profit, enhancing our local scale with global reach. As mentioned, our Corporate and Investment Bank grew profits by 23%, achieving double-digit growth in all of its main businesses, but particularly in global markets and global debt financing. Wealth management and insurance expanded its profits based on sound revenue and flat costs. Now moving on to the countries. Let's start with Spain.
In a period heavily impacted by the state of alarm, we led among Spanish banks the response to the economic crisis. It is worth mentioning the implementation of Plan Ayuda, a help plan, or aid plan, to protect our most vulnerable customers, with more than 170,000 joining the mortgage consumer and card payment holiday measures. Thanks to process optimization, we granted EUR 20 billion of ICO loans in over 150,000 operations, which represents a market share of 27%. Customer funds were 2% lower year-over-year, impacted by the fall in term deposits on mutual funds, mainly due to market performance. Customer deposits grew 6% in the quarter. Underlying attributable profit amounted to EUR 251 million in the quarter, 64% down year-over-year, obviously driven by higher provisions.
In addition, total income decreased due to lower net interest income, basically lower rates, and a smaller ALCO explain the majority of this drop. Also, lower net fee income due to reduced transaction volumes. These impacts were partially offset by double-digit cost reduction as a result of the optimization processes carried out. Looking forward, we would expect to see improved trend in net interest income boosted by higher volumes, as it was the case quarter-on-quarter. Also, we will see further cost reduction. Santander Consumer Finance, we are starting to see strong signs of recovery in most of the markets where it operates. New car sales in Europe dropped almost 40% in the first half, while new lending in Santander Consumer Finance fell by less than half due to the strong performance in January and February.
The largest falls in the business were in Southern Europe, while Northern Europe, less affected by the lockdown, held up better. As the CEO already explained, new businesses have bounced back considerably in recent weeks, approaching pre-crisis levels in many markets or even exceeding, as it is the case in the Nordics. Net interest income increased 3%, driven by strong loan growth year-over-year, particularly in Northern Europe. Net fee income, which is directly related to the fall in new car sales, decreased 16%. Costs were down 4% year-over-year, 8% quarter-over-quarter, due to the efficiency programs that we had launched already before the COVID-19. Loan loss provisions increased to historically high levels, the cost of credit, the cost of risk remain at a low level for this type of business.
As a result, underlying profits fell 26%, although it rebounded 19% in the quarter. In the U.K., volumes continued to grow heavily. Loans rose 4% year-on-year. Underlying attributable profit continued to be impacted by revenue pressures. Net interest income affected by the base rate reduction and the SVR, and net fee income affected by lower transactionality and regulatory changes to overdrafts. There was also an expected significant impact on loan loss provisions. We have reason to expect, however, an improvement for the rest of the year. We have reduced the rates on the 1|2|3 World account in May, and we have announced a further reduction in August. Additionally, funding from the Bank of England's Term Funding Scheme has significantly reduced funding costs. Both of these will support net interest income over the rest of the year.
Moreover, our transformation program is driving the 5% year-on-year drop in costs, 6% in real terms. Our credit quality remains strong related to payment holidays that have been granted. As previously mentioned, the majority are mortgages with very high-quality borrowers who have requested the holiday due to its favorable financial conditions. Looking forward, we believe that we have weathered the worst of the crisis and expect an upward trend in the coming quarters.
The U.K. remains a core strategic market for the group. Brazil has again proved its balance sheet strength and successful business model, which enables us to maintain high returns for our shareholders. Return on Tangible Equity was 17%. Additionally, we continue to focus on improving our service quality, and this was reflected in a substantial increase in NPS to record levels. Lending increased 18% year-on-year, with all segments growing.
Customer funds also rose, boosted by demand and time deposits. Net operating income rose 5%, backed by positive performance of revenues and efforts to reduce costs. Net interest income increased slightly, driven by larger volumes, which offset margin pressures due to the change in mix, interest rate cuts, and change of the cheque especial terms, a regulatory change, while net interest income was impacted by the slowdown in activity. Costs were 1% lower, excluding inflation, with improved efficiency year-on-year, 67 basis points down.
The good net operating income was not reflected in underlying attributable profit because, obviously, higher provisions, which also led to an increase in cost of credit, but within our expectations. In short, the bank continues its excellent performance, even in a more difficult environment. During the pandemic, Santander U.S. has remained focused on supporting its customers, employees, and communities while pursuing its strategic priorities.
In the bank, in SBNA, we continued our digital and branch transformation while enhancing our auto finance partnership with Santander Consumer, focused on prime loans. In Santander Consumer, we had disciplined originations through our dealer network, enhancing our partnership with Fiat Chrysler and SBNA and the bank. Loans were boosted by the Paycheck Protection Program. In Santander Consumer, originations declined in March and April but have recovered later in the quarter, driven by FCA initiative programs. Underlying attributable profit decreased 56% year-on-year due primarily to provisions, which increased almost 50%. Compared to the previous year, underlying attributable profit was 2.5 times, 150% higher due to lower costs, loan loss provisions, and reduced minority interest.
In summary, we had a solid volume growth in the quarter and in previous quarters, with doubled profits in the last two years, and we have strengthened our capital position as shown in the stress test. This is the result of the continuous improvement in our franchise, and we believe we can continue to grow and add value in a key market for us. In Mexico, the bank continued with its debtor support program, aid on individuals and SMEs.
In addition, a significant number of branches operated with reduced staff. Digital channels and contact centers worked normally. Digital activity increased substantially year-over-year, with a 38% increase in mobile customers, 45% in transactions, and digital sales penetration is now 11 percentage points higher than in the first half of 2019. Loan growth was driven by corporate CIB and mortgages.
Quarter-on-quarter, it was impacted by the slowdown in the use of credit lines from corporates and CIB following the strong growth that we had in the month of March. Net operating income increased 11% year-on-year, supported by positive revenue performance and improved efficiency. Costs show a better trend than in previous quarters, and the efficiency ratio improved by more than two percentage points. Underlying attributable profit rose 4% year-on-year, which benefited from reduced non-controlling interests. In short, very positive trends reflecting the improvement of our franchise in recent years. Finally, in the corporate center, the first thing I wanted to say is that it continues to play a critical role in supporting the Group through the special situation committees.
Starting in May, the progressive reincorporation of employees to the workplace began with a mixture of on-site and remote working, always following government and health authority recommendations, maintaining a high level of flexibility to meet individual needs. With regards to results, underlying attributable loss is flat compared to 2019, mainly due to the combination of, on the one hand, the positive impact of the foreign currency hedging, which is reflected in financial transactions of EUR 250 million and a 4% reduction in costs. On the other hand, net interest income was negatively affected by a larger liquidity buffer, while the revaluation of some small stakes is reflected in provisions. Now, I will hand it back to Jos é Antonio for his concluding remarks. Thank you.
Thank you, José García Cantera. Allow me to conclude and to go back to the questions you may have. The second quarter, as I said at the very beginning, we operate under specific conditions that were not the best to deliver in terms of our business. Having said that, as I mentioned at the beginning, operationally, we serve very well, I would say, our customers, and we were able to keep the business going. As a result of this situation and the management of this situation, we mentioned already we continue with strong capital. We generate significant capital in the quarter, organic capital generation, and we maintain our core target in the top of our 11%-12% range.
As I mentioned before, given the strength of the bank's capital underlying performance, the bank has accrued 6 basis points of CET1 capital in Q2, allowing the option to pay a dividend from 2020 earnings. On top of that, we have an intention to pay a scrip dividend paid in shares before the year-end, and coming back to 100% the cash dividend when this is feasible from the macro point of view and from the regulatory point of view.
We deliver strong performance on pre-provision profits, resilient income, and cost reduction accelerating. In the second half of this year, we expect to recover our customer revenue via NII and fees, and to continue to delivering on our cost reduction ahead of our plans. We have good credit quality, we maintain the cost of credit after some of the customers, the moratoriums, expired, and we share with you the data.
This continues to be consistent with our expectation of cost of risk for this year. In summary, I will say our business model's strength and execution of our strategy continue to show resilience across different cycles. This is helped by the group's strong pre-provision profit, the amount of credit reserves for EUR 24 billion, and the fact in all the stress test capital destroy is significantly lower than our competitors. This makes us confident about our future performance and our ability to continue to generate capital. Finally, accelerating our transformation plans are key.
For this reason, we are accelerating our transformation plans to leverage both our scale and the collective strength of our regions and global businesses. We are focusing on simplifying our operation and improving customer experience to grow profitability and with improved efficiency. We have learned from customer behavior changes during the pandemic and from our own operational experience.
Convinced that all of this will enable us to work more efficiently, which, combined with greater integration, should be reflected in an increase to our profitability. All these elements make our net operating income forecast consistent with our Investor Day medium-term targets. That's all on our side, and now we have time for questions. Sérgio, take the lead.
Thank you, José Antonio. Thanks, Jos é García Cantera . We have now time for Q&A, so please let's proceed with the session. First question.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press zero one on your telephone keypad. Thank you. The first question comes from Álvaro Serrano from Morgan Stanley. Please go ahead.
Good morning. Thanks for taking my questions. Just one on the dividend and another on impairments. On the dividend, just the mandatory scrip, just the rationale behind it, given it has no impact on valuation and given it's certainly affecting the perception among institutional investors, what's the rationale behind it? You've also pointed out that you're going to move in cash dividend. Just wanted to discuss, if you can discuss the visibility. Obviously, on the macro, we understand visibility is what it is, but I'm more asking about regulatory headwinds. The ECB announced the TRIM exercise are back live now. How comfortable are you that the visibility is better from a regulatory perspective, given you were going to move in cash last year? What makes you more comfortable there?
The second question on impairments, I don't know if you can, maybe after the call, share some of the assumptions behind the impairments or the DTAs and goodwill impairments. Are you comfortable now that we should not have any further impacts on tangible value going forward from extraordinary ones, of course? Thank you.
Okay, Álvaro, thank you for your question. The first one is the rationale behind the mandatory scrip. As you know, north of 40% of the shareholder base are retail shareholders. They being quite vocal on this, asking us for keeping some kind of remuneration in scrip. That's the main rationale. I know that the share count goes up, and this is probably something that may not please some institutional investors, but we need to take into account all our shareholder base, institutional and retail shareholders. The second question is regulatory. Well, we also want to stress to you and state to you that the board's intention is to go back to 100% cash dividend as soon as we can. On this line, we accrue 6 basis points, roughly speaking EUR 400 million, as is the intention.
If the profit generation goes accordingly with our expectations to keep accruing dividend in the coming quarters, and we think that the ECB position on this, as cannot be other way, is going to be related with the capacity of banks to keep generating profits along this cycle. As long as we are forecasting a recurring capacity to generate profits, we accrue dividend. That shows the Board's intention to pay dividend in cash if we continue to generate profits. Naturally, there are two uncertainties here. One is on the macro side. If we are wrong on the macro and the profits are not the ones we expected, it may happen. We are not in this line. We think that we're going to keep generating current profits.
Second one is the recommendations from the regulator, that it maybe will depends more on the capacity of the banks not to destroy capital during the crisis. The impairment assumptions for the impairment. Basically, the impairment, I mentioned three factors behind this. The first one and the most important one is the macro situation that deteriorate significantly the profits in the very short run, not in the medium term. This is more in the short run, as you are seeing this quarter, we are reporting a significantly lower profits, underlying profits than the ones we were reporting one year ago as a result of the health crisis. This is going to affect for two years, three years, as I mentioned before, and this has an impact.
The reaction of the central banks to this situation, in many jurisdictions, has been to reduce rates, particularly in U.S., in U.K., where this has some effects. The first part, the health crisis translating to higher loan loss provisions. The second part put pressure on NII. Finally, we increase the discount rate on average 1%. Not in all the jurisdictions the same, but take the 1% as a round number, more in some jurisdictions, less in others, as a result of the higher market volatility and as a result, higher risk premiums. This has an impact of, I think I mentioned in the presentation of EUR 4 billion. Out of the EUR 10 billion, EUR 4 billion is due to the higher discount rate, and EUR 6 billion coming from the other two factors I mentioned.
Thank you, Álvaro. Next question, please. Next question.
The next question comes from Ignacio Ulargui from BNP Exane Paribas. Please go ahead.
Thanks for taking my question. I have one question only. If you could elaborate a bit on what is the outlook for pre-provisioning profit at a group level into the second half with the different moving parts and revenues and costs, and whether the 2Q number, it's with the information that we have today, the bottom of 2020?
Ignacio, we elaborate a bit about this. A lot of this depends naturally on the. The scenario in which we are working is having somehow new normality, what is called new normality, somehow in Europe and the U.S., with some still activity that is at the current levels, not 100% back, because probably this is not going to be possible till we get efficient treatment for the COVID or a vaccine being widely spread. We are working with a scenario close to the one we have today in Europe and the U.S., and Latin America coming back to certain normality in the next two months. Yeah. This is a scenario in which we are working. In this scenario, we should be able to recover our NII, as we mentioned. I'm fairly positive on NII.
Well, we are repricing liabilities in many jurisdictions, particularly intense, as Jos é García Cantera mentioned, in the U.K., also in other jurisdictions. NII should have certain strength in the second quarter and to recover some fee income that we lost as a result of the lockdown, particularly in Europe. I showed you the numbers, and the effect on fee income was due to significantly lower activity during the lockdown.
As long as we don't have lockdowns, and this is the hypothesis I'm making, we should have a stronger pre-provision profit in the second half of the year than the one we had in the first half of the year. I do not see in this scenario, again, uncertainty in the scenario is there, higher provisions than the one we recorded in the first half of the year. That's my assumption for the rest of the year.
Thanks, Ignacio. Next question, please.
The next question comes from Fernando Gil from Barclays. Please go ahead.
Hi, good morning. Thank you for taking my questions. Two questions from my side. First is, can you please remind us the book value of the U.K. and U.S. after these goodwills impairments? This is one. Second is, can you please refresh the FX exchange sensitivity going forward in the P&L? Thanks.
Do you have the figures for U.K. and U.S.? From memory.
12 billion.
12 billion.
12 billion U.K.
12 billion U.K. It's in our quarterly report. I am speaking by memory, EUR 16 billion U.K. Sérgio, you remember the number for the U.S.? We come back to you, and give you the exact figure, but it's published in our annual report. You have there the book value and the goodwills. The goodwill at the group level was EUR 25 billion.
After this impairment, it's going to go to EUR 15 billion, concentrated mainly, and speaking by memory, in Brazil, Mexico, and very little in U.K. after this impairment, very little in U.S. I think Álvaro, your colleague, asked me in the first question, I didn't address this, for the further impacts of impairments in TNAV. No, I do not see further impairments that affect TNAV. TNAV, I do not see further impairments. In fact, when we do impairment tests, only when it comes negative, you record.
In many cases, it's positive, and when we compare the discount future expected cash flows with the current market value. FX impact.
As you know, we have the policy of hedging tactically the P&L. It is hedged for the rest of the year, mostly. Almost all currencies are hedged for the rest of the year. We have started already to hedge in some of the positions for next year, particularly the U.S. dollar, the Mexican peso, and the Brazilian real. It's not fully hedged next year, but we have started to do it.
Let me elaborate on this. The FX, this first half of the year impact has been intense. The depreciation of emerging market currencies has been very significant across the board, in general. The Euro strength is there. What we expect going forward is, after this depreciation, not having additional significant depreciation impacts other than the one that may come from very high inflation countries. In our case, it's basically Argentina, but I could be more constructive on FX in Mexico and Brazil.
That are the two most important countries. Given the fact that I think the markets are taking an overly negative view over the developments in those countries. As you can see in our figures, we are seeing the activity and the levels of activity and the capacity to generate profits in those markets continues to be relatively strong.
This means that economies handle the crisis better than I think many market participants are thinking.
This is a follow-up, if I may. Current value from the U.K. is 14, six is SC USA, and 10 is SBNA. Out of the post-impairment EUR 12 billion goodwill for the entire group, Brazil represents around EUR 3 billion. Obviously, I'm happy to catch up in more detail about the numbers after the call.
Next question, please.
The next question comes from Andrea Filtri from Mediobanca. Please go ahead.
Good morning. Thank you for taking my question. Could you please update us on IFRS 9 charges? Where are you on those, and what macro scenario are you reflecting now? Are you envisaging further COVID charges in H2 2020? What sort of capital headwinds do you envisage from risk-weighted assets procyclicality as macro deteriorates in the coming quarters? Are there any pending TRIM impacts left at this stage? You said that you confirmed the 1.4%-1.5% cost of risk guidance, reflecting the benefits of the moratoria. What would this be without that? Just finally, what is the TLTRO III benefit to come, I guess, from Q3 onwards? Thank you.
Okay, plenty of questions, Andrea. I'm going to address some of them. Others, I will pass to José García Cantera. IFRS 9 charges is what is reflected in our loan loss provision. We are working naturally with our models and the scenario that I mentioned. We haven't changed the scenario. It's the one I mentioned in the previous quarter. That is not exactly, but very much in line with what IMF, the scenario was at this time. We haven't changed this.
Do we expect further COVID-related provisions? Unless we have a different scenario going forward, I do not expect additional that are already embedded in our numbers. Second question is risk-weighted asset procyclicality. It's true that there is some procyclicality already happening. There is rate immigration, and we are already including. We have some rate immigration, particularly, or in some cases, significant rate immigration, particularly in the CIB space.
It happens on a continuous basis and is going to be reflected quarter after quarter, yeah. Including the second quarter, where the procyclicality was significant, and it's included in our organic capital generation. Okay. The TRIM impact, José, you want to take this one? The moratoria, as I mentioned, does not help in the cost of risk. The cost of risk at this stage comes from the application of scenarios to the models. If we were recording cost of risk based on observation like it was in the past, the cost of risk would be significantly lower. We take into account, naturally, all the moratorias, what is going on with the moratorias. While naturally, but the majority of the extra cost of risk comes from the models. Do you want to elaborate in TRIM impact?
Yeah.
TLTRO III?
Yeah. With regards to TRIM analysis, we have the most significant one is the TRIM on Spain's SMEs. That was put on hold last year to try to help lending to this sector. That obviously with the end of the extraordinary conditions, this may come back. It could be up to 16 basis points. We have some other smaller one-offs that might happen before the end of the year, although some might be postponed for next year, could be up to 5 basis points. Worst case scenario, I think we're talking tops 20 basis points. With regards to the TLTRO, we increased TLTRO in the region of EUR 17 billion relative to what we had last year.
Next question, please.
The next question comes from Sofie Peterzens from JP Morgan. Please go ahead.
Hi, here is Sofie Peterzens from JP Morgan. I had a question on the NII outlook. You mentioned that volume growth was very strong and was holding up quite well in the quarter. How should we think about the NII outlook in Spain going forward? My second question would be on your TNAV. It was down around 5% quarter-on-quarter. Are you doing anything to keep TNAV a little bit more stable going forward? Have you any hedges in place?
How should we think about the TNAV growth going forward? The last question would be just a follow-up on the previous question. What kind of macro assumptions do you have for your various geographies? For example, in Spain, are you using the Bank of Spain macro scenarios? How are you thinking about the macro picture in your different markets? Thank you.
Okay. Thank you, Sofie, for your questions. Let me elaborate on the NII in U.K. going forward. As José mentioned in the presentation, probably we've seen the worst already in the second quarter. It's a liabilities reprice and exercise that is going on. We started to see this starting in May. It's going to accelerate in August, and probably we will go back to normal in the fourth quarter. Accelerating this, probably the fourth quarter, we should go back to what we had the previous year. After the repricing of all the liabilities, that's the reason why Jos é said that we are optimistic on the NII evolution in the U.K. It's basically a liability repricing across all the deposit base. Second, I believe the TNAV, to question to José going forward.
Macro assumptions, you mentioned specifically Spain, we are working in the region of 10% GDP decrease this year and a significant recovery next year. I don't remember exactly the number, but I think it was 6% or 7% next year. As I said to you, our scenario is not far away from maybe a bit better or a bit worse country- by- country, but on average, not significantly different than the one of IMF. The TNAV, you want to elaborate on this, José?
No, I mean, the TNAV, José Antonio already said that if you look at the two charges that we made in the first quarter, obviously, the impairment of goodwill has no impact on TNAV. The DTAs have, and we would not expect to have any one-offs affecting TNAV going forward. Obviously, the evolution of TNAV will depend on our capacity to generate earnings affected by the currency, the evolution of the FX. That, as José Antonio said, was extraordinarily high in the first half, and we would not expect to see the same level of depreciation of the currencies in the countries where we operate in the second half. With all things being considered, I think we can be quite more optimistic about the TNAV evolution in the coming quarters.
Thank you, Sofie. Next question, please.
The next question comes from Mario Ropero from Fidentiis. Please go ahead.
Hi, good morning. My first question is on fees in the U.K. Could you please explain how much was the impact of the regulatory cap on overdrafts, and how much you expect to recover in the third quarter? The second question is on loan yields in Spain, which went down significantly in the quarter, despite some marginal help from Euribor. Is the pressure on yields in Spain due to ICO loans, and what do you expect in the coming quarters? Thank you.
Yeah. Fee income in U.K., you rightly pointed to overdraft. As you know, we were not allowed to apply in the overdrafts, the interest rates we were planning to apply. It was mandatory, and this reduced our capacity to relate. It goes more to the NII than on the other, but we were expecting to lose net between NII and fee income, like EUR 100 million, EUR 130 million-EUR 140 million, and now we are EUR 100 million lower than that or something like that. Yeah. It's the numbers I have in my mind. We're going to recover somehow charging interest on the overdrafts in line with what we want to do, but was not allowed to do this quarter, and this will come back in coming quarters. Loan yield in Spain is pure mix.
It's through ICO loans came basically in line with the existing loans, and the mix has changed a bit. The consumer lending decreased, the weight of the consumer lending decreased, while the CIB and large corporates increased, and this result in a drop in the loan yield. You asked me going forward, what's going to happen? As long as we recover the level of activity that we are doing right now in the retail arena, we should be able to recover somehow to the previous levels or even higher levels, depending on Euribor. As you rightly pointed out, that has an effect. Euribor mortgage is 20% of our portfolio.
Thank you. Next question, please.
The next question comes from Carlos Peixoto from CaixaBank BPI. Please go ahead.
Hello, good morning. A couple of questions here. First one would be on the dividend, on the dividend on 2020 earnings. If I do some math on the 6 basis points accrued on the first half earnings, it looks as though you're implying here an 18%-20% payout ratio or expected payout ratio on 2020 earnings. Is that the case? On NII in Brazil, we witnessed a strong compression in margins. Basically , with volumes growing at a healthy pace, I would say, NII was still down. I guess that changes in mix can account for part of this, probably interest rates as well. I was wondering how you see this going forward? Basically, what's the outlook you see there on NII and also on the cost of risk, by the way? Thank you.
Okay. Thank you. Dividend 2020, we accrued 6 basis points. While I will take the number as a strong sign, and in effect, provided that the macro conditions behave as we are expecting, and subject to regulatory recommendations, we don't have in mind any specific payout. What we have in mind or what the scenario in which we are working is we're going to be at the top end of our Core Tier 1 target, and that is 11%-12%, or we're going to be close to 12%, or around 12%. This will allow us to keep a dividend, naturally, first based upon the profit generation. I will not take these 6 basis points compared with the profit we generate in the first half as a guidance for the payout for the whole year.
Probably the payout, if we are right in the macro scenario, and the profit generation is the one we expect, probably we can go beyond that, provided we are allowed to do so. NII in Brazil. Two different. In NII in Brazil, there is a product that in Brazil they call cheque especial, that is kind of overdraft in Brazil. The interest rate was very high, and the regulator put a cap in this product. This product, last year, we started to reduce our presence in this product. In fact, our market share was close to 20%, now it's 12%, and this is the main impact. It's a bit of mix, and the main impact comes from this specific product that has very high yield, extremely high interest cost of risk.
It has an impact in the NII, a significant impact also in the cost of risk. Now, going forward, you mentioned interest rates. Interest rates are not as important in Brazil as they are in other jurisdictions, given the high reserve requirements. It matters, but I will say in the first year, probably it's a net positive, the impact is slightly positive.
Afterwards, it may turn a little bit negative, but at the beginning, it's not as important as other markets due to high reserve requirements in the country. The main effect comes from mix change due to this specific product, and that we have been doing more activity in corporates and not corporates. Let me to say that on a like-for-like basis, our spread in Brazil is increasing significantly. Lower volumes, higher spread on a like-for-like basis.
The mix is, and these products are the ones who explain the decrease in NII. Yeah.
Cost of risk.
Yeah. The cost of risk in Brazil. Well, in fact, we are developing, or we develop a full plan to address collections and recoveries in the country, and we do not expect a spike. I think at this stage we are clearly much more optimistic than my perception of where the market is. We are not seeing that large deterioration. Maybe in this environment, moratorias are not that high in Brazil. They last only for one or two months. They came back. I'm not pessimistic about the outlook of cost of risk in Brazil, unless the situation deteriorated further from the macro due to the health situation of the country. As I said, I'm not pessimistic on this. Yeah.
Thank you. Next question, please.
The next question comes from Stefan Nedialkov from Citi. Please go ahead. Thank you.
Yeah. Hi, guys. Good morning. It's Stefan from Citi. Two questions on my side. The first one is on capital. Have you done any synthetic risk securitizations which may or may not have helped your capital in the quarter? Also, what's the outlook for synthetic risk securitization for the rest of the year? The second question is about the moratoria. You gave some interesting statistics on the non-performing loan ratio on moratoria loans that have expired. Just to probe that a little bit further, what's the % of clients that were furloughed within that EUR 40 billion of mature moratoria loans? Related to that, are there any geographies and products that you're not accruing NII for, in terms of moratoria loans? For example, Mexico or other countries. Thank you.
Okay. In terms of securitizations, we did a couple that were really very small relative to what we thought that we had in our budget. They were insignificant. I think it was like EUR 500 million or something of risk-weighted asset relief. It was not significant. Basically, because the market was closed for most of the quarter, but it has started to open. We would expect to be a bit more active in the second half, probably not reaching our expected activity for the year. Clearly, a bit more active in the second half than in the first half. Indeed, we are working on a couple of more sizable transactions to be closed over the next few quarters, a few months.
Okay. The first question was about the moratoria, the EUR 40 billion, the percentage of this. The EUR 40 billion, that is the moratoria that expired as of mid-July. I mentioned the presentation was very much in line, that went into non-performing, were much in line with the ones who expired at the end of June, in line with the 2%. It's an advantage. That's what we can share with you at this stage. The other question, Stefan, your question was accruing NII on moratoria loans. The majority of the moratoria loans, I think the only big chunk of moratoria loans that are not paying interest are the mortgages in U.K. Yes, the majority of the others, they keep paying interest and the moratoria applies to principals.
What we've done, for example, in mortgages in Spain on a voluntarily basis and in other jurisdictions, is to keep paying interest and not paying the principal. We are accruing interest, for example, in U.K. for the mortgages that are under moratoria, so we accrue. In emerging markets, well, emerging markets, as you know, not due to this crisis. It's the way we accrue and the way we write down, remember that in those markets, we write down after five, six months, all the consumer-related, credit card-related lending, the write-down happens very quickly. Okay. If the moratoria, when the customers come back to the moratoria, and we accrue some interest on this, and we get unpaid, immediately goes, jumps into the write-downs. It happens, it's not like a mature market where it takes longer.
Okay. Last question, please. Go ahead.
The last question is from Adrian Cighi from Credit Suisse. Please go ahead. Thank you.
Hi there. This is Adrian Cighi from Credit Suisse. Thank you for taking my questions. Two questions, please, and a brief follow-up. The first one is that you've written off EUR 2.5 billion in DTAs, citing a deteriorating outlook. Yet you recommit to the 13-15 ROTE target. Can you give us any more color as to how to reconcile the two? The second question is on cost. You've achieved an impressive performance on cost reduction this quarter again. You also note that you're confident you can do more. Any chance we can get you to quantify or provide us a range of some of these potential incremental cost saves? Then maybe a follow-up on cost of risk and trying to give your outlook in a different way.
You mentioned the significant front-loading cost from IFRS 9 models, but would you expect a meaningful decline maybe in cost of risk, next year? Thank you.
Okay. The 2.5 DTAs, naturally, our outlook in the medium term, I mentioned that our outlook hasn't changed in the medium term, provided that the scenario we have in mind works. I mentioned in the presentation that the impairment was related with the impact on profits in this period, the next two years. Two, three years to recover the previous levels. What happens with the DTAs, when you factor these two years of lower profits at the very beginning, where discount rate has little effect, is significant and leads us to this charge. At the same time, remember that we put a higher discount rate. The same applies to the DTAs. Higher discount rate at the end is 40% of the impairment. As I said, globally, EUR 10 billion in impairments.
I said EUR 6 billion coming from outlook, particularly lower profits in the short run and the rest from the discount rate. The same applies here. I think it's consistent, the medium-term target. We are now seeing our capacity to generate profits in the markets in which we operate. As we see today, the market is there. I don't see any reason not to keep those targets.
The cost reduction, the second question, the quantified cost savings, our plan is to update later in the year. For sure, we are much more optimistic as a result of what has happened in the crisis, the behavior of the customer, our capacity to operate, our operational capabilities that we show in the crisis, for sure. We're going to produce higher cost reductions than the ones we commit to you in Europe. That's it.
As you know, we're EUR 1 billion nominal drop in cost in Europe. We already got EUR 300 million in the first half. Thank you, José García Cantera. We're going to exceed easily this target. Yeah. We will update you once we finish our plans, more in the fall or at the end of the year. The last question was?
Cost of risk next year, we're going to see a drop?
Well, I do expect, if we are right with our scenario, I do expect to see a drop next year, naturally. Otherwise, the macro should be significantly different than the one we have. Again, this is the area in which the uncertainty is higher. Naturally, we are seeing what is going on with the COVID on a daily basis, while we are working, as I said before, with a scenario in which we live, in the scenario we live today in Europe and U.S., with economy open up to a point, with some restrictions to travel, but operating, as of today, the economy for a while till we get a vaccine. Once we get a vaccine, I think that we should be able to reduce the cost of risk.
Okay. I'm afraid we need to leave it here. Thanks, everyone, for joining this call. Obviously, the IR team is at your entire disposal for any follow-up. Thanks very much. See you next quarter.
Bye.