Good morning, everyone. Welcome to Grupo Santander H1 2019 earnings presentation. As every quarter, our Group CEO, José Antonio Álvarez, will address the key highlights of the quarter, as well as the group performance, and obviously the concluding remarks, and our Group CFO, Jose Antonio Garcia Cantera, the different business areas performance. We hope to have around 30 minutes for Q&A. With no further delay, José Antonio, please.
Thank you, Sergio. Good morning to everyone. Thank you for attending this conference call. I'm going to follow the usual path of the presentation with a new chapter, including the restatement we've done to reflect the organizational change we made, along with the reinvention in the U.K. As usual, I am going to go through the group evolution, Jose Antonio Garcia Cantera, our CFO, will speak about the business area. As a summary, I will say the quarter was good. Good in activity. Both the loan growth and customer funds grew significantly, 2% and 3%. Underlying profit 9%. The capital generation was in line with our expectations, I mean organic capital generation, was in line with our expectations, 11 basis points in the quarter. This translating to results. Underlying profit was close to EUR 2.1 billion in the quarter, up 8% quarter-over-quarter.
This quarter we have, as you know, the Single Resolution Fund contribution. Without taking this into account, the growth was 16% quarter-on-quarter, a good dynamic in the profit generation of the group. The capital Core Equity Tier 1 stands at 11.30, while as you know, we are progressing according to our targets with a significant impact of the regulatory effects. The profitability, we are close to the 12% underlying return on tangible equity. I'm going to elaborate later on the new organizational structure and the restatement we done one month ago, and we communicate to you accordingly. Following our way to look at the group in terms of growth, both the customer dynamics and the volume dynamics are progressing well, taking into account the macro scenario. We are progressing in line with double-digit or double-digit plus in Latin America and U.S.
In Europe, the volumes grow less, particularly on the loan side, where still we have some countries in deleveraging, and customer funds are growing also in Europe in a significant way. Profitability. Customer revenue is growing accordingly with the volumes. The NIM has progressed this quarter on not only in emerging markets due to volumes, also in mature markets due to the good margin management. Finally, we continue to build capital, as I mentioned before. If we go with the activity, the number of customers keep growing. Loyal customers, we are growing double digit in individuals, 7% in companies. The percentage of loyal customers compared with active customers is already in 30%, with a significant increase in the majority of the countries in which we operate. We are providing you some numbers, how the digital transformation is progressing across the Group.
The number of digital customers approached 35 million. The most important item here is they are growing in line with the 25%. The accesses to the bank with online and mobile, 3.7 billion in the first half of the year, is 1.9 billion a quarter, growing at 28% year-on-year. It's a significant growth. The active transactions, this means the transactions in which the customer has an access to the bank to do a transaction. It's in the region of 550 million per quarter and growing at 25%. Those are numbers that tell you about the progression on digitization in the bank. Going to volumes. As you see, the loans are growing in all sort of market, but Spain and Portugal, where we are still in a deleverage mood.
This is a combination of deleveraging the market, plus being more demanding on the capital use, particularly in some segments in which the profitability is poor. Mainly, it's related with CIB and institutional lending, where we are not being so aggressive, particularly in Spain. The customer funds were growing well all across the board. The quarter was good in investment funds, particularly that were not so strong in the previous quarter. We recovered some growth in this quarter. When it comes to results, we have the bottom line, the attributable profit, EUR 3.2 billion in the first half. This is the bottom line after the extraordinary charges due to the restructuring costs, mainly in Spain, but also in U.K., that we done in the quarter and that I will explain later on. Going for the different lines on the P&L.
Net interest income progressing well according with the volumes, I mentioned before. Net fee income is fairly flat in EUR. We are growing 2% in constant euros. Both this line and the capital gains were a bit weaker than we were expecting due to the CIB. CIB has been both fee income and capital gains. We saw in the previous quarter, still the case in this quarter, a bit weaker than we were expecting, or than the previous year. Total income, we are growing 1% in EUR, 3% in constant euros. That reflects good cost control. Credit quality under controlAccording to our expectations, and this leads to an attributable profit, underlying attributable profit, slightly above EUR 4 billion in the quarter, very much in line with what we got last year, 2% more in constant euros and very much in line with the previous year in current EUR.
Extraordinary charges in the quarter. We have this quarter, slightly above EUR 600 million for Spain. It's basically the restructuring correlated with Popular. EUR 26 million in U.K. We are closing branches in U.K. and doing some restructuring inside U.K. The extra time for PPI in U.K. represent EUR 80 million charge in the quarter. This quarter, we have a net negative in this line. You have the attributable profit, how it's evolving. This quarter has been one of the highest quarter in terms of profit generation, underlying profit generation, in several years. The growth, the figures speak by themselves compared with the previous quarter. Going by lines, net interest income, progressing well. Basically quarter-on-quarter, the South America, North America grew significantly, particularly Brazil, Chile, U.S., and Argentina.
The fee income, I mentioned CIB being weaker, the retail and wealth management are progressing well quarter-on-quarter. The other revenue, while we recorded here the Single Resolution Fund contribution in this quarter, and while particularly the first quarter was significantly weaker than last year when we accumulate the whole year, we are well below where we were last year. In NII, net interest income, you have here the numbers I mentioned before, good growth overall. Mature markets growing 2% due to lower deposit costs and developing markets growing due to volumes, with some margin pressure in several markets, but not particularly in Brazil, where the volume growth is much higher than the NII growth. In fee income, activity is growing well. You have some figures in the main fee generator lines, cars, insurance premiums, and mutual fund balances are growing well.
Net fee in developing markets, we are growing double digit. Fee income, mature markets, minus 4%. You have at the bottom what tells you more about the fee income generation. By segments, we are growing both in retail, banking, wealth management, and insurance, CIB is decreasing 9%. Cost, good cost control, particularly in Europe. You see nominal costs falling in Spain 7.3%, U.K. falling 0.6%, Portugal 3.8% down nominal cost. In real terms, other markets are going down. Overall, we are decreasing 1.8% in real terms when we compare with inflation. Particularly intense, this cost control in Europe, in line with our commitments that we made to you in the Investor Day back in April. Credit quality. No news here is good news. The cost of credit remains well under control. NPL ratio trending down. Coverage is pretty much in line.
Capital generation, I mentioned at the very beginning, in line with our expectations. Regulatory impacts continue to have a significant impact. We mentioned to you 50 basis points, 60 basis points we're expecting for the year. Organic generation, 29 basis points. We continue to guide you on average 10 basis points a quarter. This is the running rate, and we don't see any reason to change this guidance that we gave to you. While we include here naturally, and this quarter has an impact, the restructuring cost. I think it's 13 basis points, the restructuring cost that affect the quarter. On the positive side, the available for sale portfolio, given the trend of the interest rates, particularly in Europe, will represent some help on this regard. While in relation with the MREL and other requirements, we are well above the requirements, and much better than the average of our competitors.
The ratios, we continue to enhance tangible net asset value per share. The underlying return on tangible equity is 11.7%. The RoRWA, some increase in the RoRWA 1.62% at the group level. Let me just spend a couple of minutes here explaining the restatement we've done. The main changes in this are to reflect on one side the changes in the organizational structure. We are providing you Europe, North America, and South America P&L accounts. The idea of this reorganization we told you in the Investor Day is to have a more convergence in the business model and improve significantly the shared service across the group. That is about costs. We don't need to replicate all the things we are doing market by market.
We have plenty of developments, particularly in the IT side, also in operations, that we can share across the group, and this is the intention of this restructuring. On top of that, you have the ring-fencing in the U.K. that is very well known by all of you. Some changes in Spain, particularly to split Openbank from the Spanish business that previously was included in the Spanish business. The second, and probably this tell you more about where are we heading to, integration of Santander Global Platform that is kind of digital service unit, a single unit in order to be more transparent what we are doing here. First, let me go to the new areas, Europe, you have here in this slide, the big numbers. Some people, still the balance sheet is skewed towards Europe.
You see both the loans and customer funds, around 70% is in Europe. While you may have in your heads the P&L that is 50/50 or has been around 50/50, when the balance sheet is more skewed to Europe. In the coming years, and we mentioned in Investor Day, probably we're going to see more growth in Latin America. We are seeing more growth in Latin America and the U.S. than the one we are seeing in Europe, and probably this is going to get more balanced. In relation with the Santander Global Platform, so we have Openbank, you have the numbers there. We plan to provide you good numbers. The number of customers is growing well, 1.2 million customers. This is a really fully digital bank for individuals. This is a bank that provides all the traditional banking service in a digital way for individual customers.
You can do investments, you can buy insurance, you can have your credit card, you can have loans, mortgages, unsecured personal loans. It's a full bank for individuals. Transactionality is growing well, 29% year-on-year. Loans and deposits are growing much faster naturally than the traditional banks. The business is progressing well. You see the number, the balances per customer, per loyal customer, are significant, are in line with other banks. ODS, that is included here, is a technology company that developed software for digital banks. That is the service provided for Openbank, but we try to have this company to provide a service, banking as a service platform, to potentially serve third parties in the future. Also inside the Santander Global Platform, we have what we call Global Payment Services, Superdigital. Probably you heard about this. It's banking without a bank.
We are providing unbanked population in Latin America, where we already have half a million users, active users in Brazil. We are expanding into Mexico and Chile in the first phase. The goal is to expand all across the region, and this proposition to unbanked population, that has a big space to grow. Second, we are developing Global Payment Services, starting from Getnet in Brazil. Around the world, we have more than one million active users. We're going to start in Mexico, at the beginning of next year, and the rest of Latam in the first phase. Well, we may translate into other geographies later, once we have this up and running in Latin America. The international transfer for open market. The first phase we already launched in three European countries.
Finally, the Global Payment Services, that is international trade products, is a combination of effects, cash management, trade finance, is the combination of all these things. We're going to start with the main countries, and we're going to go for the rest of Santander geographies and open markets later on. Finally, we have what we call internally digital assets. That is the centers of digital expertise. I mentioned here contact center. The number of programs means that we are having 33 activities in nine markets, so in all our geographies. The conversion rate optimization is the same. We are developing once and applying to all our geographies in order to have not to continue to replicate here and there. It's about getting higher, bigger access at a lower cost. The digital assets are solutions that we are developing in common.
Globalize the mobile platform that we have in common in all the countries, and the majority of the components are common. We have also this here. Santander InnoVentures is, probably you know better, its investment in fintech. We have EUR 100 million invested in 24 countries, in 47 countries. This is the perimeter of this. We continue in the future quarters to provide you with information about each of these initiatives that, in some cases is trial and error, in some other cases is improving our traditional banks, in some other cases is launching standalone initiatives like Openbank or Superdigital. I hand over to Jose Garcia Cantera to go through the business areas.
Good morning, everyone. Thank you, José Antonio. I will start like always looking at the breakdown of our results. You can see that they remain quite balanced between Europe and the Americas. The Americas has increased its share in the quarter around three percentage points to 55%, mainly due to the larger contribution from the U.S., while Europe is negatively impacted by the charge of the Single Resolution Fund. In terms of underlying profit growth, we see growth in seven out of the 10 core markets and double-digit growth in Brazil, in the U.S., Mexico, and Portugal. If we turn to the main countries, in Brazil, you can see interest rates remain stable. As a consequence, the yield on loans is gradually adjusting downwards. We have double-digit growth, 10% growth in loans and deposits.
The combination of these slightly lower margins and this double-digit growth is what is producing this net interest income growing at almost 7% year on year. We are gaining market share in many businesses in retail. For instance, in credit cards, we are up 86 basis points year on year. In payroll-based loans, 117 basis points. Our value proposition continues to be very well-regarded by our customer base. Operating expenses rose below inflation, improving the efficiency ratio to a historical low of 32%, and provisions were lower. The cost of credit fell to 3.84%. A very good quarter overall, and the trends that we saw in the first half are the ones we would expect to see in the coming quarters. In Spain, we successfully completed the integration of Banco Popular with the migration of all our branches to the new platform.
We also completed the reorganization of our insurance business, the end of the agreement with Allianz, and the creation of a new joint venture with Aegon and MAPFRE. In terms of business activity, very strong new origination in loans, which is not being seen in the year-on-year growth because still the new origination in mortgages is insufficient to compensate for the amortization of the existing portfolio. We also see the leveraging in CIB. On the other hand, consumer credit grew, for instance, by EUR 600 million in the first half, and also SMEs is growing quite well. Customer funds increased around EUR 15 billion year on year. Very good second quarter, which generally, from a seasonal point of view, the strongest in the year. Underlying profit was 5% higher year-on-year at EUR 694 million, excluding the EUR 600 million charge from restructuring. Costs fell 7%.
We've been lowering costs at this rate for already a few quarters. We would expect to see that once we enter into the new phase of the restructuring we just agreed with the unions. Net interest income rose 4%, excluding the impact of IFRS 16. Basically, as you can see, because of improved customer margins, that year-on-year went from 1.7% to 1.9%. Net fee income dropped mainly due to, as José Antonio said, lower activity in CIB. Lower profits in the second quarter reflect the EUR 63 million contribution to the Single Resolution Fund. Without that, profits would have increased 7%. Looking ahead, we would expect to see more or less again the same trends in the second half of this year.
In Santander Consumer, despite that the new car sales in Europe were down 2% as of May, our revenues, new lending actually was up for us 4%. In Italy, for instance, was up 13%, in France 20%, in Spain 7%. This is due to the good performance of the brands with which Santander Consumer Finance works. Customer deposits already close to EUR 40 billion is something that differentiates Santander Consumer from other companies, and it shows the success that we are having in our deposit offering in the different countries where this is actually the case. In the first half, profits was down a little bit year-on-year, although pre-tax profit was up 2%. The difference is the good performance in those subsidiaries that we have the agreement with PSA.
Customer revenues were up 4%, with growth in most countries, notably Spain, Italy, Poland and France, and costs that remain very much under control. Quarter on quarter, second quarter profit was up 3%, again based on higher volumes and lower provisions because of portfolio sales. Moving to the U.K., the business was conducted in an environment of tough competition and uncertainty over Brexit. Lending volumes remained stable year-on-year. The growth in mortgages and consumer credit was offset by the fall in commercial real estate. Customer funds rose 2% year-on-year. Underlying profit was down 13% due to lower total revenues. Same trends as we saw in previous quarters, significant pressure on loan spreads in the mortgage portfolio and lower SVR balances. The fall in net fee income was due to regulatory changes affecting overdrafts and reduced revenue from cards and lower gains on financial transactions.
We saw a very positive trend in costs that were down 1% in nominal terms, 3% in real terms, and lower provisions in the quarter. Compared with the first quarter, the underlying profit was up close to 30%, which shows a very good improvement again quarter-on-quarter. Looking ahead, we would expect to see a strong pressure on net interest income, particularly now that no interest rate rises are expected. Costs, however, should be down in real terms in the coming quarters. Going to the other countries more quickly. In the U.S., another excellent quarter with good evolution of results as well as volumes. The first half attributable profit rose 30% year-on-year, with very good performance in revenues, costs falling in real terms and lower provisions. Remember that the comparison needs to be adjusted by the TDR change.
That obviously is affecting net interest income and provisions, but it doesn't affect the bottom line. In short, we expect the good evolution to continue, although there is some seasonality in the consumer finance business that tends to have a better performance in the first half relative to the second half. In Mexico, our strategy continues to yield very positive results with significant growth in customer acquisition, loyal customers up 30%, digital customers up 57%. We saw growth in loans, notably large companies and payrolls, and also increase in funds at a lower rate in deposits because we are focusing on really profitable deposits. Profits up 12% year-on-year with a very good performance of net interest income. Net interest margin in the quarter was affected by wholesale activities. Retail businesses increased around 4%. Overall, very good quarter with return on tangible equity of 20%.
Portugal, very strong activity in volumes with gain in market share in all segments. We are producing more or less around 20% in the different businesses in the country. Profit rose 14% year-on-year due to revenue growth, lower costs, and the optimization of the operating structure following the integration of Banco Popular. In Poland, as we mentioned in the previous quarter, the results reflect the integration of the retail business of Deutsche Bank, the growth year-on-year figures are somehow distorted. Again, the integration was concluded successfully, and now we are seeing net operating income after provisions up 12%, although that doesn't flow all the way down to the bottom line because of higher contribution to the Deposit Guarantee Fund and the banking tax, that is gross, so it flows all the way again, down to the bottom line.
A strong quarter, the second quarter, where there was also some seasonal effects from dividends. Chile, volumes were up 7%, very good performance, although the quarter-on-quarter and year-on-year results are distorted by inflation. We have very low inflation in the first quarter that affected results. Inflation recovered in the second quarter, year-on-year is still lower and that is affecting our revenues. Profits increased 4% due to the good results in markets, lower provisions, and costs, which are growing below inflation. The second quarter was much better again than the first quarter due to the sharp increase in net interest income from high inflation and increased volumes. In Argentina, very good performance, although the performance in Argentina continues to be conditioned by the economic environment. Inflation stabilized in the quarter and the economic outlook improved.
After a very good performance in the second quarter, when we look at the last 12 months in constant euros, profit was stable as high inflation adjustments, in this case, EUR 74 million, was offset by the rise in customer revenues. In Uruguay, Peru, and Colombia, significant increase in customer activity and a very positive evolution of profits that increased 16% to EUR 94 million, the main contributor obviously being Uruguay. Finally, in the corporate center, the underlying profit was affected by lower gains on financial transactions as a result of higher costs from foreign currency hedging. Net interest income is affected by the high stock of issuances and the impact of IFRS 16. Operating expenses fell as we see the positive impact of the ongoing streamlining and simplification measures. I'll turn it back to Jose Antonio for his concluding remarks. Thank you.
Thank you, Jose. I'm going to go to the presentation. Just to say to you a couple of comments. We are developing the activity in an increasingly demanding macroeconomic scenario. That affects both mature markets and emerging markets, also in different extension. To grow revenues in mature markets has become more difficult due to the lower for longer and the fee income generation being affected by new competitors coming to the market and a reduction in prices, while we still find good opportunities to grow in emerging markets, both in net interest income and in fee income.
We see the activity going forward having a good development due to the increase in our strategy of increasing loyalty and number of active customers is proving to be right, and is producing not only increasing volumes, also translating into revenues. In some jurisdictions, and we commit to you, particularly in Europe, the main driver is going to be the cost side of the equation, like where we expect to reduce cost EUR 1 billion, nominal cost in Europe, and these remain. Our efforts are going in this direction, and you saw in the numbers that we are progressing well. The balance sheet remains pretty strong. Capital ratio, we continue to build capital quarter on quarter, and the tangible net asset value, aside from fluctuations on currencies, we continue to get good developments there.
The creation of the Santander Global Platform, our intention here is to give you, to be as transparent as we can in all the efforts and developments we are doing, both in what we call supertankers, the traditional banks. In the digitization of the traditional banks, also, we provide to you information about the new activities we are developing in this field that will help, in a great measure, the transformation of the bank in the coming years. Finally, we provide to you information about the new areas, Europe, North America, and South America. There's a slide in the next page that translate into the areas, the targets, the medium-term targets that we provide to you in the Investor Day.
You have there the different targets, the main targets, in terms of number of customers, in terms of cost to income, in terms of profitability by the new areas that we define. You have also, in the final page, the return tangible equity country by country, more in a traditional basis. That's all on our side. We remain at your disposal for the questions you may have in relation with the results or other topics.
Thanks, José Antonio and Jose. Yes, indeed, we can proceed now with the Q&A. Please, operator.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please dial 01 on your telephone keypad. Thank you. From Francisco Riquel from Alantra Equities. Please go ahead.
Two for me. First on top line. The interest rate scenario has changed in the last few months. If you can, please update on the outlook for NII in developed markets, particularly Spain and the U.S. Second, on costs, if you could please update on the EUR 1 billion of cost-cutting plan in the European operations that you have reiterated to date. I understand that half of the targets comes from Spain, where you have already reached an agreement with the union. Just to check whether you are on track or not. Also, if you can please give more color on the other half, in what countries, what actions shall we expect for you to deliver on these targets? We have seen some progress in the U.K. Also what are the pending restructuring costs? Thank you.
Okay. Thanks. Interest rate scenario, I mentioned in the presentation the lower for longer. Naturally, the shape of the yield curve, and the yield curve as a whole has decreased pretty significantly in the quarter, and this affecting a significant way our business in Europe. The sensitivity to low rates for 100 basis points is north of EUR 1 billion. This gives you an idea of the impact. For that reason, I said in the presentation that the outlook for revenues was difficult in mature markets, and depends very much on the levels of activity we are able to develop in the coming years. On the NIM, on the net interest margin, I'm more optimistic. If you saw the last couple of quarters, and particularly in this quarter, I increased our net interest margin due to the reduction we were able to get in deposit costs.
We still have some room there, that we're going to take advantage of this. At the same time, probably due to the situation of the market, I am a bit more optimistic on the capacity to increase margins on the asset side that are very low at the moment. In relation with the cost-cutting plan for Europe, you asked a question, I mentioned in the presentation also our EUR 1 billion nominal cost reduction in Europe. You asked how to split this. I will say, well, by countries, you said Spain is half of this or close to half of this. U.K. is 40% of this, so it's significant. Also we have small numbers in Portugal and shared services. When we create the area of Europe, one of the main targets we have is to reduce cost in shared services by EUR 150 million. Yeah.
This is part of the plan. This comes from all the countries together, doing the things in a different way, both the IT and operations, mostly in IT and operations. IT and operations represent 50% of the cost reduction we are planning in the coming years. Finally, you said restructuring costs. Well, we're going to have the payback in Spain, what is left is EUR 200 million, more or less. From the Popular acquisition, the payback was 2.3 years. In U.K., probably the payback is one for one. You can expect a number of restructuring costs in line with the reduction in costs we are intending there.
Thanks, Paco. Next question, please.
Thank you. The next question comes from Alvaro Serrano from Morgan Stanley. Please go ahead.
Good morning. Thanks for taking my questions. It's related to, on the NII outlook, just to follow up there, you mentioned you're more optimistic on asset spreads. I'm thinking Spain and the U.K. at the moment. What makes you more optimistic on those asset spreads in any particular product? Because it does look pretty challenged, the market, particularly in Spain. In your deposits, you've got the 1|2|3 account in both countries. I think you've launched a 0|1|2|3 account, which lowered the remuneration. Maybe you can give us a sense of defining how much that benefit could be for the 0|1|2|3. The second on the U.S., you've now had a year to date, EUR 400 and something million versus consensus. I think consensus is looking for EUR 600 for the full year.
You did in the first half, EUR 465, and consensus is EUR 630 or so. Is there anything in the second half? You mentioned seasonality already. Provisions looked relatively contained. Is there anything apart from seasonality in terms of the U.S. slowdown, anything you can flag that should produce a slowdown in Q2, or is consensus just too low? Thank you.
Going with the same questions, NII, why I'm not so pessimistic about asset spreads. As I said, the revenue, the macro environment is difficult. While I do think that, particularly in Spain, not much in U.K. In U.K., the asset spread, the margin compression comes more from the SVR book. It's the back book who is reducing the size of this book. The front book, the margin compression, we came from 130 basis points one year ago to a 90 basis points now, but it's fairly stable in the last couple of quarters. I'm not seeing in the front book additional margin compression. The margin compression comes from the back book.
While in Spain, I continue to see an environment in which, due to the difficulties in revenues, I see the traditionally more aggressive entities, less keen to continue with the aggressiveness in the market due to difficulties in generating revenues. Particularly, this is particularly strong for the domestic players. For that reason, I am not saying that now is the case, but looking forward, this is my view. You mentioned on the deposit side, 1|2|3 account. Naturally, we have all the full range of products. We have the 1|2|3 account, we have other accounts, just because some customers are more sensitive. They don't care about balances or interest rate that we pay. They care more about the fee. We have different accounts that we can adapt to this. I still see some room to reduce deposit costs.
Both across Europe, including consumer finance, Spain, Portugal, and U.K. We are talking not a big deal, but five, 10 basis points is something that I think we can achieve. That given the current levels, is significant. The question about the U.S. The U.S., the business is, as Jose mentioned, is doing well. Volumes are growing. Finally, we got an agreement with Chrysler to keep working with them the next four or five years in SCUSA. Our penetration rate in Chrysler went up to 35%. The scenario, the greater scenario is fairly benign. The residual values of the cars in lease activities are holding up. The last vintage is on consumer finance having better behavior. With low rates, in the case of the U.S., goes in favor of the consumer activities. It's true that plays against the banking activities. Overall, in consumer, we are optimistic.
As Jose mentioned, in the second quarter and the first quarter, our decision are highs. The third and the fourth quarter are much weaker in consumer activities. Overall, I remain optimistic about the capacity of SCUSA to keep generating good results. While in the bank, probably I explained the previous quarters, we are making good progress in the corporate CIB activities. While in retail, we are still working on this and improving the operations and improving the branches and everything to improve our competitiveness in the market. We are going up in the rankings in terms of customer satisfaction and how the customer value our apps and all these things. The trend goes in the right direction, but still work to do. Overall, I remain fairly optimistic about our capacity to continue to generate good growth in profits in the U.S. activities.
Thanks, Alvaro. Next question, please.
Thank you. The next question comes from Sofie Peterzens from JP Morgan. Please go ahead.
Hi, here is Sofie from JP Morgan. I would ask on capital. Your capital production was good this quarter. Could you just remind us what kind of capital headwinds and tailwinds in the incoming quarters that we should take into consideration? Are there any more regulatory headwinds that you expect to take? How we should view capital in coming quarters? My second question would be on Santander Global Platform. Could you just give a little bit of guidance how we should think about the performance and the outlook in this division over the next two, three years? My last question is on the IRPH mortgages. Could you just give your view of what you expect from the September ruling? Thank you.
Okay. Let me elaborate in the Santander Global Platform, IRPH, and I pass to José the capital headwinds to go into what we have in front of us going forward. Overall, I gave you the guidance, the organic capital generation, and José will elaborate about the headwinds. Santander Global Platform, as I said to you, we have several business there. The most important ones are Openbank. You know, we've been providing the financials of this bank, and we keep updating you on this. We plan to expand Openbank as an activity to several markets in Europe and several markets in Latin America in the coming years. It's a full banking proposition, and we provide you the results. The other activities I mentioned there that probably are you less aware of, I do expect Superdigital already has financials.
They are making some money already in Brazil. We expect this activity to start to make money from the very beginning or achieve the break-even in several countries. This is not going to be, in itself, a big P&L generator, but this is going to be extremely important to generate customers for the banks. Yeah, for the traditional banks, because, as I said to you, this is for unbanked population. Not only for unbanked population, we also reach agreements with the other distribution networks in order to gather their revenues through our Superdigital proposition, like the agreement we reach in Brazil with a large network of sellers called Natura, with 1 million sellers in the street, that they use Superdigital in order to process and to gather the cash they get from the revenues they are doing.
It's a proposition for unbanked population, but also serve some type of some kind of business. This is the second one. The third one and the fourth that I mentioned in the presentation, the GMS and GTS are more embedded in the traditional banks. GMS is acquiring business. As you know, we have significant market shares in the majority countries in which we operate, and we try to build a full proposition for all the banks we operate. We already have the starting point is Getnet in Brazil, where we started six years ago, seven years ago, with 4% or 5% market share. Now we've got 15% market share, still growing. We have market shares in Spain, 15%, 16%, in Mexico 15%, in other geographies in line with our market share.
We plan to put all these together in order to have a standalone, the same proposition all across the board. Eventually, third parties will use the platform, the GMS, the acquiring platform, third parties may use the platform in the markets in which we plan to operate this platform. This is a significant revenue and P&L business. Finally, GTS. GTS is more an idea of providing middle market and SMEs with the same kind of services the CIB customers are getting already. We're having a full digital proposition all across the board for these kind of customers. This is also potentially, we already get significant revenues out of this business, but we plan to improve significantly our proposition in order to accelerate the growth in this space. Those are the most significant pieces.
You have all the others and our idea through the investor relation department and quarter on quarter to provide detailed information of all this. IRPH, you mentioned. The latest new I have is we're going to have a ruling by the end of the year. Our portfolio there, if I'm not wrong, is around EUR 4 billion. Yeah. The 50% came from Popular, 50% was generated by Santander. That's all I can tell you about this. Nothing else on top of this. Yeah. Jose, you want to elaborate on capital?
On capital, well, it's always very difficult to estimate the impact of capital inspections. I would say, we would expect to see another 20 to 30 basis points of regulatory headwinds in the second half. At the same time, we would expect our capital ratio to grow from here until the year end. As we mentioned in our investor day, our target is to get to 1,150 as soon as possible.
Thanks, Jose. Next question, please.
Thank you. The next question comes from Mario Ropero from Fidentiis. Please go ahead.
Hi. Good morning. Thank you for taking the question. The first one is a follow-up on what you just said on the 20-30 basis regulatory headwinds still pending in the second half. Could you please clarify how much is TRIM and what would be the rest? The second one is on the ALCO portfolio in Spain. Could you please tell us what is the average yield, and the pace at which you expect this yield to decline, given the yield compression that we are seeing very recently? Finally, just a follow-up on the cost guidance you gave for the U.K. If I'm correct, you said that basically we can expect a decline in the cost base in the U.K. equal to the restructuring charges that we have seen. Is that correct?
Basically, the decline that we have seen in the U.K. in cost this quarter, it's not all, no. We are still waiting to see more. Thank you.
Thank you. I take the cost question in U.K., and Jose will elaborate in the other two, the capital and the ALCO portfolio. The cost guidance in U.K., I said to you that basically in the context of the EUR 1 billion reduction in cost in Europe, probably around EUR 400 million or something like that comes from the U.K., and answering the question how much this in restructuring cost, I said in U.K. normally is one for one. Yeah, this is what I said. This is in the million terms, you should expect a reduction in cost in the U.K. of the size I mentioned. Jose.
All right. As I said, it's again very difficult to estimate future impacts from regulatory inspections. I would say we still have the SME TRIM pending. The conclusions of that exercise, that could mean around 10-15 basis points, I would say. We have some other exercises for corporate activities and market-related activities. We have the first impacts of FRTB and others. I would say, from 20-30 basis points, I would say two-thirds would be TRIM and the rest would be other smaller impacts. For the ALCO portfolio, the yield is around 1% right now.
Thank you. Next question, please.
Thank you. The next question comes from José Abad from Goldman Sachs. The floor is yours, sir.
Hello, good morning. Thank you once for the presentation. My first question is on rate cuts and monetary policy. In case of additional rate cuts by the ECB over the coming months, which seems actually likely, what's the rationale for not passing these negative rates through to a broader group of clients? In particular, what's the rationale for not passing these negative rates through to retail customers and households? My second question is on dividend policy. The Deputy Governor of Banco de España has been actually very vocal over the last actually two, three months, about the need of Spanish banks actually to accelerate the buildup of capital through several channels. One is a return of a scrip dividend, which you've already done, and the other is actually banks changing the way they or you provide guidance.
They suggest actually guidance to be linked to the payout of reported earnings rather than to an absolute amount, which is partly actually your case. In light of this, should we expect any changes in your dividend policy and/or capital plans targets going forward? If I may, a third question on the countercyclical capital buffer, which remains at zero in some of your regions, in particular Spain, whether we should expect actually an increase either in second half or first half of next year. Thank you very much.
Okay. The question ECB negative rates is why not to pass to the customers. We are already doing. We started with institutional clients. As long as the rates got more and more into the negative territory, we need to rethink our view in relation with this, particularly with the large corporates and corporates. We need to start to think how we match the deposits, more the deposits that are not operational deposits. Those who are operational probably will remain zero. Those who are not operational, we need to look at this. Your question about retail, probably it's too early to enter into this territory of charging retail customers for holding deposits. It's a discussion that is not on the table right now. In relation with the dividend policy, our policy is we said the payout 40%-50%.
You relate this with the ECB, Banco de España comments, and the capital targets. Naturally, every year we have an ICAAP, the capital plan, in which we include our projections for dividends and capital and building the capital required for the business with the buffers within at them. I don't see any threat to this 40%-50% payout ratio. When you mention to pay dividends based on reported profits, and being audited, we already changed our quarterly dividend policy for this reason. Because we were paying the first interim dividend before the first half results were audited, and we concentrate the dividends in two payments. This doesn't mean that we plan to change our payout ratio. It's a question to accommodate to the requirements that have audited results before we pay any dividend to the shareholders. Finally, the countercyclical buffer.
It's true that the Banco de España published something, the methodology to estimate the countercyclical buffer. It maybe is too early to say, I don't know, you want to.
Yeah, in any case, legally, any requirement for countercyclical buffers actually enters into force a year later. Even, we wouldn't expect anything in the coming quarters, but just to give you a sensitivity, a 25 basis point countercyclical buffer in all countries where we operate in Europe would increase our capital requirements at group level by around eight basis points.
Thanks, José. Next question, please.
Thank you. The next question comes from Andrea Unzueta from Credit Suisse. Please go ahead.
Hi. Thank you for taking my questions. The first one is on the Brazilian NII. If you could give us the contribution from the bond portfolio this quarter. I know it was quite stable in previous quarters. I was wondering what happened this quarter, and how should we think about that proportion of NII in Brazil going forward? The second one is just a clarification. Last quarter, you guided, for regulatory impact on capital of around 20 basis points- 30 basis points. I had understood that you booked 12 basis points this quarter. Your guidance going forward remains the same. I was wondering if there is an incremental regulatory impact now. Thank you.
I think in the second part of the I thought we guide you to 50 basis points -60 basis points regulatory impact for the whole year. Yeah. We are still basically within due range. Yeah. I don't know if it may my mistake, but what I have in my head, and I always thought 50 basis points- 60 basis points, and in line with what Jose elaborate, what is coming in the next two quarters is the figures Jose mentioned. NII on the bond.
Yeah, we have an ALCO portfolio in Brazil of around EUR 16 billion, with an average yield of 10%. At the average duration of is three years.
Thanks, Andrea. Next question, please.
Thank you. The next question comes from Daragh Quinn from KBW. Please go ahead.
Hi, good morning, it's Daragh Quinn from KBW. On the U.K., maybe if you could just give us more detail about that outlook for weaker margins and the net reduction in costs, but also presumably some kind of normalization of provisions, just trying to understand how the mechanics work to see an improvement in return on equity from the current levels. Just on capital, you've reiterated the organic capital generation, but just looking a bit further out, what kind of impact do you anticipate from operational risk or other areas of Basel IV that could also have an impact that at some stage, the market will start wanting to take into account? Thank you.
Okay. Thank you. The first question about U.K., I mentioned in the margin side, was basically the impact is coming from the back book, the standard variable rate, that while although at reduced speed, it will continue to be there. In the fee income generation overdrafts, as you know, limiting overdraft fees is an issue. We're going to produce a significant reduction in costs. These are the areas in which we can grow revenues. Particularly we can grow revenues with a more focused activity in the corporate sectors. What revenues we get from other areas, like, related with more with fee income. In provisions, well, normalization, what you call normalization, we are not seeing signs of deterioration of the mortgage book because, well, as you know, 85%-90% of the book are mortgages.
Loan to value is pretty low, well, it's more, you can make the hypothesis on your own of what you call normalization of provisions. We are not seeing any risk at this point to have high provisions in meaning in mortgages, although I understand that the current level is very low, but has been very low for years already, yeah. Well, capital generation operational risk Basel IV is 2022, Jose.
Yeah, I think it's still very early, although, and Daragh, you know this, although it seems that Basel IV is really finalized, the reality is that it's not. In terms of the operational risk, as you know, there are two components. One is size, and the other one is the multiplier. The multiplier still needs to be defined, and there are some uncertainties with regards to size and the size of the actual operational loss that is part of the calculation. The range, depending on how this plays out, actually the range could be somewhere in between 20-100. I think it's speculation at this stage. Until we see this really finalized, I'd prefer not to give you a number, because, again, it will very much depend on the outcome.
Thanks, Daragh. Next question, please.
Thank you. The next question comes from Fernando Gil de Santivañes from Barclays. Please go ahead.
Hi, good morning. Just two questions from my side. The first one is volumes in Spain and U.K. What are the trends that you're seeing, especially in Spain after the new mortgage law? This is one. Second would be the fixed rate mortgage production. How do you see it in Spain? Finally, in the U.S., you had the approval to increase in Santander Consumer. If you can please provide an update on how you are doing on the increased shareholding in Santander Consumer, and the capital release, if you get to that figure, 80%, how much will it be? Thank you.
Volumes in Spain, particularly mortgages after the new mortgage law was introduced. Naturally, when you introduce a new law that is much more demanding on terms of the requirements in order to ensure that the customers know every term of the contract they sign, and they need to go twice to the public notary, for example, when before was just one. There's some time between the first visit, let's call it in that way, to the notary, and the second one, create some noise in the process, but is a pure procedure. Some of the digital developments that were new to ensure that the new process was working properly had some problems because there were different developments in the market. Aside from this, I will call noise, the activity remains, I will say business as usual.
When I mean activity, I mean activity in the demand of the new mortgages, not the activity on finally signing the mortgages, where the procedure creates some noise, in this. I wouldn't say nothing that wasn't expected. Yeah. The usual thing when you introduce a much more demanding, in terms of procedure, law. Other than mortgages, I will say, well, probably it's more about us than the market as a whole. We are more demanding in terms of profitability of the new lending. For that reason, probably we are growing less or even decreasing some portfolios that the profitability is not the one we require. Other than that, I don't see a change in trend. In U.K., Jose already mentioned that we are seeing a growth of 1%, 2%.
We are growing in line with the market, both in mortgages and the other items, and I don't see this changing. We haven't seen a change in the trends in the market in the U.K. Fixed rate, we are 20-something%, of the new production is coming at fixed rate. We are not pushing that much this. Let's say we have a policy in which we offer both fixed and floating rate without particular bias in our distribution of mortgages towards fixed rate or variable rate. We inform the customers that we are allowing them to choose what they think is more convenient to them. Finally, your last question is share buyback, capital release in relation with this. Well, you know, it's public. The share buyback is up to $1 billion.
According to the SEC rules, that you know we have a percentage that we can buy based on the volume. Depending on the volume, we will reach the 80%, where is the level at which triggers a capital release, depending on the price at which we buy, because depending on the price, the price matters, the price at which we buy. Maybe in the region of 10 basis points, or maybe below 10 basis points. Yeah. That's the outcome we expect.
Thank you. Next question, please, and last question.
Thank you very much. The next question comes from Andrea Filtri from Mediobanca. Please go ahead.
Yes. Thank you. First question on BRRD2, what are the main changes versus your current MREL requirement? If you can elaborate on this final version to address us on this. Secondly, on capital, what's the outlook for the approval of the new U.K. IRB models? Thank you.
Okay. The MREL requirements has no impact at all. The BRRD2 has no impact on us at all. In relation with the approval of models in U.K., well, we need approval for both the local regulator and the ECB. I don't know if you have a specific
No. Obviously, the approval of models now, it's a bit more complicated because of Brexit, because it has to be approved by both the ECB and the PRA. The current situation is delaying a little bit the approval of the models. We expected to have some new mortgage models approved this year. Now it seems that it's going to be delayed to next year. Again, this is not going to affect our plans in terms of the targets that I gave you earlier.
Having said that, our weighting in U.K. probably you know is in the mid-teens, when our competitors on average are around 10, 11. Yeah. It's a big deal for us. When this is going to happen, I cannot give you a specific timetable for this. Okay.
Thank you, everyone. Thanks for joining. Obviously the IR team is at your disposal.