JOSE RAFAEL FERNANDEZ:] Good morning, everyone. Thanks for joining to this Grupo Santander 2019 earnings presentation headed by our Group Executive Chairman, Ann Abbotin and Jose Antonio Alba, the Group Chief Executive Officer. Our Chairman will address in detail the performance of the 2019 in terms of P and L balance sheet. And obviously, our group CEO will cover in much more detail the bottom up on a country by country basis. The Chairman then will follow-up with our business model that delivers the prospects in terms of profitability growth and will jump into Q and A.
So with no further delays, please, Anna.
[SPEAKER JEAN FRANCOIS
VAN BOXMEER:] So thank you.
[SPEAKER CARLOS GOMES DA
SILVA:] Good morning. So 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 12% 15%, respectively, year on year. And 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 5 basis points. We have maintained an underlying return on tangible equity of 11.8 while increasing, by the way, our tangible equity by €4,500,000,000 And that puts us well on track to achieve our medium term goals of 13% to 15%.
We continue to be one of the most efficient and profitable banks among our peers and a costincome of 47% remains best in class. And the combination has allowed us to further strengthen our balance sheet, raising our fully loaded CET1 to 11.65 and that is despite regulatory headwinds this year of 62 basis points. So based on these excellent results, we have announced today that the Board will propose to the 20 [SPEAKER JEAN BAPTISTE DE CHATILLON:] The AGM in April, a total dividend per share in 2019 results of 0.23 dollars Importantly though, €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. And basically, we have more than doubled the total cash dividend per share over the last 5 years.
So going now to the next slide. Here you can see the P and 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 €49,500,000,000 With underlying attributable profit for the year also up 3%, on a constant currency basis up to EUR 8,300,000,000 And 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 3 strategic priorities we set for ourselves back in April. And 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 [SPEAKER CARLOS GOMES DA SILVA:] With great discipline, by the way, that generate highest returns. And of course, accelerating the digital transformation through Santander Global Platform. And 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. So 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 3 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 a common group, Ultimately building 1 single platform, Europe is successfully driving a simplification effort and delivering results On efficiency, we generated about €200,000,000 in net cost savings.
That is about 20% of the €1,000,000,000 net cost savings target. And across Europe, 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 [SPEAKER ANNA BOTIN, INC.:] 2018, and 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%. And last but not least, South America, which remains the group a growth engine led by Brazil, delivering best results ever with an 18% increase year on year in underlying And 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, very important priority for all of us, Antonio, myself and all the teams to really build global businesses so we can more and more leverage the group's scale and strength.
And you can see that today, these 2 global businesses are contributing 26% of the group's profit, increasingly driving network effects And enhancing the competitiveness of our co banks, Corporate Investment Banking continues to grow strongly. Underlying Profit was 10% higher and driven by a strong growth in revenues. With the 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 €400,000,000,000 and underlying profit growing by 11% to €1,000,000,000 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. [SPEAKER CARLOS GOMES DA SILVA:] We focus on improving customer experience as the big driver to improve growth in customers. And this especially true in mobile. [SPEAKER CARLOS GOMES DA SILVA:] We now have 37,000,000 digital customers. As I remind you, we started 5 years ago with 14,000,000 But just year on year, that's a 15% increase.
And 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 5 times per week. This results in 700,000,000 digital touch points per month. But 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. [SPEAKER JEAN FRANCOIS VAN BOXMEER:] And you can see some of these numbers in the next slide. The fact that digital sales are growing so strongly, it's driving profitability.
So 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. But again, as an example, in Brazil, you have it here on the slide, the cost for the bank of doing a transfer Digital channels is 99% less than if the customer does this in a branch. But the U.
K, which is another great example, the cost of selling a mortgage online [SPEAKER CARLOS GOMES DA SILVA:] 50% less if done on a digital basis. So the improved operating performance and optimization of our capital allocation is enabling us to enhance our profitability. And we are very focused on improving the return on Grace 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 about the reference return on risk with assets ROADOA of 1.2, which is well above our cost of equity.
This is 3 points increase over last year. And really what it means is that we are bringing and we've been doing this every year, but in 2019 an additional €20,000,000,000 of risk weighted €40,000,000,000 in nominal term loans were now above the cost of equity compared to last year and improving the underlying ROADOA, as we said, by 5 basis points. All of this is supported, of course, by improvements across the Americas and across the group. Just as a reminder, also where we are coming from, if we look back 5 years, 2014, the ROE was 1.27. If we calculate the capital we had back in 2014 and The role we have today of 1.61, we would actually be at our London intangible equity of 17.
This is just a way to look at how we have improved the businesses over these 5 years. Of course, we've continued, as I said, with this accretive capital rebalancing. And there is more capital allocated, In this case, to South America and North America in a very consistent way. In Europe, the ROADWAYS allocated to Europe 1%. In North America, it's +4 percent and South America, +7 percent.
And 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 plus 35 basis points increase to a CET1 of 11.65%.
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 €9,400,000,000 of capital, pre minorities. We are at these levels very comfortable with our current not just capital levels, but also buffers over regulatory requirements. And again, this is due to the resilience and diversification of our business. Considering our 2019 CET1 and also the Historical consistency, 5 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% to 12% midterm goal. In 2020, we expect some quarterly volatility. We have agreed to certain acquisitions during this year that will close. This Factor into the numbers and the expectation.
One of the examples is Allianz Insurance Business, which we bought back recently or the acquisition of Ebury. And 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 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%. And 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 2nd year in the Bloomberg Gender Equality Index. We are more and more diverse at the Board and leadership level. And we have been improving and have very high levels of employee engagement. 86% of our team.
So proud to work at Santander. And this is recognized also as across the countries where we have been recognized one of the top 10 best companies to work for in 5 of our markets and as a group, one of the top 25 best companies in the world to work for. Again, we are 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. So I now leave you with Jose Antonio, who will cover in a bit more detail our operating performance.
Thanks, Anna, and good morning to everyone. 2019 P and L reflects, I will 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 [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] Want to say that we see great sustainability quarter on quarter after quarter. In Q4, we generated underlying profit of around €2,100,000,000 That is 5% higher than the 4th quarter in last year. And excluding the deposit warranty fund contribution in Spain, 5% more than the Q3 2019.
In addition, we have had this quarter the positive impact of €711,000,000 the net capital gains and provisions, which boosted attributable profit in the quarter to around €2,500,000,000 Further, you have the detail of nonrecurring items in the appendix in Page 47, broken down by quarters. I will summarize now the main items in Q4 that were the capital gains from custody Forecasted is €693,000,000 DTA's recovery is due to changes in tax regulation in Brazil, €551,000,000 Net capital losses related to the disposal of real estate business in Spain, €225,000,000 restructuring costs in several countries, EUR 140,000,000. Those are the main items. So as a result, net capital gains and provisions in 2019 amounted to €1,700,000,000 of which approximately €1,500,000,000 do not impact capital. Going to the revenues, we reached record high revenues of more than €49,000,000,000 Well, revenue of I will be is characterized by very high quality.
95% of the revenue comes from the most recurrent unstable lines, NII and fee income. And 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 splits. We continue to she expect further improvement in the cost of deposits. Net fee income grew 5%.
Well, it's worth to stress in Asana said that our global business are growing significantly faster than that. And the global business already represents 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 Our execution in Europe, cash drop in nominal terms 1.3 percent, in real Term 2.4 percent, reflecting the synergies integration optimization and simplification process that Ana refers to previously. The decrease in Spain was €300,000,000 of the cost base.
We expect additional strong fall next year. Portugal is also reducing costs. And U. K. Is probably We are starting to see the results in the transformation program with the second half of twenty nineteen, the costs coming down and 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 strong improvement in efficiency. [SPEAKER JOSE ANTONIO ALVAREZ DE TEJADA:] So in short, cost management enabled us to remain leaders in efficiency with a costincome ratio of 47%. Credit quality, [SPEAKER JEAN FRANCOIS VAN BOXMEER:] Well, very few things to add. The NPL ratio continues to fall.
The cost of cash is flat. Coverage is at healthy levels. Let me to make a short summary of the group performance in the year, increasing our underlying profit, strengthening the capital ratio, improving credit quality, well maintained best in class efficiency, high profitability both in terms of return on tangible equity and ROADWA and improved tangible net asset value per share plus dividend. Going to the business areas, you can see the 53% We remain very well diversified. 53% of the underlying profit comes from the Americas and 47% from Europe, while the profit is growing in 9 out of our 10 core markets, particularly and Pola.
Our global business has also increased at double digit rates. It enabled 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 long road, you see different patterns, in line with our previous guidance, still the deleverage in Spain and Brazil and Being more Spain, sorry, deleveraging 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. And also, I want to remark the U. S. That is growing pretty well. Coming back 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 upgrade fell 6% year on year due to wholesale banking deleveraging and slowdown in mortgages, Mainly some of these deleverages because we are, as Anna already mentioned, being more active in our capital allocation. In results, profit fell 18% in the quarter. If we exclude the deposit, 1, DSK grew 14%.
Underlying profit in the year was higher, mainly driven by a strong reduction in costs. Total income was we improved the retail customer NII, primarily boosted by the fall of in cost of funding. The year's 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 of our cost of equity. In consumer finance, another good year. Our market share gains, the The auto market is now growing in Europe. We are growing 5% on market share gains.
And well, we continue to reach agreements with OEMs that providing 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 UK, we face an operating [SPEAKER JOSE ANTONIO ALVAREZ PALLETE:] Environment, characterized by high levels of competition and uncertainty, good year in volumes. Revenue was affected by pressure on mortgage margins, Particularly SBR attrition and overdraft regulation costs were down 2.7% in real terms, Better trend in the second half, as I said before, and we maintained very low cost upgrade.
In the quarter, better top line trends, [SPEAKER JEAN FRANCOIS VAN BOXMEER:] In particular, in NII and costs, net operating income after
provision increased
8%. By 2020, we expect Continued revenue pressure will be offset with the cost reduction. To be on we expect to be on track 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 of volume for growth, our transitionality is growing at more than 50%. It's a remarkable number.
Well, we continue to improve our profitability. We returned annual equity close to 21%. Well, The year was good, 19% profit growth year on year. In 2020, we expect solid business dynamics to continue, which 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 SCUSA, by the way, is doing very well.
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. Our in retail, our growth was 16% consumer finance, 17% year on year and the amount deposits 24%.
Profitability improved again. Our return on 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 are historic lows from around 40% 5 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 upgrade 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.
It's said Chile 7%, slightly impacted by the 4th quarter in the country. In relation with the Corporate Center, only to mention 2 points. We have the income was impacted by greater foreign currency hedging in the region of €300,000,000 The counterpart of this is in the conversion of results to euros in certain countries Lower NII due to the higher stock issuance in an IFRS 16 impact. Costs decreased by 12%. You have further detailed in the regions and global business already commented.
You can find all this information in Indya Penders. I now hand back to Anna to finish this presentation.
Thank you very much, Jose Antonio. So I would like now just to briefly look at the future and really remind us of 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. So 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 market positions In lending, in 9 of our 10 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 Since 2014, and we are very proud that we rank amongst the top 3 banks in customer satisfaction as measured by NPS in 6 countries. Finally, we have a diversified geographical footprint operating in both emerging and mature markets. And 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 the CET1 increasing by EUR 22,000,000,000 over the period, that is 3 38 basis points in 5 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 targeted Sorry, also supported by additional investments, and that includes around €5,000,000,000 per annum in digital and technology, Restructuring our legacy, but also investing for the future and increasing efficiency. We also spent over €2,000,000,000 over the period to restructure our banks. [SPEAKER JOSE ANTONIO ALVAREZ DE SOTO:] 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 18,000,000,000 [SPEAKER
CARLOS GOMES DA SILVA:] 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. So So 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 3 years. And 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. So I would like briefly to cover the future in terms [SPEAKER JOSE ANTONIO ALVAREZ
DE SOTO:] So the three pillars that
we're working across the group, which is again continuing to improve the operating performance across the regions, Continuing and we're taking additional organizational incentives in 2019 that we're implementing again in 2020 to make sure that everybody is aligned towards the goal of Abo Thin. Optimizing profitability and return on risk weighted assets, but 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. And 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 0 by reducing emissions and compensating where we are not able to reduce down to 0. And 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.
And 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. So you've seen this before. We reiterate our targets For both Europe, for North America and South America.
And really the goal behind this is, as I said, to operate as 1 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 Aboutin. [SPEAKER JOSE ANTONIO
ALVAREZ DE SOTO:] The size of our Mexican
bank and actually working together with the U. S. With a very ambitious plan that we set out 3, 4 years ago. And we again will be focusing here on profitable growth. But 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. [SPEAKER CARLOS GOMES DA SILVA:] So 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. So at the core of our plans for the last 5 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 route weight to the most profitable geographies. We are setting minimum profitability Key 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. And we expect that the combination of all these efforts will enable us to deliver this midterm underlying ROA of 1.8% to 2%.
So if we look at now our digitalization and building Santander Global Platform, this is probably the most strategic of our goals, But it really is working on 2 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. And 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, which is recently we're 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. And we are also and that's the second part of our strategy, Building global digital banking solutions with payments at the core.
And this will be not just for our own banks, but for others, 3rd parties. And 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, because 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. And 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.
And this will dramatically lower development cost and time to market. As I said, we Expect SGP to serve initially our own banks and their customers, but in the 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 4 high growth large addressable markets in which we can now already delivering results. I'll briefly cover that. In the next slide, If we think about SMEs, we are focusing on 2 verticals.
1 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 5 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 plans detailed plans to roll it out in another 8 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 footprint same footprint or path as we did with Getnet.
Ebury, We worked for 2, 3 years really scouting the whole world what is the kind of team we wanted. And I want to stress the Iberi 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% of top line year on year. And it's 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 300,000,000 underserved people, customers. We aim to provide them with basic financial products in a way that is also profitable or let's say, gives
[SPEAKER JEAN FRANCOIS VAN BOXMEER:] Sensible returns for the bank.
To give you also a vision of what we're building around SCP, Superdigital is already working in Brazil with GetNet GMS. So 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 2 times faster. And the goal is to reach over 5,000,000 active customers over the next few years. And 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 1st or second Highest growth bank in Spain in 2019 or 2018, I remember the year. And very importantly, and this is very important measure with 115 payroll accounts, which means that there is more and more loyal customers and as you can see 4.4 products per customer, but 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.
And we are live already not just in Spain, but Germany, the Netherlands and Portugal and launching in other countries over the next few years. So 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 11.65cecet1. We are 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 different per share. Just to end, I'd say that as we head into 2020 beyond, [SPEAKER CARLOS GOMES DA SILVA:] We have a clear we have a 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 3 years. So thank you very much.
And we now have time for questions.
Yes.
Thanks, Ana, Jose Antonio. Indeed, we can proceed now with the Q and A.
The first question comes from Francisco Riquel from Alantra. Please go ahead.
Yes. Hello. So thank you very much for the presentation. Wanted to start with capital. So first of all, if you can update on the Regulatory impacts on capital ratios expected for 2020, either negative depending impact from TRIM Or eventually, positive, if you can update on the what are you on the models in the UK?
And then also on the front of the corporate transactions, And if you can comment on the impact from the escusa 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 Evori deal. And then also beyond 2020, What other regulatory impacts shall we expect? And 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 parcel forward world? Thank you.
So As we said, I mean, I want to reiterate and it's very important that at EUR1165,000,000, we are very comfortable with the level and with the buffers vis a vis regulatory requirements. Regarding 2020, we are keeping our midterm goal of being between 11% to 12%. What we are doing is we're accelerating reaching 12%. So 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 Hibri and some other Purchases, we will have some offsetting 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 are 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%.
And as I mentioned, we are proposing to the shareholders meeting cash EPS 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. 2nd is that we do expect other positive regulatory issues would be the capital treatment of intangibles, for example, that would help us.
But last but not least, we still expect the impact to be less than peers. 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. My question two questions. First of all, on the 12% target for this year, When you think about obviously, there's been some disappointments in 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 EVA guidelines or all 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. And The second question is on your high single digit EPS growth. Consensus, I think it's
more
Probably half of that. When you think of the last year since you gave your targets, obviously, margin pressure is worse Sure in developed markets than you probably thought. So 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.
So please let me be clear that the target is not 12%. The target is to be between 11% 12%. So 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 not We're very predictable year on year, but it's hard to be very predictable quarter on quarter. And my sense is that Abo Thin. When 1 quarter we're a bit below, again, what matters is not just the levels, but the buffers against the regulatory requirements. And as we've said, we are very comfortable. And I have to say over the last 5 years, just to give you an example, 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.
So there have been in some places increases, and we've been able to absorb that. And 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. So what you'll see once we don't have the 60 basis points like we had this year is you should expect higher profitable growth. Places like Brazil.
I mean, Brazil should grow faster next year. And given we still have some regulatory headwinds next year. We've She'd taken some of that already in Q4, something like 9, 10 basis points. You should see some impact, but nothing near what we saw this year. So 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. But I want to stress that our aim is to be between 11% and 12%, get close to 12% and then be able to have some volatility there to maximize the opportunities for our shareholders. The high single digit EPS, that is for the 3 years. Again, it might be more 1 year than another.
So it's not a mathematical, let's say, progression, but what's important is the CAGR for these 3 years. And 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. And 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 onethree of our balance sheet gets replaced every year.
So 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, but we want to maintain the relationship with our customers because that's what give us the Strength to build a global platform. So I'd say that, again, the earnings per share goal for the next 3 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.
Sorry, sorry. The next question?
No, I'm sorry. I forgot the script. I forgot the script. Yes, the script. Sorry about that.
So the script is we explained this last year. And My job and the job of the Board, Jose Antonio, all of us, is to try to make all our shareholders happy, but not all shareholders are Same. And about 45% of the company is owned by retail shareholders, and they love the script. And so we've been reducing it. With the proposal, we are taking it down to 13% of the total will be stripped.
And we have said that depending on how the year progresses, we might Actually buy back the script. So that's something that gives us added flexibility. We're trying to keep everybody happy, and not everybody is going to be happy as Happy all the time. But we're really I mean, the current management is very focused on earnings per share, tangible NAV per share, and we are very conscious that important for many of you on the call, but we also have to consider our 45% retail shareholders. So 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 Antueta 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. And so a bit of visibility on what Your earnings growth expectations are in those regions would be helpful. And 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. So let me just give you the sort of my high level view, and then I will ask Jose Antonio to complement a bit more guidance. But 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. So from Mexico down to all of South America, 0 growth. This year, we're expecting Brazil actually to be between 2% to 3% growth.
We're expecting Mexico to grow a bit more. Chile is the only one we're expecting less growth. So 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. You can see that and that's a huge opportunity.
There's a lot of profitable growth ahead. So especially in Brazil, Margins will obviously be much lower with interest rates at 4, 4.5, but volumes and very good quality growth is ahead. To give you an example, Last year, we did already EUR 2,000,000,000 in mortgages in Brazil. I mean, a few years ago, that was like unheard of. So we expect volume growth to compensate margin.
But very importantly, and this is something in Latin America, we have not waited for things to happen. We started in April of last We're working across the region with very significant and you can see the numbers already in Brazil with a lot of focus on cost, a lot of focus on building common platforms. So 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. So those are two things that are important.
Taxes will go up in Brazil by 3 I think 3 points?
3 points.
3 points. Yes, and that's considered. So when you consider all of that, Mexico Brazil, we're expecting roughly the same profitability this year, roughly. And 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.
I think that's so as Antonio says, he's fine. So next. Yes.
Thanks, Andrea. Next question?
Thank you. The next question comes from Benjamin Thomas from RBC. Please go ahead.
Morning. Thank you for taking my questions. Firstly, on Poland, can you give us an update on Polish Swiss Frank, mortgage litigation. Did you take a provision in the quarter? And secondly, the ECB hosted a call yesterday on SREP requirements.
In the call, they stated that the average Pillar 2 gs for GSIBs and Universal Banks was 1%. I know you're not allowed to tell us your Pillar 2 gs, But is there any reason why Santander wouldn't be in line with the average GSIB and Universal Banks? Could Santander, in fact, be any better than average due to the relatively strong performances In the stress
test. So I
will let Jose 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, 25 years, that's all I can say. But obviously, the GCP is a difference. And so it doesn't necessarily have to be the same SREP requirements.
We cannot say anything, right? Good. So we cannot say more than that. But we do I mean, I might say We are seeing a bit of a change in the tone, and there's a pillar to 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. And Poland?
Well, in relation with the Swiss franc portfolio, [SPEAKER ANNA BULTIN:] We have a portfolio in Poland of around CHF 2,600,000,000 portfolio, CHF 2,000,000,000 in the bank, EUR 600,000,000 in the consumer finance operation. After the ECG core rolling in 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 now in the courts that are a small number, around 30 cases. We won around twothree of this and onethree were in favor of the customer. [SPEAKER ANASTASIA DE LA
CHEVARDIERE:] So we took a provision
in the 4th quarter that I think cover us for the current expectations. So it's what I can we can say at this time, we're going to see on a case by case basis what happens in the course in the coming years. But We feel comfortable with the provision we took at the end of the year.
Thanks, Raim. Next question, please.
Thank you. The next question comes from Mario Ropero 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. So a couple of issues related to that.
Could you help us understand When you expect stabilization in the top line in Spain? And please could you give more details on cost savings in Spain next year Well, next year, current year 2020. And then finally, in Spain again, could you give us some color on Impairments in Spain, I mean, your NPL ratio is still very high, coverage below peers. So 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 Jose Antonio, please, if you can complement. But I 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. But we certainly aim to improve that. And the cost savings for next year will continue.
I think we're aiming for something like mid single digit. But remember that the key numbers are Europe because we have a number of transversal across the group European initiatives. So that is what matters now. I mean, 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 11,000,000,000 I think we Closed in 2018, and we've said we'd reduce EUR 1,000,000,000 EUR 1,200,000,000
over the
next few years. So there are very significant savings coming in of that EUR 1,000,000,000 next year, much more than this year. I mean, if this year it was about EUR 200,000,000,000 We did have a change in perimeter this year. We're not expecting that for next year, I understand. But Jose Antonio, maybe you can help me there.
So you'd see not just Spain, but Europe coming down significantly in the cost base next year. Impairments, I mean, and NPLs, All of this obviously comes in great measure by Popular. Do you want to comment on those, please?
Yes. Impairments is true that we are above the our peers in [SPEAKER JEAN FRANCOIS PRUNEAU:] NPLs, it comes from Popular. We inherit these impairments. So 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 or below the one we have had this year. So it's true that we are I feel comfortable with the coverage we have, but is true that still it's going to take a little of time to reduce this level to the level we should have.
That is Currently above 6%. As a matter of comparison, if you were only Santander business, it will be around 3% or below 3%, yes? So this comes basically from this. But the most important thing from the P and L point of view, the cost of risk is going to remain in line with what we have or slightly below. [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] And the cost, probably to elaborate a little bit more on the cost side, [SPEAKER PIERRE ANDRE DE CHALENDAR:] We reduced this year the cost in Spain 300,000,000.
This is a nominal number. Probably next year, we're going to be aligned with this number again. [SPEAKER JAIME SAENZ
DE TEJADA:] We are making a great effort
on the Popular integration is going to be reflected somehow well reflected this year, but next year is going to come in the same line. And in Europe, as Ana mentioned, our target was to reduce is to reduce €1,000,000,000 nominal costs down. This year, we got [SPEAKER ANASTASIA DE LA CHEVARDIERE:] 200,000,000. What you see in the number is €130,000,000 We have some changes in perimeter in Poland and some others, but the number is €200,000,000 this year. [SPEAKER JEAN FRANCOIS PRUNEAU:] Probably next year, probably 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 Jose Abar 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. So here, I think I have two questions, which is one is that you signed a risk We shared an agreement with the IB for a €2,000,000,000 SME loan portfolio in Spain, but I think that was in late October. So the question here is whether the full impact From this screen, it's 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.
And if I may, one quickly on credit quality. It's clear that you are positive based on your last comment, but we see divergent trends within the group. So we see a margin sequential increase in the cost of reaching Santander Consumer Finance, At the same time, a meaningful decline in Spain. So I think I guess here, it would be useful to have your view on what's Driving actually better credit quality trends in your view in a context of slower growth globally. And 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. I Hinn? 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.
And this is what I would like to stress is we are very confident on the model, on the predictability, sustainability, but it's very difficult to measure quarters, approvals and markets. And Aboutin. We've been very consistent for 5 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 mean, I will let Jose Antonio answer that very technical question, although we're going to see the impact next year. Internal models, I mean, as you know, that's one of the factors, both pluses and minus for all European banks. But we have higher, higher much higher visibility now on what's coming and what the effects are.
And so that's why we are given the guidance we're giving, we expect to be at 12 given the profitability and given what we know today. But I'll let now Jose Antonio answer you on the what happened in Q4, but there was a lot more securitization. But 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 capital.
Very briefly on credit quality across the group. Cost of credit across the group this year was 100 basis points. And 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, but Jose Antonio, maybe you can [SPEAKER JOSE ANTONIO ALVAREZ
ALVAREZ:] 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, yes. Brazil is going to grow faster in 2020 than we grew in 2019, Mexico is going to do the same. So our main portfolios, some of our [SPEAKER ANASTASIA DE LA CHEVARDIERE:] Portfolios that have a relatively high cost of risk, we expect a better environment. You referred specifically to Santander Consumer Finance.
[SPEAKER ANASTASIA ALBERTO PEREIRA
DE OLIVEIRA:] The gross
provisions were pretty much the same in the Q4 than in the Q3. You saw in the Q4 higher provisions because we disposed less portfolios. But the gross provisions were pretty much the same. And 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've seen in the media some numbers ticking up, Remember that our consumer lending in Spain in consumer is basically auto lending. It's behaving very well. It's basically new cars. It's Good quality. And in the bank, our loyal customers, we is pre granted credit that we have a strong relationship with the customers.
You asked specifically for EIB. EIB, what shows is our policy visavis securitizations that The guide for our securitizations that is becoming, as Anna 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. So and this is mainly happening in our consumer finance operations, both in both sides of the Atlantic, in [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] Scruzha in the U. S. And Consumer Finance in Europe, and we continue to do so.
I will clarify this as an asset business as usual more than that we are doing something on a 1 on 1 basis. AAV operation was included in Q4, but it's meaningless in terms of [SPEAKER JOSE RAFAEL FERNANDEZ:] Capital, yes, it's very small.
Thanks, Jose. 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 [SPEAKER JOSE MARIA ALVAREZ DE SOTO:] 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 recapping a lot of the balance rate focusing on more profitable segments. But if you could just elaborate a bit on that and what will be the impact in NII for 2020?
Thanks.
[SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] So the deleveraging in Spain has been mainly in the larger corporates. I mean, it's a sector continues to deleverage and partly [SPEAKER JEAN FRANCOIS VAN BOXMEER:]
The public
sector, as you well said, we're growing very well in consumer lending. And I think our guidance for next year will be more stable. [SPEAKER JAIME SAENZ DE TEJADA:]
So not a full but
most stable volumes. And actually, we're aiming for stable margins also on the customer side. But 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. So I'd say next year you should expect higher quality earnings in Spain, [SPEAKER JOSE RAFAEL FERNANDEZ:] Good management of margins, stable volumes overall, but less financial income.
Yes. As a matter of fact, the deleveraging you are seeing is driven by the our we've been selective, being conscious of the good usage of capital in segments where the profitability is very low. So we've been We elaborated in the previous quarters around this, and that affect, as Anna said, the corporate the large corporates and institutions. So those are the segments in which we are now seeing a good use of our capital if we deploy there because [SPEAKER JEAN FRANCOIS PRUNEAU:] Profitability is relatively
poor because the competition is extremely strong, yes.
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 calling up provisions on old NPLs to have a negative impact on capital by the end of 2020? And the second one is in the UK.
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 Market generally changed because it looked like you were withdrawing from this market and now you're committing more capital.
And does your guidance
[SPEAKER CARLOS GOMES DA SILVA:] On net interest income in the U.
K. Incorporate, any potential interest rate cuts? Thank you.
So [SPEAKER JAIME SAENZ DE TEJADA:] 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. And the return on capital of UK mortgages actually is attractive, and that's the reason we're growing on mortgages. [SPEAKER CARLOS GOMES DA SILVA:] And so 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 this is we've grown about €7,000,000,000 in mortgages in the year, but we've also grown very well.
For example, on the business side, the business 1 to Sri Aitin has grown really well. So it's consistent with the discipline in capital allocation across the U. K. And across the group. In terms of the provisions NPLs for next year, I mean, I mentioned some slight the answer is no, but there will be some regulatory effects.
And 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 are 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 5 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 Gilos Antibanez from Barclays. Please go ahead.
Hi, good morning. Thank you for taking my questions. A question on Spain. So I understood that You aim to continue improving the NPL ratio and the coverage ratio going forward, but just want to clarify on that. And the second question would be in the UK.
What is the actual balance of the SBR book? And what is the impact on that in the NII? Thank you very much. [SPEAKER JAIME SAENZ DE TEJADA:]
So I'll answer the U. K. And I know better, let you answer Spain. So SVR balances will come down much less next year. I think this year, they came down by about EUR 4,000,000,000 And next year, we'll be coming down less than that, I think somewhere between €2,000,000,000 to €3,000,000,000 So 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 [SPEAKER JOSE ANTONIO ALVAREZ DE SOTO:] Online with a much better return in terms of efficiency. So 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. So very likely, the coverage will remain flat or slightly down depending on if the NPLs are collateralized or not.
That is the main factor [SPEAKER ANTOINE DE LAARSCHOT:] Between the recovery ratio, you have recovered value or you don't have recovered value. Plenty of the NPLs that we inherit From Popular comes from the SMEs segment. And while those tend to be lower collateralized than the naturally than the mortgages, and for that reason, This is what drives the coverage ratios more than our specific policies. Applying IFRS 9 is expected loss taking into account collateralization of the NPLs, yes.
Thanks, Arlando. Next question, please.
Thank you. The next question comes from Sophie Petesen from JPMorgan. Please go ahead.
Yes. Hi. Here is Sophie from JPMorgan. So I wanted to ask just a follow-up on the core equity Tier 1. Of the 35 basis point improvement that we saw quarter on quarter in the Q4.
Is there anything that could potentially reverse in coming quarters that we should be aware of? And then the second question would be how should we think about your dividend per share going forward, buybacks, M and A? Should we expect the dividend per share to remain stable around €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.
So
I'll start by the last one. CECL will not have an impact on group It's local accounting. Yes. And it's been reported by Santander Consumer. I believe it's about €2,000,000,000 something like this impact.
I think that has been informed already in Q3. So there's nothing new there and again, no impact on the group. In terms of dividends, So 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.
Again, because it's difficult to predict everything that's going to happen during the year, our aim is to first 40% to 50% on the underlying results. 2nd, that the cash dividend per share should be as much as possible aligned with the underlying growth in our profits. And I think that is what we're doing this year. If you look at underlying Profit growth is around 3%, and that's what we are 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%. So again, we've returned to shareholders Over these 5 years, €18,000,000,000 which shows the confidence of management and the Board in the sustainability of our results. And this is something which we expect to be hopefully reflected soon in also in the market. So This is the policy. We're not changing that.
It's stable. And we'll be proposing this to the shareholders in April. There is nothing in the quarter, there is some negative regulatory headwinds, which we're actually anticipating for next Because we have information on that, about 9 basis points, I believe. There's more securitizations and less growth in risk weighted assets than other quarters. But it's again, it's a bit of a seasonal impact in that sense, less growth, but also more securitizations happening in the 4th [SPEAKER JAIME SAENZ DE TEJADA:] Quarter.
You're going to get volatility interquarterlies, that's for sure. We have some acquisitions coming in. We also have some divestments. And the timing of that per quarter is difficult to calculate. Again, what is important is management and the board's confidence that at 11 [SPEAKER CARLOS ALBERTO PEREZ DE SOLAY:] The level and the buffers against regulatory requirements are very comfortable.
And 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 kind 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. [SPEAKER JOSE ANTONIO ALVAREZ DE TEJADA:]
But clarifying no reversion in the 35 basis points at all, yes, going forward.
Well, of course, yes. [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] I mean, that is obvious. This is no reversion. Thank you, Jose Antonio. To be clear, no reversion on the contrary.
Thank you.
Aboutin.
The next question comes from Stefan Mediropov from Citigroup.
Hi, guys. Good morning. It's Stefan from Citi. A couple of questions on my side. Trying not to beat a dead horse here, but you did mention strategic our team.
On capital when you get closer to 12% CET1. Just wanted to get more color on what do you mean by strategic? Do you mean M and A? Or do you mean just generally being able to face organic growth opportunities, Regulatory challenges, etcetera. So is it M and A detriment or non M and A?
And the second question is on divisions. Mexican fees seem to be down. Mexican loan growth, half of The yearly growth seems to be bunched up in 4Q. Yes, that is seasonal, but still big skew towards 4Q. Hugh, what's going on there?
It looks like it's corporate and government lending. Any color for 2020 would be Good as well. And 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 [SPEAKER CARLOS GOMES DA SILVA:] What happens when we don't have to accumulate more capital? I mean 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. So we will have to find a balance between these options.
There is no plans for M and A. We've always said M and A would be very disciplined. We in our core markets when there's 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. And in a couple of instances, we have because it added the franchise and the return was accretive after 2, 3 years, which is the benchmark which we have set. I will answer the U. S. And Alexandonio and so on Mexico, but I think the U.
S. Is very important. So 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 and we can guide to again double digit growth in 2020.
In the U. S, we have 3 important blocks. 1 is the consumer finance. That's a business that has a huge excess capital, but even with that excess capital is at around 13%, 14% return tangible equity. 2nd is that there are very strong links, which we're now capitalizing, not just within U.
S, but with the group. Just to give you an example of how we're improving the profitability and we're going to do more of this, 22% [SPEAKER CARLOS GOMES DA SILVA:] And 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.
[SPEAKER CARLOS GOMES DA SILVA:] We 22% of the originations
in 2019 of Santander Consumer were prime auto loans, which are on the balance sheet of SBNA. It's now 30% of the SBNA loans are coming from originations at Santander Consumer. This also [SPEAKER JEAN FRANCOIS VAN BOXMEER:] Improves the profitability of consumer because it's becoming, it already is, a best in class servicer. Again, very high return on that business. So And there are examples I don't want to take too long, but there are examples on the midcorp segment with SBNA in Mexico, SBNA in the U.
K, which is Abbotijn. [SPEAKER JAIME SAENZ DE TEJADA:] 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 It 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, it's one of the best in its peer group. And The overall in the region and for the regional banks, the margins are much more attractive than they are in Europe. So 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 both to actually all of the Americas.
So 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. So I hope this specific on the quarter honestly, I [SPEAKER JOSE ANTONIO DE SAINT HILAIRE:] Jose Antonio, the deposit cost in the quarter in SB and A.
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 kind of institutional deposits that are more expensive.
Yes. We'll follow-up offline, Stefan, but the cost of the deposit at it went down on a quarterly basis and it's at the lowest, so consistent with the rates in the U. S. But we'll follow-up if that's okay with you.
Yes. Sorry, just to follow-up, because I said the building blocks, and I just realized I just commented on 2 of them. So we have 3 building blocks. 1 is Santander Consumer, which is Well known, very profitable. The other SBNA, clearly, there's work to be done.
Might I say that for the last few years, we could not do even launching I mean, 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. But there's a third very profitable blocker 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 Asset Insurance division. And we have €25,000,000,000 under management, Okay. And that is the 3rd U. S.
Highly profitable scalable business, which is in the U. S. And we'll have increasing connections to SBNA as we go forward and have more flexibility.
Thank you. We're running out of time.
In Mexico, let me in Mexico. Mexico has in the quarter a number that are mixed by accounting issues. So you have gross income growing 3.5% quarter on quarter. That is a very good growth. And 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 it's 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. [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] Going forward, we are, as I said in the presentation, optimistic about 2020. Mexico barely grew in 2019. The economy was basically flat, our 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 reduced reduction in rates that may affect something, but we have plenty of room to reduce our deposit costs. So overall, I'm optimistic about our capacity to keep growing revenues in Mexico, yes.
Thanks, Stefan. Next question, please.
Thank you. The next question comes from Carlos Cobo from Societe Generale. Please go ahead.
Hello. Thank you for the presentation. Sorry, I think the message on capital is super clear, but 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.
And 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 want to understand why RNG taking a team. More aggressive approach is just because you see more value there or because you are trying to protect capital? And lastly, if you could just guide us if you were able to if you decide to do so, could you sell a big block as
Abotin. 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 was maintaining both an attractive dividend policy and financing profitable growth. And why do I say this? Because for 5 years, We have a strong track record, 5 years of 40 basis points annual organic capital generation.
And 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 EPS 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. And last but not least, Santander should be lower impact than peers. But 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. So we have a much, much bigger flexibility and that is the high confidence we're giving you on capital, But we're keeping 11% to 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. And there Two more, which maybe Jose Antonio can take.
Yes. Asset quality in Spain. If the question, if I understood well, was if we are changing our policy towards disposing the nonperforming loans or nonperforming assets, The short answer is no. We've done plenty of deals, as you know. We incorporate companies, Merlin, Metro Basesa, [SPEAKER FRANCOIS XAVIER BOUVIGNIES:] Landmark in 2019, Quasar, we disposed Apple.
We continue to analyze our portfolios and to analyze the possibility to dispose in the market at a price, where price is conscious. But your suggestion that we may be slowing down [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] Our disposal of the portfolios because capital issues, I tell you that is more We continue with the same policy. We are conscious of the pricing, and we continue to reduce our NPLs, our nonperforming assets, in line with our traditional way of matching these issues, yes.
[SPEAKER IGNACIO
CUENCA ARAMBARRI:] Thanks, Carlos. Next question.
Thank you. The next question comes from Andrea Filtri from Mediobanca. Please go ahead.
Thank you for taking my questions. There are follow ups on capital. Can you please update us on the pending regulatory hurdles 2020 with a split. The guidance was 80 to 90 basis points on the Q3 call. You've taken over 60 In 2019, can you just confirm there is 20 to 30 basis points left for 2020?
And also following up on the Development on the regulatory front, the approval of CRD 5 and in particular, Article 104A, Do you intend to use it? How and when? And what needs to happen for you to use it in your view? And 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.
So again, the guidance for 2020 on regulatory effect is we have taken some in Q4 Aboutin. Actually, because we had a very strong performance, so we've taken about a third of that. So I think the 2030 could be more like 10, 20 next year. But again, there 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 2020, we haven't really looked at the at what this means. So we're not counting on that in our guidance. But obviously, it could Provide flexibility because you could cover some of the CET1 with Pillar 2. And the approval is 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 and 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 that €40,000,000 to €50,000,000 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. And 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 But we're reducing that again this year to 13%. So that is the dividend policy that we have set and approved. And I think I answered both questions. Thank you.
Thanks, Andrea. Next and last question, please.
Thank you. The next question comes from Carlos deixoto from Caixabank BPI. Please go ahead.
Hello. Good morning. Thank you for taking my question. So 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 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 a positive stance 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. But I was wondering how do you see the NII figure itself If all things, what's the net of opportunities to basically?
And then as a follow-up question on capital, Just basically, in the next year, so you have this guidance of 12% on considering the transitional arrangement 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.
So there's still I think there's 19 basis points left on IFRS. That's in
20? 23 now. And I think of this next year It will be 2018 or 2017 or 2017.
Yes. And that's factored obviously, that's [SPEAKER JOSE MARIA ALVAREZ DE TEJADA:] Terezin, on a year by year basis. So 24,000,000,000, right? So do you want to answer the other questions? [SPEAKER JOSE ANTONIO
ALVAREZ ALVAREZ:] Thank you. Well, the other questions were fees in Spain and 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. On ex CIB, we have some translation.
We expect lower funding costs
[SPEAKER JOSE ANTONIO ALVAREZ
DE TEJADA:] 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 fee income and CIB, well, depends on the year the activity we see in the year. As you know, we are the market leader in JAB in Spain and well, 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 GDP growing north of 2%, a healthy growth in volumes and with some margin pressure. [SPEAKER JEAN FRANCOIS PRUNEAU:] Some of those you already know. The main one was the cap on overdraft that has a significant impact. [SPEAKER JOSE ANTONIO ALVAREZ ALVAREZ:] For that reason, we expect some margin pressure. We expect to be in 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 about in Brazil where we expect to keep growing given the market share gains that we are getting and The level of transitionality we are having, the insurance payments and private banking business should supporting healthy growth probably into double digit in Brazil in 2020.
Okay. My friend, we need to leave it here. So thanks, Ana and Jose for your time. And obviously, the IR team is at your disposal for any follow-up in detail. So thanks very much, everyone.
Thank you very much, everybody. And Sam, we answered all the questions that were asked. So again, thank you. And anything else, Sergio and Jose, we're all at your disposal. Thank you very much.
Until next
year. Thank you. Bye.