Good morning, everyone. Thanks for joining to this Grupo Santander 2019 earnings presentation, headed by our group executive chairman, Ana Botín, and José Antonio Álvarez, the group chief executive officer.
Our chairman will address in detail the performance of 2019 in terms of P&L, balance sheet, and obviously our group CEO will go in much more detail the bottom up on a country-by-country basis. The chairman will follow up with our business model that delivers the prospects in terms of profitability growth, and we'll jump into Q&A. With no further delays, please, Ana.
Thank you. Good morning. Thank you very much, Sergio, and good morning to everybody. I will begin by summing up the year. 2019 was a very good year for us. We have delivered on both growth, profitability, and strength targets. We grew loyal and digital customers again by 9% and 15%, respectively, year-on-year. This has resulted in quality growth in our revenues of 4%. That's again year-on-year.
Profitability, our underlying return on risk-weighted assets, has improved by five basis points. We have maintained an underlying return on tangible equity of 11.8%, while increasing, by the way, our tangible equity by EUR 4.5 billion, and that puts us well on track to achieve our medium-term goals of 13%-15%. We continue to be one of the most efficient and profitable banks among our peers, and a cost income of 47% remains best in class.
The combination has allowed us to further strengthen our balance sheet, raising our fully loaded CET1 to 11.65. That is despite regulatory headwinds this year of 62 basis points. Based on these excellent results, we have announced today that the board will propose to the 2020 AGM in April, a total dividend per share on 2019 results of EUR 0.23.
Importantly though, EUR 0.20 will be paid in cash, and this represents a close to 3% increase in our cash DPS this year. Again, we continue growing, as we have over the past few years, our cash dividend. Basically, we have more than doubled the total cash dividend per share over the last five years. Going now to the next slide. Here you can see the P&L for the year. It's been a challenging environment, especially in Europe.
We have delivered very solid and consistent revenue and profit growth, with total revenues increasing 3% year-on-year on a constant currency basis and reaching a record EUR 49.5 billion. With underlying attributable profit for the year also up 3% on a constant currency basis, up to EUR 8.3 billion. Very importantly, accelerating again in Q4. It's been an excellent quarter, better than the full year, growing underlying profits at 5%.
Going on to the next slide. I would like to cover the three strategic priorities we set for ourselves back in April. Briefly summarize, you can see here how we have made progress this year on all three of them. Improving the operating performance across all regions, continuing to allocate our capital to those regions and businesses with great discipline, by the way, that generate highest returns. Of course, accelerating the digital transformation through Santander Global Platform.
Underlying all of this, and very important for us and for all the team is continuing to focus on building a responsible bank. Doing a lot of progress on culture across the group, changing the way we're working with very different initiatives, from flexi working, to diversity, to the rollout in many more countries of agile teams working together across the group in all our core banks.
Allow me to cover briefly the progress on each one of these pillars. During the year, if you go to the next slide, we further leveraged the diversification and scale of the group, and we have been improving our operational performance across the regions, but also in our global businesses. We have simplified into a three-region management structure, which is delivering excellent results. We announced this in April.
There is a much more effective collaboration across the regions, in parallel, but also convergent against the common group, ultimately building one single platform. Europe is successfully driving a simplification effort, delivering results on efficiency. We generated about EUR 200 million in net cost savings. That is about 20% of the EUR 1 billion net cost savings target.
Across Europe as a region has delivered 10% return on tangible equity. North America, again, growing double-digit in all the key metrics, benefiting from high operational leverage from the group, with underlying profit in the U.S. growing by 24% year-on-year, again after a very good year in 2018. Improving the return on tangible equity by 111 basis points. This is adjusted for excess capital.
Mexico, again, excellent performance. We've done major investment in Mexico, increasing customers and maintaining a 19% year-on-year increase in profits, and return on tangible equity of close to 21%. Last but not least, South America, which remains the Group growth engine led by Brazil, delivering best results ever with an 18% increase on year-on-year in underlying. At the same time, getting ready for the future, increasing efficiency, and return on tangible equity up by 179 basis points to 21%.
If we now cover briefly the global businesses, this is a very important priority for all of us, for Antonio, myself, and all the teams, to really build global businesses so we can more and more leverage the Group scale and strength. You can see that today, these two global businesses are contributing 26% of the Group's profit, increasingly driving network effects and enhancing the competitiveness of our core banks.
Corporate investment banking continues to grow strongly. Underlying profit was 10% higher and driven by a strong growth in revenues. With a return on risk-weighted assets of 1.8%, continues to improve over the years, one of the best among peers. Our wealth management division and insurance, which was created recently, continues to improve. Total assets under management growing by 13% in 2019 to very close to EUR 400 billion, and underlying profit growing by 11% to EUR 1 billion.
Last but not least, and I will give you a bit more detail on this later, Santander Global Platform continues to progress, again, working across the group on a horizontal basis and really helping us, all the countries and businesses, create efficiencies, but also grow revenues and customer experience. Our digitization strategy is paying off, and you can see this in the positive evolution of digital metrics.
We focus on improving customer experience as the big driver to improve growth in customers, and this especially true in mobile. We now have 37 million digital customers. As a reminder, we started five years ago with 14, but just year-over-year, that's a 15% increase. That now represents more than half our active customers. Our digital customers are more and more engaged.
Just to give you an idea, digital customers engage online with us five times per week. This results in 700 million digital touchpoints per month. Very importantly, this is also translating into sales, and sales on the mobile channel have grown by 2x in 2018. As a result of all of this, 36% of new product across the group sold in 2019 were through digital channels, and reaching by the way, 39% in December 2019.
That's a 7 percentage point year-on-year growth. It's important because customers are increasingly using digital, so we're using and refocusing the branches more and more on the higher value added and more complex products, which of course is adding to strengthen relationships, but also profitability. You can see some of these numbers in the next slide.
The fact that digital sales are growing so strongly is driving profitability. Our investments in digital are evident in these numbers. We can now deliver products more efficiently. As you can see, the marginal cost of transaction is going down dramatically. Again, as an example, in Brazil, you have it here on the slide, the cost for the bank of doing a transfer through digital channels is 99% less than if the customer does this in a branch.
The U.K., which is another great example, the cost of selling a mortgage online is 50% less, if done on a digital basis. The improved operating performance and optimization of our capital allocation is enabling us to enhance our profitability. We are very focused on improving the return on risk-weighted asset performance by regions.
You can see here we've been very consistent in terms of allocating more capital to the higher growth and higher opportunity markets. As a summary, in 2019, 73% of the group's risk-weighted assets generated already returns above the reference return on risk-weighted assets, RWA, of 1.2, which is well above our cost of equity.
This is three points increase over last year. Really what it means is that we are bringing, and we've been doing this every year, but in 2019, an additional EUR 20 billion of risk-weighted and EUR 40 billion in nominal term loans were now above the cost of equity compared to last year. Improving the underlying RWA, as we said, by five basis points.
All of this is supported of course, by improvements across the Americas and across the group. Just as a reminder also of where we're coming from, if we look back five years, 2014, the RWA was EUR 1.27. If we calculate the capital we had back in 2014 and the RWA we have today of EUR 1.61, we would actually be at a return on tangible equity of 17%. This is just a way to look at how we have improved the businesses over these five years.
Of course, we've continued, as I said, with this accretive capital rebalancing, and there's more capital allocated, in this case, to South America, North America, in a very consistent way. Allocated to Europe is -1%, in North America is +4%, in South America, +7%. This is again, a measure of how we are maximizing profitability and at the same time balancing this with keeping the franchise and investing for the future.
Another example of this rebalancing, of course, is the buyback of the minorities in Mexico, which we did in 2019. In terms of what happened in 2019 in gross capital generation, as this business model and execution of our strategy is progressing, we have generated a record 97 gross capital in 2019. That is more than double the guidance.
This was, of course, partially offset by the 62 basis points of regulatory impacts, which resulted in a net + 35 basis points increase to a CET1 of 1165. It's important we have done this while increasing cash dividends per share and investing in the business. In total, as you can see in the slide, during 2019, we generated the equivalent of EUR 9.4 billion of capital pre-minorities.
We are, at these levels, very comfortable with our current not just capital levels, but also buffers over regulatory requirements. Again, this is due to the resilience and the diversification of our business. Considering our 2019 CET1 and also the historical consistency five-year track record, where we've been generating 40 basis points per year, we expect to be close to 12 by year-end 2020.
This would place us ahead of time at the top end of our 11%-12% midterm goal. In 2020, we expect some quarterly volatility. We have agreed to certain acquisitions during this year that will close. This is factored into the numbers and the expectation. One of the examples is Allianz Insurance business, which we bought back recently, or the acquisition of Ebury.
Of course, reaching the top end of this capital goal by the end of 2020 means we will not need to continue to accumulate capital and will provide additional strategic flexibility in terms of capital. In summary, I would say 2019 has been an excellent year. We've made very significant progress in executing our strategy. We've generated what I consider and what we consider outstanding results, and we've done this while investing for the future and transforming the bank. We have also created shareholder value.
We have increased our tangible book value per share plus cumulative cash dividend by 8%. Importantly, we have done this while conducting our business in a responsible and sustainable way that has been really important for all of us, and it's increasingly important to all 200,000 people and teams across the Santander Group. I am very proud. We are very proud that Santander has been recognized as the most sustainable bank in the world by the Dow Jones Sustainability Index.
We have also been named leader again for the second year in the Bloomberg Gender-Equality Index. We are more and more diverse at the board and at leadership level, we have been improving and have very high levels of employee engagement. 86% of our teams are proud to work at Santander.
This is recognized also across the countries where we have been recognized one of the top 10 best companies to work for in five of our markets, and as a group, one of the top 25 best companies in the world to work for. We're working hard on all these levels, supporting financial inclusion, but also supporting our customers in the transition to a low carbon economy, and as I said, helping inclusion and the underserved customers in all our markets. I now leave you with José Antonio, who will cover in a bit more detail operating performance.
Thanks, Ana, and good morning to everyone. 2019 P&L reflects, I would say, solid growth in customer revenue, good cost management that reflects the synergies obtained in some countries, and provisions growing basically in line with volumes. I also want to say that we see great sustainability quarter- on- quarter after quarter.
In Q4, we generated underlying profit of around EUR 2.1 billion. That is 5% higher than the fourth quarter last year and excluding the Deposit Guarantee Fund contribution in Spain, 5% more than the third quarter 2019. In addition, we have had this quarter the positive impact of EUR 711 million, the net capital gains and provisions, which boosted attributable profit in the quarter to around EUR 2 billion. Further, you have the detail of non-recurring items in the appendix on page 47, broken down by quarters.
I will summarize now the main items in Q4 that were the capital gains from custody for custody, EUR 693 million, DTA recoveries due to changes in tax regulation in Brazil, EUR 551 million, net capital losses related with the disposal of real estate business in Spain, EUR 225 million, restructuring costs in several countries, EUR 140 million. Those are the main items.
As a result, net capital gains and provisions in 2019 amounted to EUR 1.7 billion, of which approximately EUR 1.5 billion do not impact capital. Going to revenues, we reach record high revenues of more than EUR 49 billion. While revenue is characterized by very high quality, 95% of the revenue comes from the most recurring and stable lines, NII and fee income. The total revenue grew 4%, boosted by the Americas and our global business, while Europe remained flat.
Net interest income grew 4%. Very much in line with the business volumes, combined with active management of spreads. We continue to expect further improvement in the cost of deposits. Net fee income grew 5%. While it's worth to stress, as Ana said, that our global business are growing significantly faster than that, and the global business already represent 40% of the total fees generated by the group.
We are confident that we can continue to deliver high quality revenue going forward. On the cost side, this reflects very well with our execution. In Europe, costs drop in nominal terms 1.3%, in real terms 2.4%, reflecting the synergies, integration, and optimization and simplification process that Ana refers to previously. The decrease in Spain was EUR 300 million of the cost base. We expect additional strong fall next year.
Portugal is also reducing costs. In the U.K., we are starting to see the results in the transformation program with the second half of 2019, the costs coming down. A process that will accelerate in 2020. In North America, both countries are increasing cooperation in order to improve commercial capabilities and eliminate duplicate costs.
Lastly, cost control in South America combined with business growth and a strong improvement in efficiency. In short, cost management enable us to remain leaders in efficiency with a cost income ratio of 47%. Credit quality, very few things to add. The NPL ratio continues to fall. The cost of credit is flat. Coverage is healthy levels.
Let me make a short summary of the group performance in the year, increasing our underlying profit, strengthening the capital ratio, improving credit quality, while maintain best-in-class efficiency, high profitability, both in terms on return tangible equity and ROWA, and improve tangible net asset value per share plus dividends. Let's go into the business areas.
You can see the 53% remain very well diversified. 53% of the underlying profit comes from the Americas and 47% from Europe, while the profit is growing in nine out of our 10 core markets. Particularly is growing a double-digit in Brazil, U.S., Mexico, and Poland. Our global business has also increased a double-digit rates, enable us to strengthen our local franchise to the global business. When it comes to volumes, loan growth was 4%. Deposit growth pretty much the same. Mutual funds grew 15%.
In the loan growth, you see different patterns. In line with our previous guidance, still the deleveraging in Spain and Portugal, being more selective in our lending in those countries due to the profitability issues and growing in all the other markets, particularly in South America. Also, I want to remark, the U.S., that is growing pretty well. Going by countries, 2019 in Spain has been the year in which we complete the Popular integration.
This was the main task for the year. Having said that, we are seeing positive dynamics in individuals, growth in consumer activity, and in value-generating business such as insurance and mutual funds. Nevertheless, the stock of credit fell 6% year-on-year due to wholesale banking deleveraging and a slowdown in mortgages. Mainly, some of this deleverage is because we are, as Ana already mentioned, being more active in our capital allocation.
In results, profit fell 18% in the quarter. If we exclude the deposit guarantee scheme, grew 14%. Underlying profit in the year was higher, mainly driven by a strong reduction in costs. Total income, we improved the retail customer NII, primarily boosted by the fall in cost of funding. This rise was offset by the lower contribution from the ALCO portfolio, the negative impact of IFRS 16, and lower wholesale balances. NPL ratio keep improving.
In 2020, we expect the cost to continue to fall sharply, and credit quality indicators should improve. In revenue, we expect stable NIM with better funding costs and lower revenue from financial transactions due to the smaller ALCO portfolio. We expect profitability to remain well above our cost effect. In consumer finance, another good year. Our market share gains. The auto market is now growing in Europe. We are growing 5%, so market share gains.
We continue to reach agreements with OEMs that provided a good starting point for the future to keep growing as we've been doing in the last couple of years. In 2020, we see volume growth, some pressure on margins. The costs are growing below business growth, and the cost of credit remaining at good level going forward.
In the U.K., we face a operating environment characterized by high levels of competition and uncertainty, good year in volumes. Revenue was affected by pressure on mortgage margins, particularly SVR attrition and overdraft regulation. Costs were down 2.7% in real terms. Better trend in the second half, as I said before, and we maintain very low cost of credit. In the quarter with the top line trends, in particular in NII and cost, net operating income after provision increased 8%.
By 2020, we expect continued revenue pressure, which will be offset with the cost reduction. We expect to be on track to achieve our medium-term profitability targets announced in Investor Day. When it comes to Mexico, excellent performance, both in the year in terms of cost and volume for growth. Our transactionality is growing at more than 50%. It's a remarkable number.
While we continue to improve our profitability, we returned annual equity close to 21%, while the year was good, 19% profit growth year-on-year. In 2020, we expect solid business dynamics to continue, should drive future further profit growth. In the States, I would say another good year in the States. Underlying profit grew 24%, volumes grew significantly, credit 12%, customer funds 11%. Revenue increased due to greater volumes, offset lower interest rates. Loan loss provisions increased only by 1%.
In Q4, as you well know, we have the usual seasonal impact, particularly in Santander Consumer, by the way, is doing very well. Our originations grew significantly during the year, and credit quality remains healthy. In 2020, we are confident that this performance will continue, thanks to our commercial and operative capabilities, and the greater cooperation with Mexico.
Finally, when elaborating Brazil, positive momentum. We keep gaining market share in key markets. In retail, our growth was 16%, consumer finance 17% year-on-year, and demand deposits 24%. Profitability improved again. Our return tangible equity is above 21%, and underlying profit grew 16%. Net interest income was driven by volumes, some margin pressure. Net fee income grew very well, based on insurance, market share gains, payments gains, and securities market share gains.
Efficiency and cost of credit has dropped close, from around 40% five years ago to 33% cost income, and cost of credit from 5% to below 4%, that we think is sustainable. In 2020, we expect to maintain high profitability, boosted by market share gains and profit growth, backed by greater volumes that will offset margin pressures. No material change in the cost of credit we expect in 2020.
Well, to finish, other countries, I'm not going to elaborate in other countries. You have all the information in the appendix. You have the information, positive performance in Portugal, Poland, Argentina, Chile, and the others, growing well and with all of them double-digit, except Chile, 7%, slightly impacted by the fourth quarter in the country. In relation with the corporate center, only to mention two points.
We have the income was impacted by greater foreign currency hedging in the region of EUR 300 million. The counterpart of this is in the conversion of results to EUR in the certain countries. Lower NII due to the higher stock of issuance in an IFRS 16 impact. Cost decreased by 12%. You have further detail in the regions and global business already commented. You can find all this information in the appendix. I now come back to Ana to finish this presentation.
Thank you very much, José Antonio. I would like now just to briefly look at the future and really remind us of our strategy. Our strategy has not changed. We have a clear vision. We have a clear purpose. We are aiming to help people and businesses prosper and do this in a way that is simple and personal and fair.
Our aim is to be the best open financial services platform by acting responsibly, and also earning the lasting loyalty of our stakeholders. I am very proud of the progress we have made since we launched in 2014, and I must say I am every time, every year, more excited about the future. We will continue to leverage our unique business model to drive performance and also to make us better placed for the future.
We have maintained and built this year, again, based on our global scale, with leading market positions in lending in nine of our ten core markets. We are relentlessly focusing on customers. We have improved our loyal customer base by 72% since 2014, and we are very proud that we rank amongst the top three banks in customer satisfaction, as measured by NPS in six countries.
Finally, we have a diversified geographical footprint, operating in both emerging and mature markets. It is precisely this acceleration in execution, which we aimed for at the beginning of 2019. We have done this, coupled with our loyalty strategy and our focus on profitability, which has allowed us once more to be more resilient, more predictable than peers, and also to generate growth. Since 2014, we've built a very strong foundation for the future.
We have significantly reinforced our capital with a CET1 increasing by EUR 22 billion over the period. That is 338 basis points in five years. At the same time, we've improved our return on tangible equity by 84 basis points. Our return on risk-weighted assets is 34 basis points higher, and earnings per share has grown over the period by 22%.
Importantly, this performance has been also supported by additional investments, and that includes around EUR 5 billion per annum in digital and technology, restructuring our legacy, but also investing for the future and increasing efficiency. We also spent over EUR 2 billion over the period to restructure our banks. We have grown our capital and invested in our business. We have also delivered value for our shareholders. We have returned to shareholders over this time EUR 18 billion in dividends.
I want to stress this because this is a very strong signal that the board and management has huge confidence in the future, and we've grown our tangible net asset value per share by 19%. Just note that this includes minorities. Again, we're confident that our strategy will allow us to achieve our midterm targets.
We made this public in April last year. We are today also adding another guidance to the market, which is high single digit underlying EPS CAGR over the next three years. This compares very favorably with our peer group and European banks, and we believe that this is something we can deliver. Going back to what I already mentioned and we set out in April of last year.
I would like briefly to cover the future in terms of the three pillars that we're working across the group, which again, continuing to improve the operating performance across the regions. Continuing, we've taken additional organizational and incentives in 2019 that we're implementing again in 2020 to make sure that everybody is aligned towards the goal of maximizing profitability and return on risk-weighted assets, very importantly, also working to accelerate Santander Global Platform.
I want to also stress that building a more responsible bank is a huge priority for all of us. This is not just slides. This is more and more embedded across the organization at all levels. We're implementing new measures. We recently announced in November or December that we aim to have our own activity as a bank, carbon footprint by net zero by reducing emissions and compensating where we are not able to reduce down to zero.
This plan is at the core. It's not just about the carbon footprint, it's much more than that, of course. It's diversity and so on. This is at the core of our performance going forward. You can see here the targets. We maintain all the targets we set out in April. You've seen this before. We reiterate our targets for both Europe, for North America and South America. Really the goal behind this is, as I said, to operate as one Santander. We are working across the regions to accelerate this aim, and it's working, but obviously the goal is to converge.
Europe is going to remain challenging, but I see it on the positive side. If we can succeed in Europe, we'll be much more successful eventually in the rest of the world because it is the hardest environment by far. We do not just want to reduce costs. We want to do this in a structural way by having the vision of where banking is going for the future and then implementing towards that vision.
In North America, we're also working together, leveraging the size of our Mexican bank and actually working together with the U.S. with a very ambitious plan that we set out three, four years ago. We, again, will be focusing here on profitable growth. In South America, exactly the same. We are not just working on revenues, we're also working on building common platforms, and you will see more of this during 2020.
Just in summary to say that I am very confident we will achieve the return on tangible equity and efficiency targets that we set out in April of last year. At the core of our plans for the next five years, we've accelerated the optimization of capital, this year we needed to do that, and you can see that when we need, we're able to manage our balance sheet to deliver more growth in organic capital.
We continue to re-weight to the most profitable geographies. We are setting minimum profitability thresholds, not just by country but by segments. We have already, and it's taken us a couple of years, but we have the tools to manage this across the group, and we're working on faster asset rotation. You'll see this again this year.
We have a new organization where our CFOs also have the mandate of CIOs, chief investment officers. This has been implemented or will be implemented in the next month. We expect that the combination of all these efforts, will enable us to deliver these midterm underlying ROA of 1.8%-2%.
If you look at now at digitalization and building Santander Global Platform, this is probably the most strategic of our goals, but it really is working on two levels. We're going to continue the digitalization of our banks and the group, transforming our core banks to be completely digital front to back. We can see the progress in some of the numbers I gave you earlier. We are leveraging more and more common capabilities. We have many examples of tools that are developed centrally or in a country and then shared across the group.
We have a lot of agile teams working already, which are improving customer experience and helping us on efficiency. Just let me mention one. We just recently were in Mexico, and Mexico as a country saved about 80% of the cost to develop its SME best-in-class mobile app by using the global services which we had developed together across the group on the individual banking app.
Again, this is happening more and more, sharing across countries. We are also, and that's the second part of our strategy, building global digital banking solutions with payments at the core. This will be not just for our own banks, but for others, for third parties. This is going to amplify these investments we're making in the payments platform and the global digital bank. Just very briefly on SGP, you'll be hearing more and more about this over the next few years.
We have already created the segment, but it's still work in progress. It's not the end product. It's really a move to become a global leader in payments and digital banking solutions. These are key drivers. This is not new. It's always been the case, but they're key drivers of customer loyalty, both for SMEs and individuals.
Similar to the way our global businesses of corporate banking and wealth and insurance, what SGP aims is to leverage our scale, our footprint, and our expertise in payments and financial services. Which will enable us, it's actually already enabling us, to build our own digital assets and fintech solutions just once, and then deploy across the group. This will dramatically lower development cost and time to market.
As I said, we expect SUP to serve initially our own banks and their customers, but in a second stage, also third parties, and we're actually beginning already to test this and to build best-in-class payment and digital banking solutions. As of today, we are focusing on these four high-growth, large addressable markets in which we can and are already delivering results. I'll briefly cover that.
In the next slide, if we think about SMEs, we're focusing on two verticals. One is merchant acquiring and the other one is international trade. Global Merchant Services is based on a company we acquired in Brazil, Getnet. Getnet has doubled market share in Brazil, a very competitive market in the last five years. Very high customer engagement, about 30% annual transaction growth since 2013.
I want to say that Santander is already a top 10 global acquirer by turnover volume in the world, and we're already launching in Mexico this quarter, and we have detailed plans to roll it out in another eight countries over the next couple of years. Global Trade Services. Again, we have 200,000 SME customers, real, very loyal customers across the group that trade.
This is a large and a growth market. To accelerate our progress, we're basically following the same footprint or path as we did with Getnet. Ebury, we worked for two, three years really scouting the whole world what is the kind of team we wanted. I want to stress, the Ebury team is one of the main reasons that we've done this acquisition, but they also have a great track record.
They're growing 45% at top line year-on-year, and it is a best-in-class trade and foreign exchange facilitator. We're going to build around it, again, a global platform for trade for all our countries, and we're expecting to be rolling out to 20 markets very soon. Finally, for individuals, we're again working on two lines.
On the affluent segment, even though it's also very interesting for others, and the underserved. Superdigital, again, a Brazilian small acquisition. It's a simple and flexible way. We call it pre-banking service. It's really a market where just in Latin America, we estimate 300 million underserved people, customers. We aim to provide them with basic financial products in a way that is also profitable or, let's say, gives sensible returns for the bank.
To give you also a vision of what we're building around SUP, Superdigital is already working in Brazil with Getnet GMS. Really, all of these building blocks can work with each other. We're actually already live with Superdigital in not just Brazil, but Mexico and Chile, and growing customers at about 60% annually and transactions almost 2x faster. The goal is to reach over 5 million active customers over the next few years.
Finally, Openbank, which is our global full-service digital bank. What's different from Openbank to other neobanks is that there are real customer relationships. These are not just users. Openbank was either first or second highest growth bank in Spain in 2019 or 2018, I don't remember the year.
Very importantly, and this is a very important measure, with 115 payroll accounts, which means that there is more and more loyal customers. As you can see, 4.4 products per customer. A new product, which is mortgages, end-to-end mortgages growing at 134%. This is a business model which should give us, in a steady state, around 20% ROE in Europe. We're live already, not just in Spain, but Germany, the Netherlands, and Portugal, and launching in other countries over the next few years.
As a summary, again, 2019 was a very good year. All the regions delivered solid operating performance. We grew the top line, record revenue, and we improved profitability. Our capital position is strong. It's been a record year in terms of organic capital generation, reaching 11.65 CET1. We're very comfortable with our current capital levels and buffers, and are well-positioned to take advantage of what we see as very significant opportunities for profitable growth and creating value for our shareholders.
Based on this performance, the board agreed yesterday to propose a close to 3% increase in our 2019 cash dividend per share. Just to end, I'd say that as we head into 2020 and beyond, we have a clear, focused strategy in place, which gives us a very high degree of confidence that we will deliver on our medium-term goals, including the high single-digit earnings per share CAGR over the next three years. Thank you very much, and we now have time for questions.
Yes. Thanks, Ana. José Antonio. Indeed, we can proceed now with the Q&A.
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 Francisco Riquel from Alantra. Please go ahead.
Yes, hello. Thank you very much for the presentation. Wanted to start with capital. First of all, if you can update on the regulatory impacts on capital ratios expected for 2020, either negative, pending impact from TRIM, or eventually positive, if you can update on where are you on the models in the U.K.
Also from the corporate transactions, if you can comment on the impact from the SCUSA tender offer, and if you think that this, together with the sale of Puerto Rico, will be enough to offset the other acquisitions of the Allianz and the Ebury deal. Also beyond 2020, what other regulatory impacts shall we expect? In particular, if you can update on the guidance for Basel IV, and where do you plan to be in terms of capital in a post-Basel IV world? Thank you.
As we said, I want to reiterate, and it is very important that 11.65%, we are very comfortable with the level and with the buffers vis-a-vis our regulatory requirements. Regarding 2020, we are keeping our midterm goal of being between 11%-12%. What we are doing is we are accelerating reaching 12%.
We said medium term close to 12%. We expect, given the business model transformation and profitability, and the fact that we generated 40 basis points per year, to be close by 12% by year-end. There will be some inter-quarterly volatility. As you know, and as you said, we will have Allianz and Ebury and some other purchases. We will have some partially offsetting sales, and there will be some remaining negative headwinds. With all of that in consideration, we expect to be close to 12% by the end of 2020.
In terms of Basel IV, again, what we are saying here is that we're very confident we can absorb Basel IV and maintain an attractive dividend policy and finance profitable growth. I want to say that we absorbed 60 basis points of regulatory headwinds in 2019. At the same time, we grew our loans by 4%. As I mentioned, we're proposing to the shareholders meeting cash DPS growth of close to 3%.
The number that was mentioned in the Q3 call of 100 basis points has several caveats. First, that it is a very preliminary number, and it is pre-mitigation, so there are some mitigation measures that were not considered. Second is that we do expect other positive regulatory issues. Would be the capital treatment of intangibles, for example, that would help us. Last but not least, we still expect the impact to be less than fears. I think I've answered all of the questions. Thank you.
Thanks. Paco, next question, please.
It comes from Alvaro Serrano from Morgan Stanley. Please go ahead.
Good morning. Thanks for taking my call. Two questions. First of all, on the 12% target for this year. Obviously, there's been some disappointments over the last couple of years. When you think about visibility of those headwinds that you've outlined and that 12% target, are you much more confident on the visibility now of the regulatory headwinds, in particular TRIM or EBA guidelines or the long list?
Has the visibility of those impacts improved, and are you in a position as a result to sort of get rid of the scrip dividend for 2020? The second question is on your high single-digit EPS growth. Consensus, I think it's probably half of that. When you think of the last year since you gave your target, obviously margin pressure is worse, certainly in developed markets, than you probably thought. Is cost the offset of that?
Is it that once you reach your 12% target, you're going to be able to deploy more capital to grow the business? Just a bit of color on if it's going to be front-end loaded, back-end loaded versus consensus expectations or general commentary. Thank you.
Please let me be clear that the target is not 12. The target is to be between 11 and 12. As we said in April, our target is to be between 11 and 12. We are going to get close to 12 just by the natural profitability of improvement of our model. We have delivered every year what we said we would deliver, and it's clear that we're very predictable year-on-year, but it's hard to be very predictable quarter-on-quarter. My sense is that when one quarter we're a bit below, again, what matters is not just the levels, but the buffers against the regulatory requirements.
As we've said, we are very comfortable. I have to say, over the last five years, just to give you an example, the U.K. capital levels, our bank in the U.K. is now going to be at 14%. That's 100 basis points more than a year ago. There have been, in some places, increases, and we've been able to absorb that.
I think what gives us high confidence is that when we need to absorb 60 basis points, we can do that organically. Obviously, risk-weighted assets grew less in 2019 than we probably could have done, by the way, profitably. What you'll see once we don't have these 60 basis points like we had this year is you should expect higher profitable growth. Places like Brazil.
Brazil should grow faster next year. Given we still have some regulatory headwinds next year, we've actually taken some of that already in Q4, something like 9, 10 basis points. You should see some impact, nothing near what we saw this year. To answer your question, I think we do have higher visibility. The tone is actually different.
There are some positives ahead that will come in play even in 2020 in terms of being able to cover through Pillar 2 some of the requirements. I want to stress that our aim is to be between 11 and 12, get close to 12, then be able to have some volatility there to maximize the opportunities for our shareholders. The high single-digit EPS, that is for the three years. Again, it might be more one year than another, it's not a mathematical, let's say, progression.
What's important is the CAGR for these three years. The model we have always means that some countries are going to do a bit better than others. The opportunities, because of the macro, because of the market conditions, are better in one market than another. That is essentially the model we have where we can rebalance and reallocate capital.
Just to give you an idea of the flexibility we have in terms of capital allocation and what we've done in 2019 very successfully is that about a third of our balance sheet gets replaced every year. We have a lot of control as to what assets we put into the books. We are doing more and more originate to distribute because other entities are more efficient holders of loans.
We want to maintain the relationship with our customers because that's what give us the strength to build a global platform. I'd say that, again, the earnings-per-share goal for the next three years is, I think, a very good sign that the medium-term targets we set for ourselves will be reached.
Thanks, Alvaro. Next question, please.
Thank you.
Sorry.
The next question.
I forgot the scrip. The scrip. Sorry about that. The scrip is, we explained this last year, my job and the job of the board, José Antonio, all of us, is to try to make all our shareholders happy. Not all shareholders are the same. About 45% of the company is owned by retail shareholders, they love the scrip.
We've been reducing it. With the proposal we are taking, we are taking it down to 13% of the total will be scrip. We have said that depending on how the year progresses, we might actually buy back the scrip. That's something that gives us added flexibility. We're trying to keep everybody happy, not everybody's going to be as happy all the time.
The current management is very focused on earnings per share, tangible NAV per share, and we are very conscious that this is important for many of you on the call. We also have to consider our 45% retail shareholders. Depending on the year, we might, I'm saying we might, we have authorization from the shareholders. We asked for that last year.
Next question.
Thank you. The next question comes from Andrea Unzueta from Credit Suisse. Please go ahead.
Hi. Thank you. I wanted to get more clarity on your expectations of earnings growth for Brazil and Mexico in particular. We're seeing a lot of increased competition in both regions, in fees, in particular in Brazil, and a lot of margin pressures in Mexico. A bit of visibility on what your earnings growth expectations are in those regions would be helpful. Also, if you could remind me whether the impact of higher taxes in Brazil should have an impact on our expectations for 2020. Thank you.
Sure. Let me just give you my high-level view, and then I will ask José Antonio to complement a bit more guidance. I'd say all in all, the good news for us is that in 2019, across South America and Mexico, growth was more or less 0%. From Mexico down to all of South America, 0% growth.
This year, we're expecting Brazil actually to be between 2%-3% growth. We're expecting Mexico to grow a bit more. Chile is the only one we're expecting less growth. The first message, the first positive is that we expect volume growth. I always say this, that we make a lot of our profits in South and Latin America, but we lend very little money. Actually, you can see that, and that's a huge opportunity. There's a lot of profitable growth ahead.
Especially in Brazil, margins will obviously be much lower with interest rates at 4.5, but volumes and very good quality growth is ahead. To give you an example. Last year, we did already EUR 2 billion in mortgages in Brazil. A few years ago, that was unheard of. We expect volume growth to compensate margin.
Very importantly, and this is something in Latin America, we have not waited for things to happen. We started in April of last year, working across the region. You can see the numbers already in Brazil, with a lot of focus on cost, a lot of focus on building common platforms. You are going to see efficiency improvements. We're going to invest, but we're going to follow, in this the other way, the example of Europe, that we need to become much more efficient. Those are two things that are important. Taxes will go up in Brazil by three, I think three points?
Three.
Three points. Yeah, that's considered. When you consider all of that, Mexico, Brazil, we're expecting roughly the same profitability this year, roughly. I think this guidance was given in October by Brazil. We reiterate the guidance of Mexico, Brazil, somewhere around 20%-21% return on tangible equity. No, I think that's Jose Antonio says he's fine.
Yes.
Next.
Thanks, Andrea. Next question.
Thank you. The next question comes from Benjamin Toms from RBC. Please go ahead.
Morning. Thank you for taking my questions. Firstly, on Poland, can you give us an update on Polish Swiss franc mortgage litigation? Did you take a provision in the quarter? Secondly, the ECB hosted a call yesterday on SREP requirements. In the call, they stated that the average Pillar 2G for G-SIBs and universal banks was 1%.
I know you're not allowed to tell us your Pillar 2G, but is there any reason why Santander wouldn't be in line with the average G-SIB and universal banks? Could Santander in fact be any better than average due to the relatively strong performances in the stress test? Thank you.
I will let José Antonio answer on Poland, but on ECB, the SREP, obviously we cannot comment on P2G, but it's clear that Santander has delivered through the cycle, more predictable, more sustainable growth. The diversification works across 25, 20 and five years. That's all I can say.
Obviously the G-SIB is a difference, doesn't necessarily have to be the same SREP requirements. We cannot say anything, right? Good. We cannot say more than that. I might say we are seeing a bit of a change in the tone, and there's a Pillar 2 change that will come into effect at the beginning of next year, which is obviously a benefit, would be a benefit for most banks, including ourselves. Poland?
Well, in relation with the CHF portfolio, we have a portfolio in Poland of around CHF 2.6 billion portfolio, CHF 2 billion in the bank, CHF 600 million in the consumer finance operation. After the ECJ court ruling September 2019, the final outcome will be decided on a case-by-case basis by the courts.
As a matter of fact, the rulings we have had till now in the courts that are a small number, around 30 cases, we won around 2/3 of these, and one-third were in favor of the customer. We took a provision in the fourth quarter that I think covered us for the current expectations. It's what we can say at this time. We're going to see on a case-by-case basis what happens in the courts in the coming years. We feel comfortable with the provision we took at the end of the year.
Thanks, Ben. Next question, please.
Thank you. The next question comes from Mario Rofes, from Fidentiis. Please go ahead.
Hi, good morning. Thank you for taking my questions. The first one is about the cost to income in Spain, excluding trading income. It seems still very weak. A couple of issues related to that. Could you help us understand when you expect stabilization in the top line in Spain? Please could you give more details on cost savings in Spain next year? Well, next year, current year 2020.
Finally, in Spain again, could you give us some color on the impairments in Spain? I mean, your NPL ratio is still very high, coverage below peer. There is an obvious trade-off between accelerating the reduction of NPLs and impairments. Could you give us some clarity on impairments? Thank you.
Yes. Let me just take that, and then José Antonio, please, if you can complement. Understand Spain this year, cost income was 53%, which is actually not that bad if you consider negative rates and where other banks, including some of the large American banks are. We certainly aim to improve that. The cost savings for next year will continue. I think we're aiming for something like mid-single digit.
Remember that the key numbers are Europe, because we have a number of transversal across the group European initiatives. That is what matters now. That is the great strength of Santander. It's not a Spanish bank, it's not a U.K. bank, it's a European bank, with about EUR 11 billion, I think we closed in 2018, and we've said we'd reduce EUR 1 billion, EUR 1.2 billion over the next few years.
There are very significant savings coming in of that EUR 1 billion next year, much more than this year. If this year it was about EUR 200 billion. We did have a change in perimeter this year. We're not expecting that for next year, I understand, but José Antonio, maybe you can help me there. You'll see not just Spain, but Europe coming down significantly in the cost base next year. Impairments and NPLs, all of this obviously comes in great measure by Popular. Do you want to comment on those, please?
Impairments is true that we have of our peers in NPLs. It comes from Popular, we inherited these impairments. What I can tell you is we are reducing quite rapidly these NPLs, and we expect to continue to do so with a cost of credit, cost of risk that is going to be in line, not below the one we have had this year.
It's true, but I feel comfortable with the coverage we have, but it's true that still it's going to take a little time to reduce the level to the level we should have. That is currently above 6%. As a matter of comparison, if you were only Santander business, would be around three or below 3%. This comes basically from this.
The most important thing from the P&L point of view, the cost of risk is going to remain in line with what we have or slightly below. Probably to elaborate a little bit more on the cost side, we reduced this year the cost in Spain, EUR 300 million. This is a nominal number. Probably next year, we're going to be aligned with this number again.
We are making a great effort, and the Banco Popular integration is going to be reflected somehow. Were reflected this year, but next year is going to come in the same line. In Europe, as Ana mentioned, our target is to reduce EUR 1 billion nominal cost down. This year, we got EUR 200 million. What you see in the numbers is EUR 130.
We have some changes in perimeter in Poland and some others, but the number is EUR 200 this year. Probably next year, probably it should be the double of this or around double of this nominal number. Going down in Europe is coming from basically Spain and U.K.
Thanks, Mario. Next question, please.
Thank you. The next question comes from José Abad from Goldman Sachs. Please go ahead.
My first question is on capital. In the quarter report, you mentioned that part of the organic generation in the quarter was due to some risk-weighted asset optimization. Here, I think I have two questions with this. One is that you signed a risk-sharing agreement with the EIB, for a EUR 2 billion SME loan portfolio in Spain, but I think that was in late October.
The question here is whether the full impact from this scheme is already fully captured by Q4 numbers, or that we should expect the impact from this scheme to be accrued gradually over the next few quarters. Related to this topic is, if you could tell us about what's the potential amount of capital CET1 that you plan to generate through the full implementation of your IRB internal models rollout plan across the group.
If I may, one quickly on credit quality. It's clear that you are positive based on your last comment, we see diverging trends within the group. We see a marginal sequential increase in the cost of risk in Santander Consumer Finance. At the same time, a meaningful decline in Spain.
I think, I guess here will be useful to have your view on what's driving actually better credit quality trends in your view, in a context of a slower growth globally. In particular, if you could also comment on what is the level and your expectations for the cost of risk in the consumer segment in Spain. Thank you very much.
Okay. On capital, again, we generated 97 gross in 2019. As I said before, looking every quarter, I understand sometimes you expect more and other times less, but what we have done is delivered across the year. This is what I would like to stress, is we are very confident on the model, on the predictability, sustainability. It's very difficult to measure quarters, approvals, and markets.
We've been very consistent for five years, 40 basis points per year. When we needed to do more, we have done more, and we've done it, I believe, the right way by basically increasing thresholds in terms of assets that come on the books. We're ready to do that because our focus is on profitable growth, but profitability is very important. Securitizations will continue.
I will let José Antonio answer that very technical question of are we going to see the impact next year. Internal models, as you know, that's one of the factors, both pluses and minuses for all European banks. We have much higher visibility now on what's coming and what the effects are, and so that's why we're giving the guidance we're giving. We expect to be at 12, given the profitability and given what we know today.
I'll let now José Antonio answer you on what happened in Q4, but there was a lot more securitization. We are using this as a BAU tool, by the way, because we want to keep the customer relationships. We think that is very profitable business for the bank, and we have thresholds, and we securitize where it makes more sense in terms of returns on our capital.
Very briefly on credit quality across the group. The cost of credit across the group this year was 100 basis points. For next year, I can give you guidance that it should be the same, about 100 basis points, but there are some ups and downs. I'm not sure how much guidance you want to give on that. José Antonio, maybe you can take it from there.
Well, you mentioned that the slower growth globally may affect our cost of risk. I should say that I cannot agree with this. Brazil is going to grow faster in 2020 than it grew in 2019. Mexico is going to do the same. Our main portfolios, some of our portfolios that have a relatively high cost of risk, we expect a better environment. You refer specifically to Santander Consumer Finance.
The gross provisions were pretty much the same in the fourth quarter than in the third quarter. You saw in the fourth quarter higher provisions because we dispose less portfolios. The gross provisions were pretty much the same. In Spain, I already comment on this. You mentioned the consumer segment in Spain. We are not seeing a particular trend in Spain, although I seen in the media some numbers ticking up.
Remember that our consumer lending in Spain, in consumer is basically auto lending, is behaving very well, is basically new cars, is good quality. In the bank, our loyal customers, is pre- granted credit that we have a strong relationship with the customers. You ask specifically for EIB. EIB, what shows is our policy vis-a-vis securitizations, that the guide for our securitizations, that is becoming, as Ana said, business as usual, is we securitize as long as we can release capital, free up capital, at a cost that is well below our cost of equity.
This is mainly is happening in our consumer finance operations, in both sides of the Atlantic, in SC USA, in the U.S. and consumer finance in Europe, and we continue to do so. I will qualify this as, Ana said, business as usual more than that we are doing something on a one-on-one basis. EIB operation was included in Q4, but is meaningless in terms of capital. Yeah. It's very small.
Thanks. José, next question, please.
Thank you. The next question comes from Ignacio Ulargui from Exane BNP. Please go ahead.
Hi, good morning. Just have one question, on the strategy in Spain. Just a bit to understand, when do you think the deleveraging of the loan book will finish? We have seen again a year of weak lending growth. I have a feeling that you are reshaping a lot the balance sheet, focusing on more profitable segments. If you could just elaborate a bit on that, what will be the impact in NII for 2020? Thanks.
The deleveraging in Spain has been mainly in the larger corporates. I mean, it's a sector continues to deleverage and partly the public sector. As you well said, we're growing very well in consumer lending. I think our guidance for next year will be more stable. Not a fall, but more stable volumes, and actually we're aiming for stable margins also on the customer side.
I would like to flag that for next year also, and you can see that because you can see that in the numbers this year, there will be less of a financial revenues through the ALCO because we have disposed some portfolios. I'd say next year you should expect higher quality earnings in Spain, good management of margins, stable volumes overall, but less financial income.
Yeah. As a matter of fact, the deleveraging you are seeing is driven by the we've been selective, being conscious of the good usage of capital in segments where the profitability is very low. Yeah. So we elaborate in the previous quarters around this, and that affect, as Ana said, the large corporates and institutions. So those are the segments in which we are not seeing a good use of our capital if we deploy there, because profitability is relatively poor because the competition is extremely strong, yeah.
Thanks, Nacho. Next question, please.
Thank you. The next question comes from Marta Romero from Bank of America. Please go ahead.
Good morning. Thank you very much for taking my questions. The first one is a follow-up on capital. Do you expect the implementation of calendar provisions on old NPLs to have a negative impact on capital by the end of 2020? The second one is in the U.K. You seem to be committing more capital again in this market.
We've seen a 2% growth in the quarter in mortgages. Is this something that will continue? Is this a bit of seasonality, one-offs? Have your views on the market generally changed because it looked like you were withdrawing from this market, and now you're committing more capital. Does your guidance on net interest income in the U.K. incorporate any potential interest rate cuts? Thank you.
We already have begun in 2019, even at the end of 2018, to manage really our capital on a group basis, not just by countries, but by segments. The return on capital of U.K. mortgages actually is attractive, and that's the reason we're growing on mortgages.
I'd say that it's consistent with the deployment of capital, but it's also consistent with the fact that we have a great business and franchise in the U.K., and we've grown about EUR 7 billion in mortgages in the year, but we've also grown very well, for example, on the business side. The business 1|2|3 Account has grown really well. It's consistent with the discipline and capital allocation across the U.K., and across the group.
In terms of the provisions, NPLs for next year, the answer is no, but there will be some regulatory effects. It's difficult to know if this is going to be a net zero, it's going to be slightly positive, slightly negative, but we're ready for that. As I said, we can manage our balance sheet actively. Maybe not every quarter, as we've seen over the last few years, but every single year for the last five years, we've delivered the 40 basis points, and this year, again, 35, with very strong generation organically, as you've seen.
Thanks, Marta. Next question, please.
Thank you. The next question comes from Fernando Gil de Santiváñez from Barclays. Please go ahead.
Hi. Good morning. Thank you for taking my questions. A question on Spain. I understood that you aim to continue improving the NPL ratio and the coverage ratio going forward, but just want to clarify on that. The second question would be, in the U.K., what is the actual balance of the SVR book, and what is the impact on that in the NII? Thank you very much.
I'll answer the U.K., and I know better let you answer Spain. SVR balances will come down much less next year. I think this year it came down by about EUR 4 billion, and next year will be coming down less than that, I think somewhere between EUR 2 billion-EUR 3 billion. You'll have a lot less impact next year. Again, what we are working very hard is also on the efficiency side and ensuring we're doing more and more mortgages online with a much better return in terms of efficiency. I think that is the answer on SVR. NPLs?
Well, NPL ratio, I already elaborated on this. I said that I expect the NPL ratio to keep going down significantly in Spain. The coverage ratio you mentioned depends more on the kind of collateralized or non-collateralized loans that we have. Normally, and should happen the same in 2020, the collateralized loans tend to stay longer in the balance sheet than non-collateralized loans.
Very likely, the coverage will remain flat or slightly down, depending on if the NPLs are collateralized or not. That is the main factor between the coverage ratio. You have recovered value, or you don't have recovered value. Plenty of the NPLs that we inherit from Banco Popular comes from the SME segment, and while those tend to be lower collateralized, naturally, than the mortgages, and for that reason, this is what drives the coverage ratios more than specific policies. Applying IFRS 9's suspected loss, taking into account collateralization of the NPLs.
Thanks, Fernando. Next question, please.
Thank you. The next question comes from Sofie Peterzens from JP Morgan. Please go ahead.
Yeah. Hi, here is Sofie from JPMorgan. I wanted to ask, just to follow up on the core equity tier one. Of the 35 basis point improvement that we saw quarter-on-quarter in the fourth quarter, is there anything that could potentially reverse in coming quarters that we should be aware of?
The second question would be, how should we think about your dividend per share going forward, buybacks, M&A? Should we expect the dividend per share to remain stable around EUR 0.23, or do you have intentions to grow that? My last question would be on CECL in the U.S. Did you see any big impact from the new provisioning requirements in the U.S.? Thank you.
I'll start by the last one. CECL will not have an impact on group-
It's in local accounting.
It's local accounting.
Local accounting.
Yeah.
It's not group accounting.
It's been reported by Santander Consumer. I believe it's about EUR 2 billion, something like this impact. I think that has been informed already in Q3.
Yeah.
There's nothing new there, and again, no impact on the group. In terms of dividends, what we are focusing very much is on the cash dividend per share. Our intention is to get rid of the scrip, but it's also important to consider our retail shareholders, and again, that's what we said. Because it's difficult to predict everything that's going to happen during the year, our aim is to, first, 40%-50% on the underlying results.
Second, that the cash dividend per share should be as much as possible aligned with the underlying growth in our profits. I think that is what we're doing this year. If you look at underlying profit growth, it's around 3%, and that's what we're proposing in terms of the increase in the cash dividend per share. Total dividend will stay stable, so the scrip is reduced. It's now only 13%.
Again, we've returned to shareholders over these five years EUR 18 billion, which shows the confidence of management and the board in the sustainability of our results. This is something which we expect to be hopefully reflected soon in the market. This is the policy. We're not changing that. It's stable. We'll be proposing this to the shareholders in April.
In the quarter, there is some negative regulatory headwinds, which we're actually anticipating for next year because we have information on that. About 9 basis points, I believe. There's more securitizations and less growth in risk-weighted assets than in other quarters. Again, it's a bit of a seasonal impact in that sense, less growth, but also more securitizations happening in the fourth quarter. You're going to get volatility interquarterly, that's for sure. We have some acquisitions coming in.
We also have some divestments. The timing of that per quarter is difficult to calculate. Again, what is important is management and the board's confidence that at 1,165, the level and the buffers against regulatory requirements are very comfortable.
By the way, the future, because Basel IV and what happens ahead, I think the very important signal is, we're able to deliver profitability growth, and we're able to manage our balance sheet to accommodate these kinds of instances like we had this year with 60 basis points, which we don't anticipate to be, obviously, anywhere near those levels for the next few years.
Clarifying, no reversion in the 35 basis points at all, yeah? Going forward.
Of course. Yeah. That is obvious. This is no reversion. Thank you, José Antonio. To be clear, no reversion. On the contrary. Thank you.
Thanks, Sofie. Next question, please.
Thank you. The next question comes from Stefan Nedialkov from Citigroup. Please go ahead.
Hi, guys. Good morning. It's Stefan from Citi. A couple of questions on my side. Trying not to beat a dead horse here, you did mention strategic flexibility on capital when you get closer to 12% CET1. Just trying to get more color on what do you mean by strategic. Do you mean M&A, or do you mean just generally being able to face organic growth, opportunities, regulatory challenges, et cetera? Is it M&A detriment or non-M&A?
The second question is on the divisions. Mexican fees seem to be down. Mexican loan growth, half of the yearly growth seemed to be bunched up in 4Q. Yes, that is seasonal, but still big skew towards 4Q. What's going on there? It looks like it's corporate and government lending. Any color for 2020 would be good as well.
In another division in the U.S., the cost of deposits seems to be going up quite a bit while loan repricing is down, obviously because of lower rates. How should we think about these quite different dynamics? Why are deposits going up so much in terms of cost? Thank you.
Yes. In terms of what happens when we don't have to accumulate more capital, strategic flexibility means we can choose to either increase dividends faster, we can buy back shares, of course, but very importantly, we have a lot of opportunities for profitable growth. We will have to find a balance between these options.
There is no plans for M&A. We've always said M&A would be very disciplined. In our core markets, and we've done this in certain places over the last couple of years, we will be very strict in our criteria. We have seen opportunities. We have not taken those opportunities over the last few years. In a couple of instances, we have because it added to the franchise, and the return was accretive after two, three years, which is the benchmark which we have set.
I will answer the U.S., and I'll let José Antonio answer Mexico. I think the U.S. is very important. I'd say on the U.S., we have really made exceptional, and I mean exceptional progress over the last couple of years. We've grown profits double digit in 2018, 2019. We can guide to, again, double-digit growth in 2020.
In the U.S., we have three important blocks. One is the consumer finance. That's a business that has a huge excess capital. Even with that excess capital is around 13%-14% return on tangible equity. Second is that there are very strong links which we're now capitalizing, not just within the U.S., with the group. Just to give you an example of how we're improving the profitability. We're going to do more of this.
22%. By the way, I just joined the U.S. board because I want to make sure we understand that better, how the organic growth is possible. 22% of the originations in 2019 of Santander Consumer were prime auto loans, which are on the balance sheet of SBNA. It's now 10% of the SBNA loans are coming from originations at Santander Consumer.
This also improves the profitability of consumer because it's becoming, it already is, a best-in-class servicer. Again, very high return on that business. There are examples, I don't want to take too long, but there are examples on the mid-corp segment with SBNA in Mexico, SBNA in the U.K., which is increasingly integrated. We're investing together in technology also.
The last point I'd like to make on margins, and it's possible that the deposit cost might have risen slightly, but what's important is that the year-on-year, in terms of current accounts of our bank, and very importantly, on the experience, is one of the best in its peer group. Overall in the region and for the regional banks, the margins are much more attractive than they are in Europe.
We're trying to bring our knowledge and what we've learned in terms of managing the business in Europe at much lower margins to actually all of the Americas. We're guiding again to double-digit growth in the U.S. next year and getting to the targets that we announced in Investor Day. I hope the specific on the quarter, honestly, I don't know if Sergio, José Antonio, the deposit cost in the quarter in SBNA?
As a matter of fact, we grew faster in relatively high cost deposits. We are going the other way around. It depends on the deposit growth. We grew 11%, and we grew faster in institutional deposits that are more expensive. Yeah.
Yeah. We'll follow up offline, Stefan, but the cost of the deposit at SBNA went down on a quarterly basis.
Yeah
Is at the lowest, so consistent with the rates in the U.S. We'll follow up, if that's okay with you. Next.
Sorry, just to follow up, because I said the building blocks, and I just realized I just commented on two of them. We have three building blocks. One is Santander Consumer, which is well-known, very profitable. The other is SBNA. Clearly, there's work to be done. Might I say that for the last few years, we could not do even launching It was very difficult for us to grow even organically because of our regulatory situation. That's changing.
Again, we're going to be able to do more activities, and you should see that coming in in 2021. There's a third very profitable block also, which is wealth management, which is less known. We're very good at this. We're growing that really well. It's part of the global wealth management and insurance division, and we have EUR 25 billion under management. Okay? That is the third U.S. highly profitable, scalable business, which is in the U.S., and will have increasing connections to SBNA as we go forward and have more flexibility.
Thank you. We're running out of time. Next, please.
In Mexico, let me elaborate a little bit. In Mexico has, in the quarterly numbers that are mixed by accounting issues. You have gross income growing 3.5% quarter-on-quarter. That is a very good growth. You have some impact coming from the corporate business, the corporate investment banking business that produce capital gains and reduce the net interest income, and is a translation from one line to another.
If you look at the gross income, we are growing 3.5% quarter-on-quarter. That is a very healthy rate. Going forward, we are, as I said in the presentation, optimistic about 2020. Mexico barely grew in 2019. The economy was basically flat on growth, and we expect better trends in 2020 and growing the franchise along these lines.
It's true that we, or at least the market consensus is expecting some slowdown in reduction in rates that may affect something, but we have plenty of room to reduce our deposit costs. Overall, I'm optimistic about our capacity to keep growing revenues in Mexico.
Thanks, Stefan. Next question, please.
Thank you. The next question comes from Carlos Cobo from Société Générale. Please go ahead.
Hello. Thank you for the presentation. Sorry, I think the message on capital is super clear. Sorry to go back to the specifics because the Basel IV impact before used to be 30 to 100 basis points. I know there's been a lot of discussion around the quarter here. Could you please explain if that guidance doesn't change or you just prefer to keep it more flexible, which is kind of what I understood?
Secondly on, again, sorry, asset quality in Spain. I'd like to understand your point of view. Santander has always taken probably more risk here. You retain a larger stake in the JV that you sold with the non-performing assets of Popular, and now you seem to be retaining a larger share of non-performing assets. You are now having a NPA ratio substantially above the average in Spain.
I wanted to understand why aren't you taking a more aggressive approach? Is it just because you see more value there or because you are trying to protect capital? Lastly, if you could just guide us, if you decide to do so, could you sell a big block as other peers have done in Spain? Thank you.
Okay. On Basel IV, I would like to say that I, and we, are very confident that Basel IV can be easily, and let me stress, easily absorbed whilst maintaining both an attractive dividend policy and financing profitable growth. Why do I say this? For five years, we have a strong track record, five years of 40 basis points annual organic capital generation.
Also, we are continuously transforming our model. Again, 2019, we absorbed 60 basis points, actually 62 basis points exactly, on regulatory impacts. We grew loans at 4%. We are proposing to increase the cash DPS close to 3%. The 100 basis points guidance that was given in Q3 was very preliminary, and it was incomplete in the sense that it was pre-mitigation.
Beyond 2020, there are, of course, other regulatory impacts at play, not just the negative, but for example, as I mentioned, the capital treatment of intangibles, which would have a net positive for Santander. Last but not least, Santander should be lower impact than peers. Again, let me stress that we, as management, today have precise tools to manage on a quarterly basis, and even more on a yearly basis, our, let's say, our risk-weighted assets and how much business we put on the books.
We are working on an originate to distribute model, which we're already implementing. We have a much, much bigger flexibility, and that is the high confidence we're giving you on capital. We're keeping the 11%-12% because we believe that is the right target, and again, because we think 11.65% is a comfortable level and gives us comfortable buffers. I would say even, and I've said, very comfortable buffers against the regulatory requirements. I hope that answers the question. There were two more, which maybe José Antonio can take.
It was asset quality in Spain. The question, if I understood well, was if we are changing our policy towards disposing the non-performing loans or non-performing assets. The short answer is no. We've done plenty of deals, as you know. We incorporate companies, Merlin, Metrovacesa, Landmark in 2019, Quasar. We dispose Aliseda.
We continue to analyze our portfolios and to analyze the possibility to dispose in the market at a price. We are price conscious. Your suggestion that we may be slowing down our disposal of the portfolios because capital issues, I tell you that we continue with the same policy. We are conscious of the pricing, and we continue to reduce our NPLs, our non-performing assets, in line with our traditional way of managing these issues.
Thanks, Carlos. Ms. Christine.
Thank you. The next question comes from Andrea Filtri from Mediobanca. Please go ahead.
Yes, thank you for taking my questions. They are follow-ups on capital. Can you please update us on the pending regulatory hurdles for 2020 with a split? The guidance was 80-90 basis points on the Q3 call. You have taken over 60 in 2019. Can you just confirm there is 20-30 basis points left for 2020?
Following up on the developments on the regulatory front, the approval of CRD V, and in particular of Article 104a, do you intend to use it? How and when? What needs to happen for you to use it, in your view? Does the progress of CET1 that you have made, your positive capital outlook, and the more constructive regulatory environment allow you to implement a more visible dividend policy for the future? Thank you.
Again, the guidance for 2020 on regulatory effect is we have taken some in Q4, actually, because we had a very strong performance, so we've taken about 1/3 of that. I think the 20,30 could be more like 10,20 next year, but again, there's some inorganic also, positives and negatives.
Again, we have said we expect to be close to 12, which is the upper end of the range that we set, and which we're not changing that guidance. In terms of CRD V, my understanding, if this gets approved in January of 2020, we haven't really looked at what this means, so we're not counting on that in our guidance. Obviously, it could provide flexibility because you could cover some of the CET1 with Pillar 2. The approval is expected in January.
That could be an upside, which again, we're not counting, but could come into force in maybe 2022, 2023, or after that. In terms of the dividend policy, well, we believe we have a very clear dividend policy, but I'm not sure what more we can say. We can say that 40%-50% on an underlying, I think I mentioned before that the cash DPS, we would like that it increases.
Our aim is that it increases in line with the underlying profit growth. The aim is to reduce the scrip, but we believe that for now, the flexibility is good, not because of institutions, which we know you're not that keen, but because our retail investors like it.
The reason we got approval to repurchase shares is because as the year goes by, to ensure that we do what we commit, we like to have that extra flexibility, to be very honest, because there's been less visibility on regulatory issues, and that gave us some extra flexibility, but we're reducing that again this year to 13%. That is the dividend policy that we have set and approved. I think I answered both questions. Thank you.
Thanks, Andrea. Next and last question, please.
Thank you. The next question comes from Carlos Peixoto from CaixaBank BPI. Please go ahead.
Hello. Good morning. Thank you for taking my question. The first question would actually be on fees, particularly in Spain. This quarter wasn't particularly strong. I've seen the explanation regarding investment banking fees. I was wondering if you could shed some light on how you see it evolving over the next quarters or over the next years.
Basically, this is a line that some of your peers have flagged particularly positive spends on. I was wondering what's your view on that? Secondly, on NII in Brazil, if you could give us also some views on how you see it evolving. You mentioned you expect to compensate some of the pressure in margin with volume growth. I was wondering how do you see the NII figure itself evolving? What's the net on these two, basically.
As a follow-up question on capital, just basically in the next year or so, you have this guidance of 12% on considering the transitional arrangements of IFRS 16. Could you remind us what will be the impact from the phasing in of these transitional arrangements in 2020? Thank you very much.
There's still, I think there's 19 basis points left on IFRS. That's in 2020?
23 now. At the end of this next year w ill be 18 or 17 or something like that.
Yeah. Obviously, that's factored in on a year-by-year basis, so 2024, right? Do you want to answer the other questions? Thank you.
The other questions were fees in Spain, how do we see this evolving in coming quarters. We have had some impact from CIB business this year. In the fee income, we've been sharing with you this. Ex CIB, we have some translation with that lower funding cost, that impacts also fees. You saw the changes in 1|2|3.
You can elaborate your numbers in relation with this, probably positive in NIM, some negative in fee income. CIB, well, depends on the year, the activity we see on the year. You know we are the market leader in CIB in Spain, how the market evolves affect us significantly. The second question was NII in Brazil. Well, I said in the presentation that we expect in Brazil, with a GDP growing north of 2%, a healthy growth in volumes, with some margin pressure.
Some of those you already know. The main one was the cap on overdraft. That has a significant impact. For that reason, we expect some margin pressure. We expect to be clearly in positive territory in Brazil, in net interest income, with pressures coming from regulatory side.
The most important one you already know is the cap on overdraft that went down from 12% to 8% on monthly basis. Basically, that's it. We are fairly positive in fee income in Brazil, where we expect to keep growing, given the market share gains that we are getting and the level of transactionality we are having. The insurance payments and private banking business should support a healthy growth, probably into double digit in Brazil in 2020.
Okay. I'm afraid we need to leave it here. Thanks, Ana and José Antonio, for your time, and, obviously, the IR team is at your disposal for any follow-up in detail. Thanks very much, everyone.
Thank you very much, everybody. It sounds we answered all the questions that were asked. Again, thank you, and anything else, Sergio and José, we're all at your disposal. Thank you very much. Until next year.
Thank you.
Bye.