Good morning. Thank you very much for your interest. I'm joined today by Onur Genc, our CEO, and Rafael Salinas, BBVA CFO. As in previous quarters, Onur will start reviewing the group figures and then Rafael will go through the business units. Then we will move to the live Q&A session. And now, I will turn it over to Onur.

Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining our 2022 results audio webcast. I hope you have had a great start to the year. So let me just jump into it. Slide number three. So I'll start with that page by highlighting the outstanding results of the year. First, in going through the lines on the page, we have made significant progress in the execution of our strategy, focused on profitable growth. We are accelerating our profitable growth. At the same time, we are leading the digital and the sustainability space. We have ended the year having acquired more than 11 million gross new active clients, a new all-time record; 78% of our unit sales have been done digitally another all-time high. And we are also at the frontline of the industry in terms of sustainability. In 2022, we be channelled €50 billion in sustainable business; again, another record. Second line, we have achieved the highest annual net attributable profit ever €6.6 billion, an increase or 31% versus 2021, which represents also a 48% increase in our earnings per share. Third, we continue delivering on our commitment to profitable growth and value creation for our shareholders with ROTE, return on tangible equity of 15.3% and then exceptional -- exceptional 19.5% increase of tangible book value per share plus dividends. All of this obviously is allowing us to significantly increase the distributions to our shareholders for a total amount of €3 billion, which is equivalent to €0.50 per share. While at the same time our CET1 ratio continues comfortably -- very comfortably above our target of 11.5% to 12%, as you know, our target. These highlights are what I would be expanding upon in the coming pages, but just to reiterate, the common theme of all…

Thank you, Onur. Good morning, everyone. As Onur said, we are very happy to present outstanding result for the year '22. I would like to highlight asset management and very positive contribution for all the franchises, focus on delivering on our commitments and to exceed the objectives set at the beginning of the year. We will now comment on the performance of our main franchises. In the last quarter, I will provide our guidance for 2023. Let me begin with Spain. Slide number 21. Some business trends and strong result evolution, continuing the fourth quarter, closing up an excellent year. A positive loan growth with significant market share gain in the year, both in consumer lending 140 basis points, and in commercial 76 basis point, continue shaping up a more profitable lending mix. That translate into very solid dynamics in terms of P&L. Pre-prohibition, profit hits double digit growth in '22 above 13%. The main driver here is the NII, which clearly accelerated in the fourth quarter reaching high single digit growth year-on-year above expectation. Interest rate increases are positively supporting the NII are more expected to come in the following quarters as you will see in our guidance. Despite the positive growth in banking services and insurance fees, total commissions are affected by lower asset management fees due to market evolution. Expenses decreased by 4.1% year-on-year, a figure that shows our cost control commitment in a contest of higher inflation and growth in activity. All-in, significant improvement in our efficiency ratio to 47.5% in '22 from this 51.7% last year. On the asset quality side, the cost of risk improved to 28 basis points in '22, driven by solid underlying asset quality trends throughout the year, while higher impairments in the last quarter as Onur mentioned are mainly related…

Thank you, Rafa. We're a very performance-oriented organization based on numbers and metrics. We always promise that we'll be done in half an hour. So I have two more minutes. So I will skip Page 26. The only summary that I have for you is that as on behalf of the really wonderful teammates that we have at BBVA on behalf of the whole team, we feel very, very happy with what we have delivered in 2022. And we have -- we have had our best year ever on multiple dimensions, not only on profits, and the team is very motivated and energetic to do even more and that's page number 27, the guidance. Looking also, what excites me more is because 2022 is already gone, is that as we look into the coming year and as we have seen the first numbers coming along at the beginning of the year, we are quite positive on what we are seeing and you see that in the guidance. On the right hand side of the slide, Rafa all went through them. So I'm not going to go through those, but by country, all the key fundamentals of our business, they have been performing quite well. Obviously, we have to be cautious. We do see still some uncertainty in the macro environment and that will obviously affect our business, but overall, quite positive as you have listened to from Rafa and as you see on this page. At the group level, all of this, it translates into a few things. For the group, we expect core revenues to grow at mid-20s in constant euro. We don't have it in the guidance here, but depending on obviously the FX evolution based on our own estimates of the FX evolution in terms of the current Euro revenue growth, we expect it to be in the mid-teens, which again, is a very, very positive figure, and again, reflects our optimism going forward. It goes back to our strategic focus of profitable growth. It goes back to serving the most profitable segments, but we are quite positive on core revenues. Then on costs, we expect to grow around average footprint inflation, focus on the jaws as always. In some countries we are investing, but in general still below the average inflation is what we are aiming to do. And lastly, cost of risk, we are expecting it to be around a 100 basis points based on the readings that we have at the moment. Again, we have to be cautious, but based on what we see, we are quite confident that we can guide you around a 100 basis points. With this, I conclude the presentation; 10:00, we are right on time. So let's go to Q&A.

Thank you, Onur. We are ready with the Q&A session. So the first question please.

Thank you. The first question today is from Benjamin Toms from RBC. Benjamin, please go ahead. Your line is open.

Good morning, and thank you for taking my questions. Firstly, on your group cost guidance, which is to grow around average inflation based on the footprint weighted by operation expenses, can I just confirm that the number you expect this to be then is around 16% your weighted average inflation across your geographies. And then on ROTE, the print this year was 15.3%. Your target for 2024 is 14%. That's looking a little bit redundant to this stage. I think that the net of all your new guidance implies that ROTE in 2023 will be higher than in 2022. Can you confirm that's the case and can I push you to give any guidance that's firmer than that? And if not, can you guide when you're next we're next likely to hear an update on your 2024 ambitions. Thank you.

Thank you, Benjamin. On the -- maybe on the costs, you can lay a view Rafa on the ROTE, on the return on tangible equity. You are very well, right? Our original goal was 14%, as we have said, November, 2021. When we set it up, we heard many comments saying that, isn't it too aggressive? Are you going to be really able to do it? And so on. And we are already above that. So it's set three year plan that we have had, and that three year plan we are already on in the first years, we are not even half of the planning period yet. The only thing I can tell you is we are not revising those figures. But as you can also see from those pages, in multiple of those metrics, not only in return on tangible equity, but the target customers, the customer growth, definitely the tangible book -- tangible book value per share plus dividends, we have a clear positive upside potential and hopefully we will clearly beat the goals that we have. So, in short, let me not mumble with the words, but the goals, we are not going to revise them because it's a three-year plan. We are only in the first year, but we have a clear positive upside on all of those metrics. Regarding the costs, the 16% inflation, we are guiding around debt inflation. But Rafa, do you want to comment?

No. It's just, that, I mean, you are right Benjamin on the numbers. The weighted average inflation that we are projecting, our research department is projecting for next year just slightly above 15%. So it's just that between the 15% what in the high, in the heightened levels. So around the 16% that you mentioned,

Benjamin, maybe one addition to this cost number, when you would see it in the coming months and quarters, as you have seen also this year in 2022, in Mexico, we are slightly or we are above inflation in terms of costs. We do see an opportunity still in Mexico of growing further our position. That's what we have been doing. We have been gaining market share consistently year after year and also in 2022. There's a discontinue in the market. One of our competitors is being sold and so on. In this context, we do think that an investment, a further investment into Mexico, which might lead into remaining in costs above inflation, is very well justified. So that's one of the drivers of this around inflation. But overall for the group, then we will make it in such a way that we will be around inflation. But in Mexico, you might see a bit higher figures than the average inflation.

Thank you, Ben. Next question please.

Thank you. Our next question is from Francisco Riquel from Alantra. Francisco. Please go ahead, your line is open.

Yes. Thank you for taking my questions and congratulations for the results. First I want to ask first about the deposit beta. In Mexico, 25% in the fourth quarters local peers are closer to 35%, 40%. I wonder if you think that you will be able to maintain the gap and what beta do you expect in '23. In Spain, you can comment on what terminal deposit beta you pay for '23, '24, if you will believe that BBVA will be above or below the sector average. Any color you can give on the deposit mix would be great. And second on capital, if you can update on the regulatory headwinds left for '23 please. Thank you.

Very good. On the Mexican situation, you already mentioned that Francisco, but as you can see on the page, the policy rate at the moment, as you know, is 10.5%. Our blended cost of deposits is 2%, 2.07%, as you see on the page for the country for the fourth quarter average. And how is that possible? That's possible because again, a big part of the deposits that you can see is demand deposits, and these are all transactional deposits. I did mention to you in the previous calls that we do have a really wonderful franchise in Mexico. 40% of the salaries in the country go through BBVA in terms of amount 40%. That helps us in transactionality. We have a wonderful acquiring franchise for the SMEs and so on. We are a cash flow oriented business. We are a technology digital oriented business, and we are really in the transactional business of our clients. In that sense, the demand deposits for us is the key number here. And as a result of that, we have 100 basis points difference, positive difference in cost of funding versus our competitors already. So given the transaction nature of those deposits, the deposit details that you see here, obviously there will be some further maybe increases and so on, but the deposit betas would not change much. Regarding Spain, the assumption that we have at the moment is obviously there are three, three parameters here. What percent of demand deposits, again, a big part of our deposit base will move to time. So the percentage of, or the amount that would be subject to interest rates, number one amount, number two, what would you pay to those -- to that piece? And number three, the timing. When are you going to start…

Thank you, Francisca. Next question please.

Thank you. Our next question is from Benjie Creelan-Sandford from Jefferies. Benji, please go ahead. Your line is open,

I'm back on Mexico and perhaps a little bit more around the fee momentum which is still very strong this quarter. If you could just maybe talk a little bit more detail about the dynamics there on the card side and your expectations in the 2023, should we expect that to remain as strong as it has been in recent quarters? Equally on net interest income, obviously the guidance is to grow NII above loan growth. I know you've already touched on the beta, but I guess in terms of the -- on the margin side, is that being driven by a change in mix on the loan book side towards higher margin products? And equally, what are your rate expectations for Mexico going forward, embedded in that guidance? Thank you.

The first question was on the fees. There's a problem with the line today. So on the NII, let me start with the NII, which I think is the second one. If the first question was on the fees, let's talk about that as well, and maybe Rafa, you can talk about it. If it's something else, please let us know. Benji, there's a problem with the line today. On the NII, as we said, it's coming from two things. When you look into the Mexican loan evolution in the year, you see a higher growth in areas of better margins. So consumer has increased by 16% year-over-year. Stock, credit cards has increased by 20.7%, 21% SMEs has increased by 20% and so on. So the mix to higher spread products is helping obviously number one. And number two, 40%, 40% zero, around 40%, let's say that way around 40% of our loans, especially on the corporate commercial side is linked to interest rates and interest rates going up. It used to be, as, you know, 5.5% at the beginning of the year. It ended 10.5% at the end of the year. That has led obviously to some of this impact as well. Some of that repricing continues because, some of the latest increases were done very recently. We do expect another 25, 50 basis points to come. Our BBVA research estimate is that there might be another 25 basis points in the next meeting of Mexico. So that that will continue. And depending on whether that stays at that level or so on, the impact from the rates will come along as well. But the mix effect is also very important and the mix effect is what we also intend to maintain for the coming year. We will be growing more in the commercial SME credit card consumer portfolio. As you can see in 2022, the pieces that grew the least is mortgages and public sector, which typically comes with lower margins. So the mix effect is under our control, and we will continue on that path and the interest rate impact will also be there because the curve is still very, very high. On the fee income, Rafa?

On the fee income in Mexico next year, at the end of the day, we are still believe we are going to have a good performance. We don't -- we don't have a guidance in terms of a growth rate, but clearly it is not going to be -- it is not as affected as the market component because of the weight of the asset management component in Mexico. In fact, the big portion of the fees related with payment services and brokerage. We, given the level of transactionality that Onur mentioned, I think we still believe that we are going to have a double-digit growth on that. Clearly there is a little bit less than 20% weight on the asset management fees that clearly is going to be depending on market evolution, but still some growth in face in Mexico is here.

Thank you, Benjamin. Next question please.

Thank you. Our next question is from Max Mishyn from JB Capital. Please go ahead. Your line is open.

Hi. Good morning. Thanks for the presentation and taking our questions. I have two. The first one is an outlook for loan growth in Spain. You seem to have increased new production in mortgages from the third quarter. Do you see the market better? And how do you see growth in new production evolving in the beginning of 2023? And then the second question is on the shareholder remuneration. Can we assume that buybacks will now be part of shareholder remuneration in the coming years? What was the reason to put part of remuneration as buybacks this time? And also with the strong capital generation and excess we currently have, could you consider an increasing payouts in the coming years? Onur Genç: It's actually three questions, Max, but they are all very good questions. So yes, so the after for 2023 for the loan growth in Spain, we guided you in the page as the flat growth. You asked about mortgage specifically. We actually expect mortgage to deleverage a bit. So there will be negative growth in mortgages in our expectations, in our base case expectations. As you said, the production has increased for us in the fourth quarter. but it is mostly because of the baseline impact. Because in the third quarter -- in the second and the third quarter, we didn't like the pricing dynamics in the market, and we were basically out. And we came back in once the rates are up, we came back in, in the fourth quarter. It was specific to more to BBVA. We do expect the new production to be relatively soft in the coming year for mortgages, but more importantly, given the rates and given the fact that the stock is very much variable rate mortgages in Spain, 75% of the…

Increase in payment. Onur Genç: Increase in payout. We just increased it, Max, a year ago. So it's obviously on the table. But we -- let me be very clear on this topic because it's important to us. We told you very clearly when we sold the U.S. business, that number one, we have a capital target of 11.5% to 12%. We confirm and stick to that target very clearly, 11.5% to 12%. That is our target. Number two, we told you that we don't like to operate with excess capital, and given our target, if you do have excess capital, we do have two -- a few things to do with that excess capital. Number one, grow our business profitably, number two, remunerate our shareholders in a very positive and a very favorable way. What we said, these phrases that I'm just repeating to you, is what we are committed to, very clearly, which means if we continue to operate with this excess capital, our intention, 1,261, pro forma 1,280 versus the upper end of our range of 12%. We are very committed to, as we have said before, to grow our business profitably organically in such a way that we create even more organic capital for our shareholders and/or to remunerate our shareholders, which implies that given again where we are, given the expectations that we have given the guidance that there might be other programs of extraordinary payments to our shareholders going forward. But this 40% to 50%, again, we just changed it. But whatever the excess capital is not through maybe 40% to 50%, the annual payment program that we have, but through other extraordinary measures, we are committed to give it back to our shareholders.

Our next question is from Alvaro Serrano from Morgan Stanley. Please go ahead. Your line is open.

Can I have two very quick follow-ups and then a question. So you said the 20%, 25% deposit beta in Spain, is that the average for this year or the end of the year? And in Mexico, I missed it if you gave your rate assumption, I apologize for that. And then hopefully, that's very short. And then the question is around Turkey because the trends in Spain and Mexico are very strong. In Turkey, you said flat profits for this year, which is reassuring. But considering at the beginning of this year, admittedly, we're going to hyperinflation, you were saying breakeven. Now you feel confident the €500 million is the profit. We've got elections mid-May and that creates uncertainties. Can you maybe reassure us why you're confident that you can be that profitable? And what's behind that confidence? And what happens if there's an adjustment in currency? What are you baking in? Just a general reassurance behind that assumption.

Okay. So the 20% to 25%, it's not full year. It's not average for the year. We are assuming that in the second half of the year, to be specific, as of May, as of June, in that period, this dynamic will kick in. And then the dynamic kicks in, 20% to 25% will kick in. That's the guidance. So maybe starting with the second quarter, take it in that way. But our -- given again the competitive dynamics and the liquidity in the market, I do think that we have an upside on that assumption. What we are telling you is not our expectation. What we are telling you is what we have baked into the assumptions for the guidance. If it's worse than that, it will affect. If it's better than that, which is actually my base case, then we will see that it will be a better figure than the guidance. Mexico rate assumption, we are not giving it that -- you didn't miss it. I didn't give it. The guidance that we have for Mexico NII is grow at mid-teens. Very clear, mid-teens growth in NII. All of that is baked into it. Regarding Turkey, you are asking for reassurance. You are saying that how can you be that confident and so on. overall, in the guidance, I'm going to read it to you literally, Turkey. In a highly uncertain environment, contribution could be similar. I mean -- this is as much flexibility as we can bake into the sentence. It's very uncertain in Turkey. And our expectation, looking into the again, how we started the year, looking into our bank there, which is a very strong bank, we do feel that the system has to come up into a new balance at some point. But…

Our next question is from Sopfie Peterzens from JPMorgan. Your line is open. Please go ahead.

Yes, here is Sofie from JPMorgan. So I also had 1 follow-up clarification question and then two questions. So my first clarification would be that when you said that gross revenues adjusting for FX to be mid-teens growth or imply roughly mid-teen growth, what FX are you using? Your estimated FX rate in 2023, or the current kind of end of 2022 FX rate? So that would be the clarification question. Then my first question would be that if we look at the free float of guarantee and where the share price of guarantee is currently trading and the fact that it's not part of the benchmark anymore and my understanding is that, that's hurting guarantee a little bit in Turkey, did you kind of consider a free float optimization for guarantee in Turkey, I reduce your stake in guarantee from the current 86% level. And then my final question would be that after the elections in Turkey, there are some expectations that interest rates in the current -- in Turkey could increase quite substantially from the 9% current levels. you have around €8.5 billion of bonds in Turkey. What capital impact would you expect from every 10% increase in interest rates in Turkey?

Very good. The first one is very quick. We use the forward curve always. But as you can see, the NII of the group is very much composed of mainly Spain and Mexico. -- if you put the forward curve of those, you would immediately get to those guidance that we are giving to you in current euros. But we don't have our own estimate. It's the market forward curves that we use in our planning exercise in our guidance. Second question is, would you refloat guarantee. Sofie, we just bought it, and regarding that deal, we have had multiple discussions in the past, whether it was a good deal and this and that. And now there are some of -- it was very negatively perceived by the market, let's be very honest about it. But then given the share price now, we bought the shares at 15%. Today, it's around 25%, and the currency is more or less the same. People are saying to us that, oh, you do have an opportunity here. So it's actually a very good deal now. Some of the people are telling us the other way around. And none of them, in my view, is right. We don't know whether it was a great deal or not in this very short term. And we are not very short-term investors. We are not trading on floating, refloating, taking it back now that we have 25, we sell it, we are not that player. We are a strategic long-term oriented value focused bank. And we have done the deal because in the long term, we do think that there is value in that franchise. We do think that there are big risks, but we do think that those risks were already factored into the price. And we do think that it was a great value for our shareholders, and it was better return to our shareholders versus other alternatives like share buyback. That's why we did the deal. And we are consistent with that. We are long-term shareholders. We would not be refloating in the short term and trading, that's not who we are in this type of strategic assets. Then elections, what is the -- Rafa, do you want to take it, but we have €1.7 billion of fixed bond portfolio. It depends on how much the fixed bond portfolio moves. Obviously, there might be some capital impact, but it's very absorbable, very removable. It's already in the planning.

Next question is from Marta Sanchez Romero from Citi. Please go ahead.

First question is Spain and deposits. You've seen inflows of roughly 7 billion in the quarter. Can you explain a bit what's that? Is that corporate deposits? Is it a volatile number? And if you can explain what your strategy on deposits is going to be, do you have a target for loan-to-deposit ratio in Spain. The second question is in Mexico NII. Two small here. The first one is the -- when do you see the peak on customer spread and how -- if you can elaborate a bit on the competitive side on your loan book, just by categories, whether you are being able to pass through higher rates particularly on the corporate side and on mortgages where you're being quite competitive, I believe. Also in NII Mexico, the book, it looks like you've been adding bonds. Do you have a target in terms of the size for your bond portfolio in Mexico given where rates are and where rate expectations are moving? And finally, capital. You got 11.5%, 12% target. Do you think that is an adequate capital position or target given that a lot of the capital that you're building is in Turkey and is effectively trapped. And if I remember correctly, writing it off would cost you around 40 basis points. So is that a buffer that we should be effectively adding to your target?

Rafa, do you want to take the first one?

Martha, in relation with the growth in the customer deposits in Spain that we have in the last quarter is mainly, mainly related with demand deposits. And it's also quite related to the new customer acquisitions. So at the end of the day, it's just more than €10 billion that we have increased coming from new customers in the format of demand deposits. We have seen also an increase of around €3 billion in time deposits, as I said, it's just a lower and mainly coming from commercial banking.

Regarding the Mexican NII, have you seen the peak yet, we don't think so. Our planning, that's why we are guiding you in the guidance that we are going to grow at mid-teens. Why is that? Because the mix change is still happening because -- the repricing is still happening even for the last batches of rate increases that were done in Mexico, we still have some time to reflect all of that to our clients. And there might be some more rate rises to come, as we said. Given that the peak is not reached yet in our view. Adding bonds to our ALCO book, it's €12.4 billion of an ALCO book we have in Mexico as you might know. The latest increases in the last quarter, we only increased it by around €200 million. So that's going to be more or less the range. I mean we would be a bit opportunistic or a bit tactical on this one. We don't expect large increases into our ALCO book yet. We are a client-oriented customer-centric business. We do have so much very attractive customer franchise business in Mexico that we would rather grow in our Mexican customer franchise. And if you do have some opportunities, which we do, we believe we do have some, but we would rather use that liquidity and capital growing with our customers. So ALCO portfolio book increase would be limited and opportunistic going forward in Mexico as well. Then 11.5% to 12%, is that good enough, the 40 basis point walk-away scenario in Turkey, should we added back to the goal -- the walkaway scenario is 39 basis points as you say, 40 basis points, but we don't think you should be adding it to our capital target whatsoever. Martha, I really encourage you,…

Our next question is from Andrea Filtri from Mediobanca. Please go ahead. Your line is open.

Just a very small follow-up, really. On capital, if you could also update your Basel IV impact and give us a bit more color on the plus 14 basis points from other items in Slide 18. If you could break it down, please, because it looks like there is very large swings within that. On NII, again, a follow-up, if you could please provide us when which forward curve have you used abate to set your interest rate expectations in each geography. And if you could provide us by geography, the betas, deposit betas today and where you expect them to be in '23 and '24 on average so that we can make our own assumptions rather than taking just the guidance as reference. And finally, what do you expect in terms of inflation in Turkey for '23.

You did ask all the parameters of your model, but it's very fair and they are all the right parameters to look into. The forward curve, what forward curve do we use, we use it basically at the end of the year planning period. So it's the December forward curve that you see. But the forward curve of today, again, what matters there is the Mexican peso. At the end of year number versus today, a month from the planning, it didn't change too much as far as I know, the currency curve. Then the Basel impact, Rafa, do you want to comment on the Basel impact?

Basel IV, I think we haven't provided any guidance, but I think what is clear in our case is that our -- the impact of Basel IV is going to be much lower than the industry average. If you analyze the EBA estimates the Basel IV impact that is just on average of around 260 basis points for the European banks. In our case, it's going to be well, well below a completely different scale. Maybe because in our case, we have a high-density risk-weighted assets. A big portion of those are already calculated with the standard models. And in fact, some of the low default portfolios are going to release some capital on the new framework. So at the end of the day, we are only going to be slightly affected on the financial review of the trading book, FRTB and in operational risk. So but at the end of the day, the impact is going to be very, very limited.

And Andrea, regarding the 14 basis points impact or other, you were asking on this one, I will give you the details so that I can avoid your detailed question on beta. But on 14 basis points, the market impact is around 10 basis points, FX, 2; and then fixed income and equity was zero actually, but eight plus two, the market impact was 10 basis points positive. Then hyperinflation accounting around 20 basis points because as you know, in Argentina, in Turkey, we add back the hyperinflation losses that we registered in P&L into OCs. That's why we always say that from a capital perspective, it's neutral. That's around 20. And then the regulatory impacts, as I did mention to you, in the quarter, on top of the 10 that we did in the first nine months, we did a 20 basis points negative impact from regulation, bringing some -- and there is some other minor impacts when you sum them up, it gives you the 14. Then the betas, the key beta really Andrea, that matters at the moment is Spain, and I gave you all the numbers around it, the combined beta that we estimate when we see the pressure is going to be around 20%, 25%. It's for the rest of this year that we have put into planning, again, starting with the second quarter. That's the key one. And regarding Mexico, again, I already gave you the guidance number. The beta number there is a bit different. But what I can tell you is that the 2% that you see in the cost of funding at the moment, we do expect some slight increase on that one, but not much. If you go to 2018 in Mexico, another time period, a recent period where you have seen higher rates, at that time, the policy rate, if I'm not mistaken, was 8.5, 8 or 8.5, in that range. In that period, our cost of funding peaked around 2% again. So this is not like, oh, my god, there is something unusual here. No. I mean it goes back to the franchise that we have. to the transactional deposits that we have in Mexico. The fact that most of our deposits is demand deposits and transactional deposits is basically telling us that the beta is a relatively small figure in Mexico. And then what is the inflation expectation for Turkey, the BUA research number, we always stick to our independent research entity on this one is around 45%.

Our next question is from Ignacio Ulargui from BNP Paribas Ignacio. Please go ahead. Your line is open.

I just have one question on the competitive landscape on the loan book in the same. I mean, we have seen a bit of a slowdown in the pressure in mortgages, at least as the perception I have. Just wanted to see how do you see the market competing into 2023. And if there is any kind of in spreads? And second, a more financial question. I just wanted to understand, and I am sure that you understand the benefit of IRB models, but I mean the fact that we have [indiscernible] doesn't lead you to believe at some stage to move to standardized models and stop dealing with all these kind of regulatory headwinds single year and quarter.

Ignacio, regarding the loan growth in Spain, again, we are guiding for flat for next year. The reason is, again, mortgage will be, in our view, negative next year. But again, the working capital needs of companies especially is leading us to believe that there might be some growth there. There might be some growth in consumer book and so on. Just to be -- maybe to be helpful to you, in terms of the new production that we have for different books in Spain, the fourth quarter production was 3% higher than the third quarter of the year, it was 8% higher versus the fourth quarter of last year. So quarter-over-quarter or year-over-year on the flow of new production has been relatively positive. And when I look into the positivity, for example, let's focus on quarter-over-quarter. Very small businesses, PMS, 5% up the production. Midsized companies, 6% up. So in those segments, given the need for working capital, we do see some positive dynamics. As a result, all of that, we are guiding you towards the flat growth that we set in the guidance document. Then the standardized models versus advanced models, you pressed our button on this one. This is something that we are working on. This is something also -- it's a discussion with our supervisors saying that simplifying the model landscape might be helpful. And that's something that we would be working on in this coming year, to be fair.

Our next question is from Carlos Peixoto from CaixaBank. Please go ahead. Your line is open.

Carlos from CaixaBank here. A couple of questions from my side as well. The first one is actually just a bit of a follow-up in terms of your guidance. You're guiding towards core revenues of mid growth of mid-20s, which basically above the guidance to better in for NII and fees in both Spain and Mexico. So might hear is this explained by a very strong performance expected in Turkey and in South America? Then second question on capital, which would be -- we believe more detailed one or a small detail, is the share buyback announced already from the capital ratio, or is that an impact that will come through next year?

That's a very good question. And the second one, Rafa, do we deduct the share buyback already from capital?

Already included on the 12.61.

Already deducted. We deduct when -- we announce things, we deducted. On the first one regarding the guidance, it's not Turkey and so on. Carlos, you see it also in the country-by-country guidance. In Spain, we are also -- for NII, we are guiding in current euros. Obviously, it's a euro country. growth at low 20s. Growth at low 20s is obviously, given the NII weight in the total group NII, it feeds in. For Mexico, we are putting in growth at mid-teens, again, which then feeds in. And those two countries are the key. Then for the others, we do have growth in constant terms, but we do also bake in the forward curve of the currency. In that sense, it's already factored in. So mid-20s is gross, is constant euros. But in current euros, as I'm telling -- as I told you at the beginning of this call, is that we are expecting mid-teens. It's mainly because of the fact that both Mexico and Spain continue to be very strong.

Our next question is from Daragh Quinn from KBW.

The first 1 would just be on Spain and looking at the current level of your for those with variable rate mortgages 2023 will obviously be quite a dramatic change in in mortgage payments. What level do you think would imply stress levels or have a material impact on cost of risk or require further write-downs of real estate assets? And then a second question just on capital and potential capital return, you very clearly indicated your targets and also very clearly indicated your policy or approach to that with the pro forma January first level being 12.8 and presumably with the outlook for additional organic capital generation in the early part of the year. At what stage do you think you'll be revisiting this potential incremental capital return? Will you be waiting for the second half of the year? Is it something you want to wait and see where the numbers finish at the end of the year. Maybe if you could just give us some idea of what you're thinking is around timing.

Daragh, thank you for the questions. On the first one, you should know that the key -- the mortgage portfolio in Spain, we are relatively positive despite all the rate rises that we are seeing. So we're asking for a threshold that the NPLs will then go up significantly and so on. We don't think it will matter too much today of 3.5, 3.36 versus the 4% Euribor and so on. The reason being when you look into obviously the cash flow for the client, the load on the client, what matters is if you have a variable rate loan that was originated with recently, those are the loans that is most exposed, because the loans that you have given 10 years ago, 15 years ago in variable rate loans, the principal in the quarter in the installment is now much lower. As a result, the increase in the monthly installment will not be that high if the loan that you have gotten is relatively old. When we look into that portfolio, in the last five years, 80% of the mortgages that we granted in Spain, 80% were fixed already. So our loan portfolio, variable rate mortgage portfolio, dates back to many years ago. In that sense, the increase in the installment will not be that high. In that sense, 3.36 of today, or it can go up to more 4%, it will not make a huge difference in our view in terms of sensitivity. The second question, at what stage would you return the excess capital back. This is a question that we cannot answer apologies. It's basically any time. And whenever we feel the need, we'll do that. But I'm repeating once again that our commitment, our target is 11.5% to 12%, repeating it for the third time. And the excess capital, as we have said before, we are committed to either grow very profitably organically in our business or return it to the shareholders. And the timing obviously, depends on the conditions and so on. So I would not be giving a specific data on this one.

Our next question is from Britta Schmidt from Autonomous Research.

I've got two questions. So first one is just picking up on the last point. You're funding your growth organically. You're adamant that 12% is enough, but you are still at 12.6%. So why did you not -- why did you decide not to distribute more this year? And the second one is on the guidance. If you could just give us the equivalent FX assumption for the cost growth if it grows from 15% to 16% inflation? How much do we need to take off for devaluations?

On the forward curves in the planning period forward curves, maybe, Rafa, you can help. Regarding the first question, why not higher than now, Britta, I mean we have a payout policy of 40% to 50%. We are delivering the upper end of that range, already €3 billion, €0.50 per share. Very representative, but straight to the point number. And I'm going to repeat it for the fourth time because the question comes again, is we are committed to our 11.5 to 12, and we will return it back to our shareholders through other extraordinary measures and so on in the coming periods. You should not get anything from this in the sense that why not more? We are already doing a lot. I mean we are growing our cash dividends by 39%, 39% increase in the cash dividend. We are doing a piece in share buyback and so on. So it's already at the upper end of the range. We are already committed, and we have repeated it many times that we will give it back to our shareholders through other extraordinary measures on the guidance and the forward curves.

I don't have with me. I mean the forward curves, but at the end of the day they are just the differential rates on the different geographies for the year. So we will provide you with the exact data, but at the end of the day, it's just equivalent to the differentiator of rates that we are seeing on the different economies with the euro.

We can share that number because it's the market information. So maybe, Britta, if you can touch base with our IR team, they will give you the specific figures.

Our next question is from Carlos Cobo from Societe Generale.

A couple of questions for me. One, if you could update us on your currency hedging policy, both on P&L and what's the percentage of a subsidiary where you're hedging this year. And on capital, what's the cost of the hedging of the capital supply hedging that we have against book value this year? Second, on Mexico, again on NII, you've touched on the customer that you still see upside in the customer spread, but what about the wholesale funding cost? When you look at the comparative versus peers, the system in Mexico has seen a big increase in wholesale funding costs along with interest rates, where BBVA Mexico seems to be lagging behind that process. So could you explain why that happened? How you kept that funding cost so low and whether you expect that to catch up with interest rate levels at what time? And quickly sorry, lastly on M&A. Turkey, you said that you want to grow profitably if the opportunity emerged in Turkey in the context of post collection, some restructuring of the banking system in the country, a good use of your capital be to gain some market share in Turkey.

Okay, on hedging, Rafa, do you want to comment a little bit on where we are in these countries?

As you know, I mean, in terms of hedging, we haven't changed our policy. I think we are hedging the sensitivity to the capital ratios. In average we tend to be 70% hedged in terms of the capital that we have in the different currencies. At this moment, I think we are around a little bit above 75% in Mexico 78% and 50% on capital on the sensitivity to capital to the currency, 50% in Turkey. So and in terms of the hedging policy for the variability of our P&L to FX evolution, we maintain our policy to hedge on average between 40% and 50% of the aggregate results that we have in the different currencies. So we haven't changed that. Clearly, probably the main -- the only change that we have done during the year, as you can imagine, is in Turkey, given the fact that there's a significant deduction that we are doing on the P&L because of the hyperinflation accounting. At the end of the day, we are combining the capital hedging policy with the P&L hedging policy in the case of Turkey. Also increasing the amount of hedging that we do through options in order just to combine volatility hedging with also with the current traditional hedging of the carry with the forwards.

Regarding the wholesale funding, you asked about Mexico. First of all, in our funding -- maybe on the hedging for Mexico, you should know that the key -- from a P&L perspective, the key risk that we have is obviously Mexican peso, and even the very strong levels of Mexican peso, you have already hedged once again. Maybe to repeat the message, we have once again hedged a good part of the P&L to come along from Mexico already in our books this year. Regarding the wholesale funding in our funding plan, Rafa, we have 1 to 2 billion to issue maybe possibly in Mexico, depending on the market conditions, obviously. But the liquidity of Mexico is such that we have deposit funding, and it's so strong and the wholesale funding impact within the balance sheet that we have in Mexico, it's going to be marginal. So I wouldn't be too much worried about it or so on. It's a small figure in the context of the balance sheet that we have in Mexico. Profitable growth, market share, should we be planning or thinking about after elections in Turkey to do so? Let's see how the elections come out, and we have to be in this mood of cautiousness and prudence in Turkey, in our view. So it's too early to comment on those types of things. We have to see what comes out basically.

Our next question will be from Fernando Gil de Santivanes from Bestinver Securities.

Two questions, please, quick ones. First, can you please provide the amount of excess deposits that you hold at ECB right now? What's the balance on and your maturity profile? This is one. And the second one, can you please provide some metrics on the budget you have allocated for these different new operations in European countries?

The second question, did you get Rafa?

No, no, no.

Can you repeat the second question.

Yes, how much capital you have committed for this investment in new European operations like Italy or new ones that you might decide to open?

TLTRO, your expertise, and liquidity, do you want to comment on that one?

I mean on TLTRO, as you know, we have already amortized 30%, 1/3 of the portion. We still have 7 billion maturity in March, 16 billion maturity in June, and a 3.5 billion maturity in March 2024. In terms of our liquidity, we have plenty of equity, so this is already included in our liquidity and funding plan. And probably the only point that we will need to think a little bit in the coming weeks is whether we smooth a little bit more the profile of the maturities as we did in December when we early amortized €5 billion, probably we will try to also to do something similar in this first quarter of the year in order just to -- probably to reduce the peak that we have in June, but only as a way to shape the profile of the maturities so that we don't have any kind of job on our liquidity ratios.

Perfect. And then how much capital have you [indiscernible] in different initiatives, it depends on the initiative. But as a bucket, I don't know what you mean. But Italy, let's be very specific on Italy, you asked about Italy. Again, it's an investment that we are doing through our Spanish franchise, meaning we are using the infrastructure systems, people and so on of Spain to take what we have in Spain because in terms of the mobile application, we do think that we have something really unique. We took that to Italy. As such, given the fact that we are leveraging what we already have, the investments are really, really limited. I can tell you let me give this -- to build that bank, it was basically less than €20 million, which is in the context of what we have is very limited.

Thank you. Our next question is from Pamela Zuluaga from Credit Suisse.

One of them was already addressed on capital distribution, but my second one is on asset quality. Is there any upside to your cost of risk guidance of 100 basis points? If asset quality remains as resilient as you've been flagging so far, could we see some release in provisions as tailwinds to earnings? Or alternatively, do you have some downside risk? I've seen that you have a rather unchanged proportion of exposures classified under Stage 2 versus what you had last quarter, around 8% of gross exposures are already under special vigilance. But is there any downside risk to your guidance from future procyclicality headwinds, or is this already embedded in your numbers?

Pamela, very quickly, it's already embedded into our numbers. That's the guidance. Obviously, we are looking into an uncertain environment. What will happen to inflation, whether the central banks will keep increasing the rates, if that's the case, whether that will have a secondary effect on the NPLs. And obviously, there are a lot of uncertainties, but everything is included in our planning. I should reiterate once again that since the COVID times, we have put in beyond the business as usual, the loans go bad, we take provisions. There are clear rules, and those rules are never compromised. Beyond the business as usual, we have put close to €1.2 billion of provisioning into what we call the macro modelling and also what we call post model adjustments and so on. Some of this is clearly allocated to certain portfolios. Some of it is unallocated, but that €1.2 billion and €300 million of that is actually non-allocated, which is pure buffer. That's another safeguard that we have regarding the guidance that we have.

Our last question today is from Chris Hallam from Goldman Sachs. Chris?

It's a quick one to finish off. It's just another question on efficiency improvements and it's sort of a follow-up to Britta's question earlier, but for 2023 costs, should we really just focus on the positive jaws comment within the guidance; i.e., a sort of stable to slightly improved to income ratio rather than solving for the cost growth in current euros? Because I think if we use the same FX adjustments on costs is on core revenue guidance and you'd get to around a 300 basis points improvement in the cost-to-income ratio, which seems like a lot, and obviously, there's a difference in geography at FX mix on costs and on revenues.

I will reiterate, Chris, very clearly what we have in the guidance still in constant euro level, costs to grow around average inflation again, I mentioned it very briefly, but maybe in Mexico, this is not going to be the case. But at the group level, in blended number, it will be around this. Yes, focus on the positive jaws, which is a very important management discipline at BBVA. But I would also keep the costs in constant terms to grow around average inflation. We stick to that one. So if it means an improvement in the efficiency ratio, it means an improvement in efficiency ratio, because the income profile of Spain and Mexico, in our view, is going to improve further in 2023.

So thank you very much, Chris. Thank you, Onur, Rafa, and thank you, everyone, for all your questions and your interest. We finish it here. Let me remind you that the entire IR team are available to answer any further questions you might have. Thank you very much.