Good morning, everyone, and thank you for joining our Q1 2026 results presentation. Today's presentation will follow the usual structure. First, Héctor will talk about our results with a special focus on the performance of our global businesses in the context of our new strategic cycle. José will give a deep dive on our financials. Héctor will close the presentation with his final remarks before opening up for Q&A. Before we start, let me remind you that this is the first quarter that we are presenting our results after the disposal of Santander Polska and using the new group reporting structure we announced in February. As a result, all underlying metrics exclude impacts from Poland, both in 2025 and 2026, to make the accounts comparable. Héctor, floor is yours.
Thanks, Raul, and good morning, everyone. Q1 was another excellent quarter for Santander, demonstrating the strength of our strategy and the resilience of our business model. Profit reached a new record of EUR 3.6 billion, up 12% versus Q1 2025, supported by all of our global businesses, even after a EUR 210 million motor finance provision in U.K., on the back of our solid franchise with our growing customer base, as we continue to enhance customer experience, leveraging on our global platforms. We achieve this as we continue to execute ONE Transformation, making excellent progress towards a simpler and more integrated model. This is translating into tangible results with our efficiency improving by 2 percentage points and underlying ROTE increasing to 15.2%.
Our balance sheet remains very solid with robust credit quality and a strong CET1 capital ratio, which reach another all-time high of 14.4%. In this concept of high capital levels, our underlying ROTE, adjusted for excess capital, would be around 16.5%. All this contributed to a strong shareholder value creation within a plus dividend per share growing at 19%. Going into more detail into our income statement, our P&L was very strong from top to bottom, with underlying profit growing double digits year-over-year. We delivered strong top-line growth with revenue up 6% in constant euros, supported by all global businesses. NII and fees up 5% and 7% respectively, accounted for around 95% of total income, supported by a significant increase of 8 million customers and the network benefits we're capturing through our global businesses.
Revenue grew while expenses fell, showcasing the positive effects of our transformation. LLPs were affected by Argentina, reflecting sector-wide trends in the country. Excluding Argentina, provisions declined 2% year-over-year. Finally, as I have just mentioned, we have the impact of the EUR 210 million related to the motor finance in the U.K. All in all, as we have shown over time, our results are sustainable and less volatile than peers, even in the current uncertain geopolitical environment. What we are seeing in our results clearly reflects the strategy we outlined at Investor Day. Our business model is unique as it combines global and in market scale with customer focus and diversification across Europe and the Americas. This, together with our three-pillar core and supported by disciplined capital allocation and investment in data and AI, is delivering consistent results.
This is not just a framework, it is a model that is already delivering higher revenue, lower cost, improved profitability, and strong value creation. Let me start with our customers. We are adding 8 million new customer year-on-year, making good progress towards our target of reaching 210 million customers by 2028, including the expected contribution of 8 million customers from TSB and Webster. At the same time, we're improving the economics per active customer with revenue growing 3% and cost decreasing 4%, driven by ONE Transformation. We're not only adding customers, but also increasing the value, exactly as we set out our Investor Day. We continue to deliver on ONE Transformation, driving operational leverage. At the Investor Day, we introduced a more granular cost-to-income framework with clear levels to track efficiency across the group.
Simplification and automation have already delivered 1 percentage point of efficiencies. Our network businesses are also contributing 1 percentage point by driving customer primacy and capturing scale benefits. Our global approach to technology is enhancing productivity by building once and deploying across the group while we start to capture the benefits from AI, even in an initial investment phase. All of this is something that is entirely under our control. All our global businesses contributed to group growth as we continue to improve profitability. Customer activity and diversification drive revenue growth. Our customer focus and active balance sheet management continue to support our solid performance in retail. Openbank keeps delivering strong revenue growth backed by an improved funding mix. Our network businesses are also performing strongly, especially CIB and Payments with double-digit revenue growth.
At the same time, we're extracting the full potential from our scale. We're improving efficiency across the group, delivering positive operational leverage. This, combined with our focus on profitability and disciplined capital allocation, is driving higher returns. The combination of global businesses and our geographical diversification puts us in a unique position to navigate the challenges for 2026. For example, higher interest rates benefits some part of our business, while other franchises and developed economies, such as Openbank or Brazil, perform better with lower rates. In retail, we continue to transform our model to become a digital bank with branches, combining cutting-edge technology with the expertise and proximity of our teams. We are making strong progress in the rollout of our global platforms. Gravity is now fully implemented in Spain, Mexico, and Chile, and is ready to be deployed in Brazil during the year.
We're scaling our customer interaction platform, enabling greater personalization and increasing customer engagement and primacy. This is translating into tangible results. Fees grew 7%, cost per active customer declined 7%, and productivity keeps improving. Retail's underlying profit grew 9% year-over-year, driven by strong operational leverage with good revenue growth, both NII and fees and cost down 5%. Asset quality trends remained robust. In line with our expectation, with cost of risk improving year-on-year to 1.07%, excluding Argentina. Looking ahead, we expect further profitable growth as we continue to scale our platforms, deepen customer relationships, and capture additional efficiencies from TSB and Webster. With Openbank, we are building a more integrated, scalable, and efficient business supported by a global digital platform.
We are transferring the business by simplifying the model with a single legal entity in Europe, accelerating cross-selling and AI deployment, and the integration of our U.S. businesses. Our focus on deposit gathering is improving our funding mix and supporting profitability. As a result, we're already seeing strong benefits, particularly in the U.S., where the digital bank has gathered EUR 11 billion in deposits since launch, delivering around EUR 150 million net funding cost savings annually. We're also strengthening our position in mobility finance, expanding beyond traditional auto lending. In parallel, we're scaling our embedded finance capabilities through Openbank Pay and new partnerships. This is translating into progress on our performance operating targets and into a solid underlying financial performance, driven by strong revenue growth, continued efficiency gains, and credit quality under control, resulting in a 15% PBT growth, excluding motor finance.
As anticipated, profit growth was impacted by the end of electric vehicle tax incentives in the U.S., with the tax rate now expected to remain stable. Looking ahead, we expect profit and ROTE to improve as we continue to scale the business, optimize funding, and deliver more efficiencies. In CIB, we continue to build a world-class business for our corporate and institutional clients, leveraging our global network and diversified model. We are deepening client relationships and strengthening our advisory capabilities, taking more relevant roles in complex and cross-border transactions supported by our integrated coverage model. At the same time, we're improving connectivity across markets and products, enabling us to serve clients more seamlessly and operate more efficiently. Collaboration across global banking, global markets, GTB, and commercial remains a key driver of our value creation and is increasingly extending across the group.
A clear example of this is that GTB solutions are now embedded in more than half of our leverage buyout and M&A mandates. Even in a more challenging context, CIB continued to deliver strong results with a profit up 16% year-on-year. At the same time, CIB continues to deliver one of the best efficiency ratios in the sector and an ROTE of 21%, reflecting our focus on profitability and capital discipline. In Wealth, we continue to build the best wealth and insurance manager in Europe and the Americas, leveraging our global scale and capabilities. We have simplified the model into two clear verticals, enabling us to capture synergies and strengthen collaboration across the value chain. In private banking, we are reinforcing our global positioning, particularly in the ultra-high-net-worth segment, supported by more specialized coverage.
As a result, customer assets and liabilities grew 11% year-on-year. In parallel, we are consolidating our insurance and asset management solutions, bringing together liquid, illiquid, and insurance products. We are building an integrated insurance platform across life, pensions, and protection, and could become one of the biggest deltas in the future. Collaboration across global businesses remain a key driver of growth, with distribution fees up 7% year-on-year. In summary, this is supporting strong growth. Profit rose 11%, driven by solid revenue performance across business lines on the back of the strong commercial activity. Finally, Payments, our high-growth platform business. We continue to scale our global platforms and strengthen our position across acquiring, processing, and cross-border payments. In Getnet, we're expanding internationally and simplifying integration through a single API, enabling companies to easily scale across markets.
Our platforms continue to enhance capabilities, supporting multiple payment methods and improving efficiency, while Ebury keeps expanding customer base and geographical footprint. This is translating into strong results with revenue up 20%, a higher EBITDA margin, and a lower cost per transaction, with profit up four-fold year-on-year. Overall, the business is building a strong momentum with clear upside as we continue to scale. Our strong operational and financial performance is driving higher profitability and double-digit value creation for the 12th consecutive quarter. Underlying ROTE improved to 15.2%, reflecting our disciplined capital allocation strategy. At current capital levels, this is even more compelling, as it would be around 16.5% at normalized CET1, with further upside from M&A and ONE Transformation.
Underlying earnings per share grew 17% as a result of clean-up, plus cash dividend per share increased 19%, reflecting a strong profit generation and the impact of buybacks. Including the full buyback currently underway, we have already returned EUR 7 billion to our shareholders out of our commitment to distribute at least EUR 10 billion for 2025 and 2026. I will now hand over to José, who will go through the financials in more detail.
Thank you, Héctor, and good morning, everyone. I will take you through the group's P&L and capital performance in more detail. First, let me remind you, as Raul explained in his introduction, that this is the first quarter we are reporting after the disposal of Poland and under the new cost structure that we announced in February. As a result, the impact of Poland is reported in the non-recurring items line in both 2025 and 2026. We will also book in this line the M&A-related charges from TSB and Webster that will arise in the coming quarters. As usual, we present growth rates in both current and constant euros. The difference this quarter was around 2 percentage points, mainly due to the depreciation of the U.S. dollar. Turning to performance.
As Héctor mentioned, we are yet again delivering record results for the 8th consecutive quarter, with our transformation driving strong operational leverage and profitable growth. Revenue grew 6%, supported by solid business activity, while costs declined, both in line with our public targets for 2026. Loan loss provisions were impacted by portfolio deterioration in Argentina, reflecting sector trends in the country. In the rest of the group, provisions declined 2% year-on-year. The other results line includes a motor finance provision in Openbank of EUR 210 million. As a result, profit continued its upward trend, growing 14% year-on-year in constant euros. Total revenue increased 6% year-on-year to EUR 15 billion, in line with the target we set for 2026.
This growth was underpinned by customer activity and 8 million new customers we gained in the last 12 months. All global businesses contributed to revenue growth, which was mainly supported by another record quarter in CIB, up 15%, driven by strong client activity, especially in global markets. Openbank, which also performed well due to strong net interest income growth, especially in Europe, and retail on the back of solid NII performance and our increased focus on fees. Payments and Wealth also showed very good figures, with payments up 20%, driven by higher activity across business lines, and wealth growing, supported by higher assets under management and focus on value-added products and services. The group's net interest income increased 5% year-on-year. The vast majority of this improvement comes from retail and consumer, but Corporate & Investment Banking also contributed to the overall growth this quarter.
Additionally, NII was resilient in retail across most countries, even with less favorable interest rates in general, supported by higher volumes. Openbank delivered solid NII growth, driven by higher volumes in Europe and South America and an improved funding mix. In Wealth, NII was impacted by deposit cost, reflecting the nature of the business in a lower rate environment. While in the corporate center, we see the expected sensitivity to lower rates. On a quarter-on-quarter basis, net interest income was slightly up for similar reasons, despite the usual seasonality in South America and a lower day count. Overall, this performance is ahead of our Investor Day guidance for NII. We had another strong quarter in fees, up 7% year-on-year, supported by customer growth, increased activity, and a better mix towards higher value-added products driven by our network businesses and ONE Transformation. Growth was well diversified across our businesses.
In Wealth, fees grew double digits, supported by a strong commercial activity across business lines and favorable markets performance. Retail delivered solid numbers across our footprint, supported by customer growth. Openbank fees increased across our core markets as well, mainly Brazil, driven by portfolio expansion and higher insurance activity. We saw double-digit growth also in payments, supported by high activity levels with Getnet's total payment volumes increasing 11%. In CIB, fees were impacted by a softer performance in European countries after a record first quarter 2025, although the pipeline remains solid and supports trends going forward. ONE Transformation remains a key driver of our profitability improvement, leveraging our global platforms and connectivity to deliver operational leverage.
This is reflected in our efficiency ratio, which improved further to 42.8% this quarter, supported by strong underlying business dynamics, with revenue increasing and costs declining 1% year-on-year in constant euros or 4% down in real terms. In Retail and Openbank, which are leading our transformation and represent 75% of our cost base, costs declined by 3%, even in the context of the ongoing rollout of our global platforms, and revenue grew 3%, resulting in very positive operational jaws. In our network businesses, CIB, Wealth, and Payments, costs grew below total revenue and broadly in line with fee income, reflecting targeted investments in capabilities to drive low capital-intensive growth, maintaining high recurrency levels. This excellent performance resulted in an 11% rise in net operating income from already very high levels last year.
Looking ahead, even in a scenario of high inflation, we expect to deliver cost reductions supported by the tangible benefits of ONE Transformation and additional mitigating actions, both firmly under our control. Our balance sheet's risk profile remains low, with solid credit quality across our footprint, even in a more challenging environment, supported by prudent risk management and resilient labor markets in general. Having said that, some of the reported metrics this quarter are impacted by Argentina, reflecting sector-wide trends in the country in a less favorable context, and should improve gradually as the effect of lower originations comes through. Excluding Argentina, credit quality remained very solid. Loan loss provisions were 2% down year-on-year, with resilient performance across the group in general.
Cost of risk improved 2 basis points and the NPL ratio 5 basis points to 2.94% with a stable coverage ratio. In addition, our NPL portfolio has collateral guarantees and provisions that account for almost 90% of its total exposure. Stages grew in line with our portfolio with a stable distribution across buckets. Retail and consumer represent 90% of the group's loan loss provisions. In retail, we saw a strong cost of risk improvement, excluding Argentina, with solid underlying trends in key markets such as Spain and Brazil. In Openbank, cost of risk also improved, supported by a strong performance in the U.S. and resilient trends in Europe, even with the impact of Argentina. In corporate investment banking, provisions were affected by some single names in Brazil and in Europe.
As of today, we're not seeing significant deterioration in employment and credit quality remains stable. It is in periods of higher instability when diversification becomes more relevant. Looking ahead, it is still too early to draw conclusions on the geopolitical environment, given the level of uncertainty at the moment. As long as labor markets are not significantly affected, we would not expect material impacts on our credit quality targets. Moving on to capital, we continue to generate capital at a strong pace while growing the business. In the quarter, our CET1 ratio increased by 90 basis points to 14.4%. We generated 29 basis points of net organic capital.
This was mainly driven by disciplined capital allocation to high return new opportunities with a new business return on tangible equity of around 21%. A strong contribution from our risk transfer initiatives, which offset 20 basis points of risk-weighted asset growth. The disposal of Poland added 39 basis points to CET1, net of the EUR 3.2 billion additional share buyback, corresponding to around half of the capital generated from the transaction. In addition, regulatory and model updates contributed 20 basis points. Overall, the strong capital generation in the quarter puts us on track to end the year above 12.8%, in line with our target. The impact from TSB and Webster, which we now estimate at around 210 basis points, will be phased across the second and the third quarter. Importantly, our performance in these countries is not dependent on integration execution alone.
Our transformation plans are already delivering tangible improvements. For instance, in the U.S., return on tangible equity has reached around 12%, one of the highest levels in recent years, while in the U.K., we're also seeing improving trends in both efficiency and profitability. All in all, our capital position remains very strong, supported by sustainable capital generation and profitable growth, with TSB and Webster strengthening our capital generation capacity going forward. Héctor, back to you.
Thanks, José. As you can see, this is a great start of the year, and we are well-positioned to deliver our 26 targets. Our businesses continue to show solid momentum with revenue growth, cost discipline, and a strong operational leverage supported by ONE Transformation. This is translating into record underlying profit, a stronger capital position, and double-digit value creation. In summary, we are delivering consistent and predictable results with very positive trends that we expect to consolidate in the coming quarters. On the back of this strong start, we reiterate our guidance for the year, supported by the strength of our diversification, which, as José has mentioned, becomes even more valuable in periods of higher macro uncertainty. Mitigating actions, particularly in cost, which ONE Transformation enables us to deliver on our target, even in a more challenging environment.
Overall, we remain confident in our ability to deliver sustainable and profitable growth and to continue creating value for our shareholders. Our financial North Star is clear: to deliver a ROTE above 20% by 2028. This is about execution, disciplined capital allocation, ONE Transformation, and scaling our global businesses to accelerate value creation. That is exactly what we are delivering. Now we are happy to take your questions.
Thanks, Héctor. Let's move to the Q&A.
Thank you. If you wish to ask a question, please press star five on your telephone. We already have the first question from Ignacio Ulargui from BNP Paribas. Please go ahead.
Thanks. Thanks very much for the presentation and for taking my questions. I have two questions, if I may. One on capital. I mean after the good performance in the quarter and that we have seen, how should we think about the buildup going forward in coming quarters? If you could give us a bit of a sense of what has been the 20 basis points improvement in regulatory headwinds in the quarter. Also whether we are still factoring the negative of 20 basis points regulatory headwinds for the year that you flagged initially for 2026. The second question is on Brazil, and the performance of NII has been very strong, but we have seen an increase in the NPL ratio.
If you could give us a bit of some sense about what has been the driver of deterioration, how should we think about credit quality in Brazil and provisioning NII evolving from here? I mean, just, you have probably confirmed that with Héctor comments, but should we stick to the 100 to 110 basis points guidance for cost of risk in the period 2026, 2028? Thank you.
Thank you, Ignacio. What I will take first your question on Brazil, and then José will talk to you about capital, if it's okay for you. Okay, it is important to understand, and let's put things into perspective, okay? Our loan book in Brazil only represents 10% of the total group. That's basically great about what we have and the diversification that we have. Let's talk a little bit about the conditions we see in the country. GDP, we believe, is expected to grow around 1.5% in 2026, even with this geopolitical situation. We see a resilient labor market, okay? Despite, I mean, the rates that we still have in Brazil. It's important to say that Brazil is a net oil exporter, okay? I believe that's why we believe that GDP should benefit.
The problem is also gas and fertilizer prices could see inflation in the short term. Remember that Brazil is a very important food producer, and in that sense, basically, they get hit by that. The central bank began the easing cycle in March 2026. They cut 25 basis points. They went to 14.75. We assume that SELIC is gonna end up by 13% by the end of 2026. Hopefully 12% by the end of 2027, in line with the forward curves that we have seen. Remember that every 100 basis points in SELIC improves NII by EUR 60 million. That basically tells you a little bit of the sensitivity that we have there. Just to talk about, I mean, as you said, I mean, a very strong start of the year. Q1 2026, our profit grew 6%.
Loan growth and market interest income is underpinning a 2% year-on-year increase in NII. Interest on capital is lowering the tax-effective rate. Overall is setting a 2% year-on-year increase in cost, that is quite good given the particular situation of inflation in the country. It's very important to tell you how we're managing the mix, okay? We're basically moving towards higher-quality business, maintaining a cautious approach to underwriting, particularly in the corporate portfolios. These factors will support our path to 20% ROTE in the medium term, which is equally what we're aiming for, okay? It is important to say the cost of risk is around 4.1%, all right? It went up a little bit because of some single names that we were expecting because of the credit conditions and the, you know, interest rates in the countries.
Nonetheless, we'll see it stable for the rest of the year. We have a couple of situations that we're monitoring very closely, but we don't see that we will affect the number anymore. The outlook, as I told you, NII will be solid, and is current, I mean, with the guidance that we have. In terms of the guidance on the total on the cost of risk, I think it's gonna be around where we are. It is important to acknowledge that once we get also TSB and Webster, that basically will decrease the overall cost of risk of the whole group. We believe that we're gonna be perfectly around the numbers that we told you in terms of guidance. With that, José, could you go into the capital, please?
Thank you, Héctor. Good morning, Ignacio . The 20 basis points regulatory tailwind in the quarter comes from an updated model for what we call carterizados, small SMEs in Spain. This is a new model, it's structural. It's not a benefit that it's temporary, it's here to stay. For the next three quarters, we would expect still some headwinds from updated models, inspections, et cetera, which again will be probably less than 20 basis points, somewhere between 10-20 basis points in the next three quarters. We feel comfortable and very confident that we will be above 12.8% by the end of the year, which was our target communicated at Investor Day. Thank you.
Thanks, José. Can we get the next question, please?
Next question from the line of Alvaro Serrano from Morgan Stanley. Please go ahead.
Thanks for taking my question. Just to follow up on capital, because if I look at, I think it's slide 25 on the capital bridge, it does look like you're going to be above that 12.8%-13% range based on what you've produced in Q1. José, can you sort of walk us through the rest of the year in terms of organic? I know you've touched on the capital headwinds. If you are above 13%, extraordinary distributions on the cards potentially if you end up above 13% this year? The second question is on cost. Obviously, a very good performance on cost.
In particular what stood out to me was U.K., very large step-down. Can you sort of maybe talk to that step-down in cost in U.K., and is that sustainable? Can we see more, even ahead of TSB? Thank you.
Thank you, Alvaro. Okay. On capital, it's very important to acknowledge that we have expressed you, or we have told you about really exact capital hierarchy that we have, okay? It's very important to understand that. I mean, if we continue and we're able to deploy capital at the levels we're deploying it, above 20% in our organic business, we will continue to do so because I believe it's in the best interest of our shareholders to reinvest capital at those levels. If we see that opportunity, we'll take it. If not, I mean, you have the whole capital hierarchy in which you know exactly what are we going to do. If we don't have that capital to be deployed, José can explain you what we can do about that.
In terms of cost, yes, we have a pretty good numbers on cost. The reason is perfectly explainable. It's ONE Transformation. Remember, ONE Transformation is we're simplifying as much as we can. We are automatizing all processes. We're eliminating a whole bunch of people that we have in operations. We're sending that people basically to concentrate on the on the front line in order to be serving customers and trying to transform completely the way we service within the bank. That's basically what's going on, that's why you'll see the operating leverage you saw in the U.K. with revenues basically going up and costs coming down.
You will continue. I mean, that trend will continue even without TSB because we believe that we can run that bank in a much leaner way. We had a lot of manuality. We had a lot of complications. We're simplifying in a very important way. Yes, you will see costs coming down in the U.K. towards the end of the year. With it would do actually much better once combined with TSB with the synergies that we will get there. Okay? I don't know, José, if you want to complement on capital.
Morning, Alvaro. In the first quarter, we generated 29 basis points of organic capital because risk-weighted asset growth was zero. We were able to mobilize assets more or less in the same amount of growth. That's a condition that obviously has two components. One is the growth, the other one is the capacity to mobilize assets in the next three quarters. We obviously depend on the markets and demand for private credit in the next three quarters to be able to meet that condition. As long as the conditions remain, that part will continue to perform as it performed in the first quarter, but it is not entirely under our control. Second, we had a good performance in deductions in the first quarter, which obviously we're working very hard to continue delivering good numbers in terms of deductions.
Again, this depends on factors that do not entirely depend on us. For instance, the valuation of pensions, the valuation of the available-for-sale portfolio, et cetera, et cetera. Then we have the up to 20 basis points regulatory headwinds that I mentioned. In a perfect scenario where everything behaves well, et cetera, can we have three quarters more or less in line with the first quarter? It may be, but again, that I don't think should be our central scenario.
Thanks very much. Could we have the next question, please?
Next question from the line of Andrea Filtri from Mediobanca. Please go ahead.
Thank you for taking my question. I wanted to insist on the capital side. You're only 60 basis points away from your 13% target for year-end, so only 40 to your 12.8%. You've just said that it's very possible you could repeat. Could we expect an acceleration in growth? Where would you see the businesses within the group that can absorb more growth? Secondly, I don't know if you could comment a little bit about the U.K. core financing charges and if you consider it done for the current level. Thank you.
I think I explained the quarter. I'm not saying that, obviously, could we have three quarters aligned with the first quarter? Yes. That I don't think is our central scenario. Basically, because, one, we should be able to mobilize assets at the same rate we did in the first quarter, which is EUR 10 billion. Well, hopefully we will, but obviously it's not 100% certain. Second, we grew assets in the first quarter at a relatively healthy pace, because we were able to deploy that capital at over 20% return on tangible equity. As long as we can find opportunities to invest at that level, we will continue to invest at that level. If we have more opportunities, obviously we will invest more. That's something, again, that depends on the opportunity to grow.
60 basis points to 13%, 40 basis points to 12.8%, I think again, it's, as I said at the beginning, we feel confident that we will be above 12.8% at year-end.
Andrea, this is Héctor. Just basically, I mean, to complement a little bit on what you have asked is, you said, I mean, what businesses can we have more growth? I think we have a great opportunity in mid-sized corporates and SMEs. If we see an opportunity to reinvest and we see that the market is strong, we could be looking at basically growing that and using capital because the returns are pretty good. You have markets such as Mexico, a little bit on Brazil, if the situation basically goes better, in the U.S. as well. We've been seeing an opportunity in the U.K. We grew the portfolio on CIB in the U.K. EUR 1.6 billion this quarter because we saw the opportunity and the spreads are there because some of the players have gone out of the market.
We see an opportunity in some places, but we always will be very, I would say, focused on profitability and very disciplined in the way we deploy that capital, okay? This is what we have. In the U.K. Motor Finance, it's important to say, okay, we booked an additional EUR 207 million pre-tax provision this quarter. Current stock provision on this matter is at, sorry, EUR 725 million. That's GBP 633 million. I do believe that we're very well covered on our expectations. You know that this is always a moving target, given that some of the customers basically can go and sue directly, et cetera. We don't expect that to be much more than we have already have done. We believe we're done, on that. Thank you.
Thanks. Thanks very much, Héctor and José. Could we have the next question, please?
Next question from the line of Cecilia Romero from Barclays. Please go ahead.
Thank you very much for taking my question. My first question is on asset qualities. With recent macro volatility, are there any areas or geographies of caution emerging? Specifically on Argentina and Mexico, where cost of risk has a step-up quarter-on-quarter, can you walk us through the key drivers and how should we think about the run rate for the rest of the year? Also following recent stress cases in private credit, how should we think about Santander's posture and risk controls in this area? Finally, could you provide an update on the process and regulatory timelines for the TSB and Webster acquisitions? Thank you.
To Cecilia. Okay, very quickly, okay? Geographies, you know, our diversification is actually quite good in this particular case because we're exactly in the part of the world that I believe that the geopolitical situation is which we are much more defensive, and we see countries that could benefit, such as I was explaining, Brazil and Mexico, that could benefit from the whole thing. And also we see the U.S. basically coming very strong. In that sense, I do believe that we are located in the best places right now as of this situation. Situation in Argentina to be very happy. I mean, and I was actually in Argentina not so long ago. It is important to acknowledge what's been going on in Argentina. The government's main goal is to decrease inflation.
By decreasing inflation, they basically, actually there is no pesos in the market. They are basically drying up the market in terms of pesos. The spreads have grown tremendously in so that you basically have a real rate that goes almost to 40%. Inflation, we believe in Argentina, last time we checked was around 2% per month. That basically we believe our inflation in Argentina would be around 24%-30%. Let's say that. Rates are at around 60%. With rates at that level, it's impossible to go to the consumer market. We started to lend a little bit, to give a little bit of credit cards and to start creating a real bank in the country. Unfortunately, with those real rates, that hasn't come down as fast as we thought they were gonna be.
I mean, customers started basically to get into delinquency because they couldn't afford the real rates as much. We basically closed down completely, and we are just doing loans to the corporates that basically have dollars, and with the dollars that we have, we're lending to them. Cost of risk went all the way to 9.77%, okay? We believe that it should normalize at around 7%. That's what we expect, and we are under control completely because we're not lending to consumer anymore, okay? We believe that if the government continues the way it goes, real rates should come down towards the end of the year, and we could come back to the market to start lending again. At this point, that's not the case, and we will be monitoring the situation very closely.
In terms of Mexico, look, I mean, cost of risk is around 2.7%. We have been taking measures into that. We changed the mix, I explained to you last quarter that we were much concentrated in CIB, in lending to the midsize corporates and SMEs, and we stopped. Basically, if you see, our credit card portfolio went down 7% year-on-year. That's what we believe that Mexico was going to suffer. Always, I mean, when there is inflation and these turnarounds, Mexico suffers a little bit. We believe that it's under control, and it's going to be below 3% for the end of the year. No worries on that. In terms of private credit, look, this is not a core business for us, as you know.
It's less than 1% of the total portfolio of the bank. We are very much concentrated in the very good names in the market. 70% of what we have outstanding there is subscription lines to the best names in the industry. We don't foresee any problems at that. The other risk that we have is very much concentrated in what we know best, which is project finance, which is energy. Nothing really in our views to worry about. It's important to acknowledge that we have put a lot of controls in place, that we have a lot of governance, and we are tighten up a little bit just to be completely sure that we are on the right side on the things. In terms of TSB, we believe that the transaction, as you know, was just authorized.
We're going to enter into the Part VII situation. Numbers shall come in in the second quarter of the year. On the other side, the situation with Webster is going a little better than we expected in timing, but it's going to be for sure in the second half of the year. Okay? Thank you, Cecilia.
Thanks very much, Héctor. We get the next question, please.
Next question from the line of Francisco Riquel from Alantra. Please go ahead.
Yes. Thank you for taking my questions. My first one is in the U.S. cost of risk is better than what I was expecting, trending down. If you can update on your guidance for the year on cost of risk in the U.S. and comment on asset quality, particularly in auto lending in the U.S. I see the loan book here is shrinking. On CIB, the loan book here is growing strongly. What you can comment on risk-taking here in this book? Also, my second question is on Brazil. I wonder NII has come a bit better than I was expecting. What is driving the rise in NIM in Q1? I see a 30 basis points decline in the retail NIM as you report.
The total NIM in the country is up 15 basis points in the, in the quarter. What, what trends, shall we expect for the rest of the year? Lastly, a follow-up question on asset quality in Brazil. I understand, the government is preparing a new Desenrola plan to help individuals renegotiate debts. What impact, if any, shall we expect? Thank you.
Thank you, Francisco. Okay. In the U.S., look, I mean, yes, you're right. Provisions are better than we expected, and that's because even though the cost of risk has normalized, we continue to see a trend after 90 days' delinquency, which I have always every single quarter I explain this, but we're still surprised that it's still around 60% or a little less than 60%. What's been going on is customers are coming back to us, and after 90 days' delinquency, they try to get regular, they pay us a little bit, they try to maintain it, and that's what has helped us to sustain that. Also, it's very important that, and I also explained the trend that we were coming down a little bit if you saw in terms of origination in Prime.
In Prime, we have stabilized that. It's at 38%, and it continues to low because we have new contracts with some of the OEMs that are basically helping us out to sustain the Prime. What is important also to see that is that after March 1st, all of our out portfolio is being financed by our own deposits. Given that Openbank help us with EUR 11 billion of now new deposits, all of our portfolio is now not dependent on wholesale funding. That has basically given us an extra margin and that basically will help us to get to the ROTE that we promised you in the U.S. towards 18% when we have Webster, et cetera, towards the end of 2028. The U.S. all in all basically is going well.
The cost of risk, look, employment is of the essence in order to sustain that cost of risk, and we believe it's going well. In terms of risk-taking, what you have seen is that yes, we have increased a little bit because we are started lending to midsize corporates. We believe the market is basically helping us a little bit. We see better margins. Also, we see some opportunities in CIB in the sectors that we know very well, basically energy. There is a huge opportunity there. We see some projects in project finance that are very good. Also, the market has been very strong, surprisingly in the U.S. All in all, that's what we are. We are very much under control, very disciplined in the sectors we're investing. We basically don't foresee any situation.
NII in Brazil is basically because of the out of business. Openbank is actually doing very well, okay? We have increased a little bit the portfolio in that area. Do you remember that I explained to you that we changed the mix, and that is giving us the extra margin and the extra NIM that you see in Brazil. Yes, José.
If I may complement Brazil, because I think the mix here is important. We are growing deposits year on year by 6% relative to loans, customer loans up 2%. This is one of the objectives that we had for Brazil, which is improve the funding structure and the quality of our funding structure. Actually, yield on assets is up 68 basis points. Also, cost of deposits, as we improve the quality of deposits, is up 58 basis points. When we look at the margins, yes, they are slightly down, but what explains the customer NII performance is the fact that we are growing deposits more than loans. Again, this is one of the key strategic objectives in Brazil, like it is in Mexico, which is improving our funding. More customer deposits, less market dependence.
Sorry. Forgot about the plan in Brazil. Yeah. Look, we're working really close. We're one of the banks that are working with the government in this plan for the credit card holders that are basically trying to restructure the loans. Far in our negotiations with the government, I believe that the plan would be positive, okay? To help some of the people that are over-indebted in Brazil. In that regard, we will have a little bit more view of how the plan basically evolves towards the end of the week. All in all, what we have seen is that the plan is gonna be positive, and it's gonna help out people in order to be able to pay their debt in the credit card, and it's gonna help us overall for what we have seen. We still not have the final plans as of yet.
Thanks very much, Héctor. If you have the next question, please.
Next question from the line of Miruna Chirea from Jefferies. Please go ahead.
Good morning. Thank you very much for taking my questions. Firstly, I wanted to ask on your expectations for the efficiency ratio for the rest of 2026. If I take your revenue and cost guidance for 2026, it points to a cost-to-income ratio below 43% for the full year, and in Q1, you are already at 42.8%. How should we think about efficiency ratio from here? Should we expect it to be broadly flat for the rest of the quarters, or are there any ups or downs along the way that you would flag?
Secondly, I just wanted to ask if you could let us know if you've made any changes to your ECL macro scenarios this quarter, or any changes to the weightings of the scenarios of, or any overlays for, economic uncertainty. Thank you very much.
Okay. Thank you. In terms of efficiency, okay, you have seen that, basically in the first quarter in 2026, we have -1% in constant euros . That's 4%, -4% in real terms. Revenue grew around 6%, so you see an efficiency improvement of 3 percentage points to 42.8%, okay? This is supported by the execution of ONE Transformation. What we're doing here, Miruna, is basically concentrating on what I said. I mean, a lot of simplification, a lot of automation. Also the global platforms are starting to be in some of the countries. That is helping us out basically to spend a lot less money in terms of what we used to do in IT. You know, instead of doing things 10 times, we do it once and deploy it to all the countries.
We see that trend will continue to be, okay. Are gonna be in line with our goal of reducing cost in constant euros on 2026, okay. It's important. We aim to deliver an absolute cost down in constant euros every year, excluding the impact of M&A. It's important to acknowledge that. As we grow the customer base, we will execute next stage of ONE Transformation, as I explained to you. That's gonna improve our efficiency from 45 and 25 to around 36 and 28. That will basically lower our cost base below EUR 27 billion in constant, which is basically what we're expecting to. In terms of the macro-
Yeah. We are obviously monitoring very closely what's going on in the market. We have updated our macro scenarios relative to what we had three months ago when we did the budget. We now have a slightly lower GDP growth in Europe, maybe 0.2%, 0.3%, with a likely increase in rates to 2.5% at some point next year. No longer we are looking for lower rates in the U.S. in the near term. There will be countries that might benefit from the current situation, like Brazil or Mexico, net exporters of oil products. Net-net, these are small changes that do not change fundamentally the outlook for our business in terms of growth in revenues, customers, profitability.
Yes, we've updated the models, but given our diversification, and as I mentioned in my presentation, the is in these times where the value of diversification is more evident. In this case, you know, we don't think we need to change our outlook.
Thanks very much. Could we get the next question, please?
Next question from the line of Carlos Peixoto from CaixaBank BPI. Please go ahead.
Yes. Hi, good morning. A couple of questions from my side as well. Basically, on the capital front, just a quick one. In terms of regulatory impacts, how much do you expect until year-end? On the corporate center, if you could give us some visibility on what's under the other income caption in the revenue side, and also the rationale behind the tax rate this quarter, which was well, the tax shield this quarter, which was more meaningful than usual. Just finally, if I may, on Spain, if you could share some guidance on or your view on the outlook for NII and also for cost of risk. Thank you very much.
Morning, Carlos. Capital, we expect regulatory charges, probably between 10 to 20 basis points from here till year-end, the next three quarters, less than 20 basis points. The corporate center, in the other income line, we have the valuation of, or the impact of the updated valuation of Merlin and some equity stakes. Finally on Spain, I will comment quickly on NII, and I will let Héctor comment on the general outlook. We've had a very good performance in NII in Spain in the first quarter. Basically, the ALCO strategy, the hedging that we've been conducting on the asset side, the forward starts for mortgages, floating liabilities, all of that strategy that we started a couple of years ago, it's actually contributing a lot.
The most important factor is the extremely good management of our deposits. The cost of deposits in Spain is being kept under control while we are growing volumes. We are actually growing asset market share in deposits substantially, basically because we are growing payroll. We are adding hundreds of thousands of payrolls every year, and this is bringing very good quality deposits. This is sustainable. This is structural. Now our outlook for NII in Spain is up year on year, low, low to mid-single digits increase in NII in Spain in 2026.
Thank you, José. I think it's important to tell you, Carlos, that Spain is the one that is much more advanced in terms of ONE Transformation, okay? These guys are doing a really good job in terms of a lot of simplification, automation in everything that we're doing, and also concentrated in the most important part of ONE Transformation, which is customer experience and primacy on the account, okay? As José was explaining to you, we get a lot of payrolls right now. We're growing really the number of customers in a substantial way. The most important thing is that we're getting the transactional deposits. Deposits in Spain grew 6% year-on-year. This is key to the business and for the ONE Transformation that we're executing in the country, okay?
Retail is doing a pretty good job in that sense, and will continue to do so. As you know, also, we have a very good franchise on the corporate side. We continue to concentrate on that one to compete really hard because the market is very competitive, you know, in Spain. Nonetheless, we believe there is an opportunity with everything that we're doing. We have another important thing. CIB, even though it's a little less of what we were having in the first quarter of last year, is performing really well with everything that is going on. The combination of basically the corporate segment or the midsize corporates together with the products that we sell them in CIB, which is network benefits, is helping us quite a lot to take Spain to the next level.
All in all, even though that, you're gonna see an increase in revenues, as José was telling you, also a decrease in cost, which will help us to get much better margins, okay? Thank you.
Okay, the next question, please.
Next question from Ignacio Cerezo from UBS. Please go ahead.
Hi. Good morning, and thank you for taking my questions. I've got a couple of them. First one is on the CIB revenue sustainability into the rest of the year. If you can give us a little bit of color basically of potential risks. I mean, we're seeing lending growth I think is still in the 18% annual growth. I think in Spain, as we mentioned, actually stepping up the pace there. I think we've seen a very strong performance of global markets. Just trying to understand actually to what extent the earnings growth actually you're seeing in CIB is completely sustainable into the rest of the year. The second question is on headcount.
We've seen, I think, 2,500 reduction in the quarter, around 11,000 in the year. If you can give us some color basically about how to expect headcount levels to evolve in the next nine months. Thank you.
Okay. First of all, I mean, CIB, we have really strong revenue performance as you have seen. Basically, loan growth is 18% as you said, is boosted NII across global markets, global banking, and GTB. Okay? As we enter the 2026, 2027 M&A cycle, CIB is very well positioned to capitalize on an anticipated upstream activity that we said. We are basically very much concentrated in industry coverage and enhanced advisory capabilities mainly that, you know, that we have hired in the U.S. is helping us. What's going on is a lot of business that used to go away from us when some of our customers in Spain, Portugal, and some parts of Europe used to do in the U.S., now they're hiring us basically because we have the capabilities. The same thing is in Latin America. Okay?
That's why you see the fees basically so strong in the U.S. because it's doing I mean, business to our customers, and this is exactly what we're doing. Why are we growing a little bit in terms of the loans? Because we see an opportunity there with big customers. Okay? For example, in the oil industry, we decided to expand a little bit the credit lines. Why? Because the sector is strong, prices are going up, so let's take advantage of that. Those are the type of examples that we're doing. We are very much under control and monitoring every single part of the business and really following up, first of all, profitability, control, and everything, monitoring the sectors in which we basically deploy capital. It's very important to understand that.
Global markets, yes, you'll see a spike because or usually when there is volatility you have opportunities. It's mainly client business that we do in global markets. Okay? You'll see that in trading we have done pretty well, but this basically businesses with our customers, a lot of effects, a lot of hedging, as you can imagine, hedging interest rates. It's plain vanilla derivatives that we're selling to our customers. We believe sustainable, but let's see what happens. I mean, if the geopolitical situation complicates more, so we come in a recession, let's see what's going on. So far so good. I mean, it's doing well and we will continue to basically be doing it in a very cautious way, but in the right way. Okay?
Headcount.
In terms of headcount, yes, you're gonna see, I mean, headcount is gonna grow because of the acquisitions that we've just done in TSB and Webster towards the end of the year. Nonetheless, we see opportunities in terms of what we're doing. Again, ONE Transformation. When you simplify, you automate processes, et cetera, you require less people than you do normally, and that's exactly what's going on. That's why you see basically the decrease on some of the teams that we used to basically handle a lot of people and there are very good examples of that, of where we are automating a lot of processes that is helping us out to do it in a much better way.
Thanks very much, Héctor. Could we get the next question, please?
Next question from the line of Sofie Peterzens from Goldman Sachs. Please go ahead.
Hi, here is Sofie from Goldman Sachs. Thanks a lot for taking my question. My first question is just on the asset rotation and the SRTs. You have done quite a lot on this front in recent years. I think back in 2024 you did around EUR 60 billion, last year I think EUR 40 billion, this quarter EUR 10 billion. If I do like back of the envelope calculations, I get the quite meaningful capital impacts. What is the regulator saying about all this asset rotation, and how confident are you that you can roll it over, especially if we have kind of deterioration in the macro environment? My second question would be on the outlook for Mexico. How do you see Mexico evolving? It was a little bit weaker this quarter.
Would you consider any inorganic growth opportunities in Mexico in the next kind of two to five years? If you could comment on this. Thank you.
Okay, Sofie. José will give you an overview of what we're doing in terms of rotating the balance sheet, the SRTs, et cetera, and I will give you an overview of Mexico. If you see, Mexico had a really strong first quarter. Okay? Let's see how our peers do, I think that we're doing quite well vis-à-vis the market. We did the right things. We took the right decisions. We have the right mix, and we're pretty happy with the way the business is basically evolving. At this point, we don't believe that we need to do an inorganic transaction in Mexico to continue thriving.
I think that, the size that we have in the market, almost 15% of the market, basically give us enough space to do and to grow the business in a substantial way and in a very secure way, first of all. Also important that we told the market that we are right now very concentrated on the TSB and Webster. We told the market that we're not gonna do any significant inorganic transaction, for the next two years, and we will continue to do that. We need to concentrate on integrating those two, and so far that's exactly what we're doing. We see Mexico, I mean, just to finish that, evolving pretty well, during the year. As you know, there is a negotiation of, the T-MEC, that's the new NAFTA.
If parties don't come to an agreement, it is automatically renewed for one more year. Hopefully we'll come to a thing. I think it's both in the interest of all the parties basically to come to an agreement given that Mexico is a very important component of what the U.S. requires in order to be competitive. Okay. We are optimistic about it.
Good morning, Sofie. You're right. We had a good quarter. We mobilized EUR 10 billion in risk-weighted assets equivalent. Times four is 40, more or less at the same rate we did last year. One could have expected that with the current market conditions, the demand for these assets would have been less. Well, probably because we've been doing this for a long time, investors know our systems and the quality of the assets that we sell. I think we have a competitive advantage relative to other market participants. We have actually seen an increase in the interest to participate in our transactions. We have been selling credit in the first quarter at levels similar or even lower that we had last year for similar transactions.
Again, we've seen an elevated interest in participating in our transactions, probably again, because we've been in the market for longer than others. We have a trusted and proven technology. The quality of what we sell is actually better. Having said that, obviously, the market will dictate if this strong demand we show in the first quarter will stay or will remain for the rest of the year in the coming years. As we have discussed, we are obviously in a position to readjust our capital hierarchy immediately if that was the case. Again, so far the demand is actually very strong, and we think, looking at the people or the investors that are participating in our transactions, that we are attracting a lot more interest, because again, we are a trusted party in these transactions.
Thanks, very much. Could we have the next question, please?
Next question from the line of Britta Schmidt from Autonomous. Please go ahead.
Yeah, thanks for taking my questions. I would be interested in your view on the outlook for loan growth, specifically in Spain, Brazil, and Mexico. In Spain, we had a negative bank lending survey outcome, which is probably not a surprise, but how do you think this will impact loan growth going forward? Also in Brazil and Mexico, your GDP revisions, has there been any sort of adjustment that you're making for your projections? The second one will be on the wealth management fees. A very good quarter, this quarter in the quarterly timeline. Maybe you can comment on what's been driving that and to what level that is sustainable. Just lastly, on the tax rate, which was, I guess, lower than expected this quarter, you're doing more interest on capital in Brazil, I guess.
Should we expect the tax rate to be hovering around the 25% for a while, or what would be your expectation for the full year? Thank you.
Thank you. Thank you, Britta. In terms of, I mean, loan growth, basically in Spain, Mexico, and Brazil, what we're doing is being, first of all, focused on profitability. It's very important that you know that. Also, profitability, but we also take into account what we see and the trends of what's going on in terms of the cost of risk and what's the difference in every single part of in every single country. Okay? For example, in Spain, we see an opportunity that right now corporates and SMEs are basically in a good time, so we are trying to explore that and also a little bit of growth in CIB. In Mexico, the same. The portfolio is very much concentrated on that side.
We believe on the personal loans and credit cards, we need to be a little cautious given what's the dynamics in the market. We see and we continue to see an opportunity of growth, and we will 9% the loan portfolio in Mexico this quarter because we saw an opportunity mainly in CIB and mid-size corporates. We will continue that trend if we see markets opportunities. Okay? In terms of Brazil, again, it's all about the mix. As José explained you in detail, it's all about the mix and basically continue growing the deposit base to become much more competitive in that market and have much better margins. In Brazil, we will continue basically to focus on that. Mid-size corporates, again, SMEs is one part that we're growing, and we are being very cautious.
It's interesting, but you see the mix in Brazil in credit cards basically getting more complicated, but on personal loans, it's actually doing quite well. That's why because we are concentrated on the affluent segment of the population. In Brazil, we are very keen on looking at the different segments of the market, and we are focused right now in the affluent given the current market circumstances and the way we see rates basically evolving. If we see that rates basically come down a little faster than we believe at this point, then we'll see if we access mass markets again, but we will be doing it in a very cautious way. What we're doing right now in Mexico and Brazil mostly, we're not on the open market on credit cards and personal loans. We're only lending to our customers.
We're growing the customer base, as José explained you, very much concentrated on payrolls because when you have the payrolls, you have all the information, you see what the customer does, you see the trends on how they consume, and then we give them credit. Okay? We're only giving credit to our customers, not open market in those countries because we believe it's the right way to go, and it's exactly what's been working in order to sustain and to maintain the cost of risk at the levels that we would like. All right? In terms of wealth management, fees, yes, we continue to hope that trend will help us because we believe that the biggest delta that the group has is insurance.
If you see how we play in insurance in every single country, you will see us in Brazil, in Spain, in Mexico, in Chile, in every single place we punch below our weight. There is always another bank that basically has a large or has a lion's share of the market in that sense. We believe it's a competitive edge that we need to explore, and we're very much concentrated on that. You're gonna see that as one of our main focus. We basically hiring the best people that we have in the bank insurance market. We're putting them in the places that we believe we have the most opportunities. Even though in private banking and wealth management we'll continue to do well, insurance is the one that you should focus on because insurance is the biggest delta in the future.
Okay? On the tax rate, José. Thank you.
In the first quarter, taxes eased, basically because of Brazil and Argentina, despite the end of the auto EV tax incentives in the U.S. As long as rates remain high in Brazil, we will continue to have a lower tax rate in Brazil. Again, the tax incentives in the U.S. means that we will have higher taxes. It's, it's, you know, difficult to forecast, but I would presume that we are gonna see a slight increase, gradual slight increase in the tax rate towards the end of the year. Again, it very much depends on the level of rates in Brazil.
Thanks very much. I think, the next one is the last question. Could we get that, please?
Next question from Borja Ramirez from Citi. Please go ahead.
Hello. Good morning. Thank you very much for taking my questions. I have two quick questions, if I may, please. Firstly is on the NII. I saw that your bond portfolio increased by around EUR 6 billion in the quarter, excluding Poland, I think mainly in Spain. I think that there may be upside related to your guidance for NII in Spain particularly we have a higher interest rates. That would be my first question. My second question would be, it's great to see the deposit trends in Spain and the higher share in payrolls and lower cost of deposits.
I would like to ask, how are you combining this with your Openbank platform? Is this also related to your digital capabilities from Openbank? Also, if you could remind me of your total deposits at Openbank at group level, how much are you gathering in total? Thank you.
Thank you, Borja. On NII, Q1 we grew around 5% year-on-year. That's around 1% quarter-on-quarter in constant euros. This is basically supported that José was explaining by active margin management and the growing balances that we have increased on deposits. What we believe is we're gonna grow around low to mid-single digits. In compound average growth over 2025-2028 in constant euros. The macro assumptions include, as we already explained, the rate in Brazil continued to ease. Which is very important. 13% towards the end of 2026, we're not being that aggressive. Rates in the developed markets, as José explained, is around 2% in Europe, 3.5% in the U.K., and 2.5% in the U.S., not much more than that.
In 2026, for the two largest global businesses that we drive in NII, we expect, first of all, in retail, low single digits NII growth, very disciplined in deposit pricing, as you heard. Modest volume growth and the contribution of the hedging strategy is supporting margins. In Brazil specifically, we see monetary easing as a tailwind of NII. It's very important that you understand that the key central part of our strategy is primacy, and primacy is transactional deposits. ONE Transformation is all about this, and we will continue focus on that, and that will help us. Okay. In the other businesses, the auto and Openbank, we expect mid-single digits NII growth in Europe, where we have hedged our exposure to higher rates. NII will be supported by margin management.
In the U.S., we will benefit from the lower funding cost and higher yields on loans, as we remain focused on profitability. It is very important to understand what I said when I was talking about the U.S. business, that now after March 1st, it is fully funded by our deposits. That will enable us to have much better margins for all the year and on, and we will continue. Openbank has been an important part of that because if, for example, Openbank deposits in the U.S. is around EUR 11 billion already. So that basically tells you exactly what our strategy is focused on and focusing again deposits and much more than that in transactional deposits.
If I may complement Borja, you know we merged Santander Consumer Finance with Openbank. Now Openbank includes all our consumer business. Openbank Europe has EUR 82 billion in deposits. The U.S., consumer U.S., which is Openbank U.S., has EUR 50 billion, EUR 51 billion in deposits in total. That's the right way to look at this because, again, we've merged the consumer business with Openbank, and then both business operate together. EUR 51 billion, dollars. No, euros in this case. Euros in the U.S., EUR 82 billion in Europe.
I think we might have one more question on the line. Can we please check if we have another question?
We do have a question from the line of Pablo de la Torre from RBC Capital. Please go ahead.
Thank you for taking my question. I just had one on your U.K. trends, if I may. I note your comments regarding the efficiency improvements in the country, but trends for retail volume, especially in deposits, seem to lag a bit the domestic banks. Cost of deposits were up in the quarter, NIM was down quarter-on-quarter. You also seem to be pricing rather competitively your front-book deposits at the moment. I just wanted to know when you expect to see the NIM in the U.K. to inflecting and the key moving parts there for the rest of the year, including any expected changes in trends post the TSB integration. If I may just, if you can give us an update on your U.K. structural hedge. Thank you.
Okay. Let me give you a little bit a brief idea on what the trends are. First of all, the U.K. market, actually it was the last week, is very competitive on deposits. I mean, we're killing each other for deposits. Why? Because, I mean, you know that people are believe that rates are gonna go up, is very competitive in that sense. We believe that it's much better to cover ourselves and capture a little bit more of deposits given the trends that we see on the market. Nonetheless, I don't want to talk openly, we have different strategies of what are we gonna do on that market. Okay? We're doing exactly the same as in the rest of the other markets. We're increasing.
There are two ways of basically getting deposits in every single market. One is paying for them, and but the most important one is customer experience, and we're working really on that. We're gonna be able to deploy our one app towards the second half of the year. We're working really hard on that. That basically would enable us to have a much better customer experience, and we'll focus our customers to basically become their primary bank. That's basically when you get the transactional deposits into account and you get better structure of deposits in there, and we're working towards that. Okay? We're gonna be very much concentrated on that. Second, the TSB mixture is gonna help us quite a lot.
One of the good things that TSB has is very sticky deposit base and actually much more deposits are loans, that basically helps us to have a much better structures in terms of deposits. With TSB, we're gonna be the third largest bank in the U.K. with current accounts. That basically is gonna help us a lot in terms of managing a much better way what we have and manage our deposit base in a much profitable way, if I may say.
Good morning, Pablo. Let me give you some numbers because I'm not sure I understand your comments. Year on year, our total deposits are up. Average balance is first quarter of this quarter relative to first quarter of last year is up 4%. It's a very good performance. Actually, with a lower average cost. The average cost of deposits is down year on year in the first quarter of this year relative to the last quarter, to the first quarter of last year, despite that volumes are up 4%. Again, on the asset side, yield on assets goes down from 4 or 5 basis points year on year. The NII is affected by the higher volume, higher growth in deposits than in loans.
Again, this is part of the strategy that Héctor was just explaining. We believe that we are doing well in deposit gathering in the U.K. For the overall NII in the U.K., we have to take into account that the lengthening of the duration of the structural hedge has had a very limited impact in the first quarter, and this should kick in more in more size in the next couple of quarters, as the yield of the investments is around 4%. Currently 3.8% in the first quarter.
We would expect the NII in the U.K. to actually improve in the next few quarters as, again, we continue to improve the funding mix and the quality of our funding in the U.K., growing deposits, we think at least in line, if not more than the market.
The structural hedge, well, we have more or less flat in the quarter at around GBP 101 billion, duration 2.5 years, the yield is 3.0%. The loans that we are buying, as you know, we are lengthening the structural hedge, buying between 5-10-year bonds at more or less the interest rate curve is pretty flat at around 4%. We would expect this strategy to actually add to NII in the U.K. in the coming quarters.
Thanks very much, Héctor and José. This concludes our Q1 conference call. Thanks very much for your participation, and if you've got any further follow-ups, the investor relations team is available at your disposal.