Good morning. And welcome to BBVA Second Quarter 2023 Results Presentation. As in previous quarters, I am jointed today by Just as a reminder, both the results report and the presentation we will be following today are available to you on our website. I'm joined here today by Onur Genc, our CEO, and Rafael Salinas , CFO. They will discuss quarterly figures and then we will open the lines to receive your questions. Thank you very much for your participation. And now I turn it over to Onur.

Thank you, Patricia. Good morning, everyone. Welcome and thank you for joining our second quarter 2023 results audio webcast. Before going into the presentation as you already know, yesterday, we have announced that Rafa who's sitting next to me here after more than three decades, three decades of a brilliant career at BBVA. He is going to be leaving his CFO position and executive responsibilities as of September the first, Rafa has been clearly one of the very important contributors to the success of BBVA. He will continue to be connected with the bank in non-executive responsibilities. But before we start, I want to extend my heartfelt congratulations to Rafa in his last results presentation and I think that's a positive know, Rafa. Very good, in terms of the results, let me start Slide 3. On the left hand side of the slide, you can see our net attributable profit, reaching EUR 2,032 million. I would like to highlight that we are posting another record of quarterly results passing for the first time the EUR 2 billion mark, that is also 11% above the results of the same quarter of last year. These results bring out earnings per share up to EUR 0.33, 13% year-over-year, a higher growth rate and the one of net attributable profit due to the share buyback programs that we have been executing. The graph on the right hand side of the slide it shows our capital ratio at 12.99% above our target range and well above our regulatory requirements. Page 4, our tangible book value per share plus dividends. It continues the outstanding evolution of previous quarters with a 15% increase year-over-year and 2.3% growth in the quarter only. And regarding profitability on the right hand side, we continue to improve our excellent profitability metrics,…

Thank you, Onur. Good morning, everyone. As Onur anticipated, we are very pleased to share with you a very good set of results, we are delivering very solid operating trends across the board. An excellent progress in the different goals of the business units. Our organic profitable growth strategy remains well on track in all geographies with some momentum in those products and segments where we see the greatest value. Starting with Spain slide 17. We continue seeing very positive dynamics in terms of activity loan growth continues to be driven by sound dynamics in the most profitable segments, consumer and SMEs where we are consistently gaining market share. In the mortgage portfolio, [inaudible] payments remain high deleveraging the portfolio despite the sound new lending inflows. In terms of P&L, we are showing a very strong pre-provision profit growth with core revenues as the main drivers of the P&L. NII growth is step up in Q2 leverage on improving customers spread. The repricing of the loan portfolio continues, while the deposits pass through into retail sending is nonmaterial, keeping the cost of deposit well contained. As of today, we are not facing much pressure on the positive remuneration, which leads us to upgrade our NII guidance for 2023 to grow between 40% to 45%. Also, I would like to highlight the positive underlying dynamics on fees. Sound contribution from the asset management business back by strong net inflows and higher credit card fees. Efficiency ratio continues to improve to 41.8% as of June, given the highly positive jaws of the geography. And finally on the asset quality side, underlying trends remain stable and within our expectation. Year-to-date costs have raised at standard 27 basis point with no major changes in the quarter. Overall, another very positive quarter for BBVA Spain,…

Thank you, Rafa. And we do have this commitment with you that 25 minutes or so we will finish the presentation and go to Q&A. So this last page on the takeaways, we already have gone through them. So let me not go through them. The only message that I will give to you is that we are very, very pleased with the quarterly results. And we are on a very good path. That's our clear conviction. So maybe let's go to the Q&A. Patricia?

Yes, sir. Thank you, Onur. And we are now ready to start with a Q&A session. So the first question please.

[Operator Instructions] Yes, we have our first questions from Maks Mishyn from JB Capital.

Is about net interest income in Spain. I was wondering when do you expect the customer spread to drop out and what kind of customers spread should we think when the repricing is done for loans and deposits? The second question is on the loan book, corporate loans and CIB product growth has slowed actually the loan book declined quarter-on-quarter. I was wondering if you see more competition there, less demand or simply this is seasonality. And then the last one is on capital. I was wondering if you could update us on the expectations for headwinds and tailwind in the second half of the year. And the question is, with the 70 basis points of excess left after the buyback. Why haven't you done more? Thanks.

Very good. Let me take them very quickly. Rafa, the spread the topping of the spread. It depends obviously on the beta. I mean, we did guide you in the previous calls that the beta would be around 20% to 25% by the end of this year. We do think that it's going to be better than that in terms of results. So the latest expectation that we have is going to be around 20% rather than 20% to 25%, so the topping is obviously dependent on the deposit beta and we don't see pressures there. As a result, we don't see the topping will happen, at least until the first quarter of 2024. So we have another six to nine months for the continued upgrading of the customer spread. Again, we didn't share this with you before, but two thirds of our mortgage book, it is repriced every six months and one third every year. And when you do the repricing, you take two months before you re-bought. So there's a six plus two, 12 plus two. So there is a two month delay in which price you take as well. Given that resetting, that we have in our contracts, again until 2024. We don't see the peaking happening. Corporate CIV is more competition or less demand very simple, less demand. Capital, given the fact that you have you say 70 basis points. Why haven't you done more? Maks, we also discussed this before, but I would like to once again, we say it every time but there is no harm in saying it over and over again, we are committed to profitable growth. And we are committed to attractive distribution to our shareholders. That's what we have been saying for many quarters now. And we see this as…

Our next question is coming from Francisco Riquel from Alantra.

Yes. Thank you for taking my questions and congratulations to Rafa. My first question is from Mexico, NII and customer spread this quarter-on-quarter and loan book is still growing. That is a slight decline in net interest income, if you can please explain the non-customer NII impacts in this second quarter, you mentioned before it's ALCON wholesale funding, how does it work? And in the context of the slight decline, you've just seen that the first quarter was the peak of the NII cycle or you've seen that NII can grow sequentially in the coming quarters, still. And second is on capital, the capital generation has been limited to the second quarter with return earnings offset with [inaudible] in the risk weighted assets. So the question is why you're not generating capital organically with record earnings on the 17% ROE. Separately, you're booking 17 basis points you mentioned related to the currency impact in the second quarter, which is more like EUR 600 million. You've also booked EUR 600 million of trading losses of the corporate center in the result, which I understand is related to currency hedging. So you can explain that the hedging strategy, the total costs incurred today, and how did you see the trade-off between the cost of this strategy? Thank you.

Rafa, maybe for the second question, you can explain the general hedging policy that we have in both P&L and also capital to our colleagues. But let's start with the first question. Mexico NII. As you mentioned, slight decline in the quarter. We partially talked about it in throughout the text, Francisco. But basically, two things happened in Mexico in the quarter. And you can see it in the numbers in constant terms. So in Mexican peso terms, there was a EUR 3 billion move, EUR 3 billion worth of pesos moving from deposits to off balance sheet funds, mutual funds. And rather than start paying a lot to the time deposits, and so on, as you can see in our numbers, that our cost of funding is still relatively limited as compared to 11.25 Central Bank rates in Mexico. Rather than kind of tainting the whole portfolio, we have chosen that we would rather than they're typically private banking clients, high liquidity clients, and so on. We have chosen that it's better also given the markets and so on to take some of that money to off balance sheet funds, that EUR 3 billion is the first component. The second component is as you have also seen, you can see also in the appendix of our documentation, we have increased our AlCO book by EUR 3 billion in Mexico, three plus three. This implies more wholesale funding. The second component also maybe talk a little bit on that one. Why did we do that? Because we do think that we have to serve for the long term. Today, we have both, we have increased our AlCO book, for example, with four to five years, Mexican peso paper trading at 9.5, 9.6, and so on. The cost of carry for…

No, and I think we have shared many times but very quickly, Francisco, I think that we're hedging policies has two main objectives, it just to manage the volatility of our P&L to FX movements, and also to manage the volatility of our CET1 ratio due to FX movements. In the case of, on average, we tend to have a 40% to 50% hitch on the P&L at the end of the day on the contribution with the different geographies in different currencies to the beta [inaudible] profit of the group. And then in the case of the hedging of the sensitivity of the CET1 ratio to the FX we will also hedge between 60% and 70% of the excess capital in the different currencies that at the end of the day is the metric that generate that variability and sensitivity. As you can imagine, given the current performance of the different geographies and the contribution within Europe is the key in the management of exposure on the P&L is Mexico, when we have been clearly hedging those that contribution from Mexico to the group. The only issue is just that when we have movements, either depreciation or appreciation concentrating in a period of the year in this case, we have seen a significant appreciation of the Mexican peso of more than 11% in the first half of the year. We are going to have an asymmetry, the positive contribution or an incremental contribution of Mexico because of the depreciation of the currency, you're going to spread out throughout the year. Although on the on the hedging is a mark-to-market and therefore, we have already impacted on the valuation of those hedges. The full appreciation of the peso in the first half of the year. So, assuming that the Mexican…

So I mean, our general policy, there is a range around this 40% to 50% of P&L expected P&L for the coming year, and 60% to 70% of excess capital, we hedge it, that's the policy and sometimes we go beyond as we did in the Turkish case in the first half. But this is the general policy. One final thing, given this flow of some of the impacts between the first and the second quarter, I would encourage you to also look into the first half in terms of the capital evolution. In the first half, because then it's a wash within the quarters, there is a 19 basis points, capital generation 20 basis points as I mentioned, regulatory impact in the first quarter. So in total 39 basis points of before regulatory impact 39 basis points of organic capital generation, which is clearly better than what we have been guiding you before, which was we expect before regulatory impacts. And before M&A in organic moves. We expect EUR 1.5 billion excess capital generation every year, obviously quarters, six months, one year might change. But in our planning, the latest planning that we have for the next three, four years, our own internal numbers tell us that rather than that EUR 1.5 billion, we would expect again, the quarterly or the six month numbers might change depending on the currency and so on. But on average for the next planning period of three to four years, we would expect in the base case EUR 2.3 billion excess capital generation. And to me that's the important number.

We have our next question comes from Benjamin Toms with RBC.

Good morning, guys. Thank you for taking my questions and good luck Rafa in whatever is your next endeavor. Firstly, you've upgraded your 2024 ROTE guidance from 14% to high teens. Can I just invite you to comment on what high teens might mean? Looking at where you draw the line on slide 15, it suggests 16% upwards, but perhaps that's reading into things a little bit too much. Perhaps you could give some idea of the shape after that point. Whatever the answer is, for next year, is there potential for further growth in ROTE after that juncture. And then secondly, on capital you currently own something like 86% of guarantee, given the excess capital that you have, can you rule out in the short or medium term spending any of that excess capital on increasing your ownership in the entity. I know the management see untapped value in this geography? But investors tend to have a different view? Thank you.

I’ll just start with the second, 86% of guarantee. Are you planning to increase your share? We are very comfortable with our existing share ownership so we don't plan anything. Benjamin, do you want to comment on this? Rafa, I'm having some second thoughts on you. This is your last, should I be nice to you. Not nice to you. Do you want to take the first question? The 14%, there's a range it's not so clear. What does high teens mean in your planning for the coming year, year and half?

I think it's, so yes, high teens?

High teen is high teen.

Clearly, I think the message is very clear. I think we are clearly going to outperforms what was our goal. And we definitely want to guidance in that direction. And second, today, what we are projecting what we are seeing is this high teen that we can talk can be 17, 18,19. Clearly, we continue to working to make sure that we do high teens as high as possible. So clearly, our projection is telling us now that we are going to be on the upper part of the teens range, clearly in the very upper part. But we will continue pushing, the business units to get the best.

I will add two things on this one. Number one, the ranges that you see there, it might seem like it's arbitrarily drawn, it's not. So there is an intention behind those ranges. But why is it the range? Why aren't we so precise, and so on. And typically, we are precise, it's because of the fact that we are not providing guidance for 2024 today. We have a clear process with you. The 2024 guidance will be provided in the first quarter of next year, we have to see some of the uncertainties and so on. But our clear expectation at the moment is I'm looking into the report. So some of you, the analyst reports they're expecting 14% return on tangible equity for BBVA for next year. What we are telling you is that we clearly think that we are going to be delivering again, you have to be cautious in these numbers and so on. That's why we have to give it to you in the first quarter of next year. But we are clearly expecting to over perform some of your expectations. That's why we said clearly high teens.

Our next question comes from Sofie Peterzens of J.P. Morgan.

Yes, Sofie from JPMorgan again, just kind of on Turkey. I knew it's a very volatile environment. But you had EUR 5 billion of recoveries in Turkey and basically no credit losses and also kind of the other income was quite largely positive, mainly because the [inaudible]. But can you share how we should think about Turkey going forward, given that NII also was down 45%, almost quarter-on-quarter? So just any guidance on Turkey and just related the Turkey, I noticed your book value in Turkey fell to EUR 6.1 billion from EUR 7.8 billion. I guess that clearly has to do with FX or have you kind of done any value adjustments to the book value? So that would be the first question. And my second question would be my usual question. How do you see kind of any M&A opportunities, any inorganic growth opportunities considering that your capital position is very comfortable here? Thank you.

Do you want to take the first one, Rafa, about the forecast for the rest of the year for Turkey?

We, I mean, the guidance we maintain the guidance we provide for Turkey that the contribution of Turkey is going to be in line with the contribution that we have in 2022. The reality is that it is very difficult to do our forecast in detail. So far this year, clearly Turkey has been contributing in line with the full year of ‘22. But it's also true that after the depreciation of the currency, and the trends on the currency is difficult to forecast and at the same time, the rules of the game, how the banks are performed, operate, it changing continuously, in a return to the orthodoxy, what is good, but I think it's too early. What we have done clearly just to keep the bank as flexible as possible, minimizing and reducing the duration gap of the balance sheet is around two months now. So that in this changing environment with the rates normalizing according to the inflation, and also the currency depreciating, in line with the inflation gap with the rest of the economies, clearly, we are just flexible quick enough to reprice the balance sheet as soon as possible. So regarding our guidance but clearly, the evolution of the country is going in the right direction. Regarding your question about the reduction in terms of book value in Turkey is, it's mainly, it's only driven by the FX effect.

And the M&A question, any inorganic opportunity and so on. Sofie, we discussed it many times again before, we obviously look into opportunities in general. But our clear, clear focus at the moment is organic growth. We have to, we had a 17% ROTE bank, we have amazing opportunities in different countries that we are in so we are focused on organic growth.

We have our next question comes from Alvaro Serrano from Morgan Stanley.

Hi, good morning. I guess it's really a couple of follow up questions on Mexico and capital. On Mexico, I know you've very clearly explained the increase of the bond portfolio, as you think about 2024 and ‘25, I guess, and rate cut environment. The question is, can you, are you intending to grow the bond portfolio even more? And how much can you reduce the rate sensitivity in Mexico? Maybe some flavor on what to expect next year as rates seem to be coming down? While there's great sensitivity there. And then on capital. I'm sorry to do this. But in Q4, I think you referred to, I don't want to hold you against your comments. Because six months on, but I remember you did a very passionate defense of the 12% target. And I seem to remember, that you wanting to be at 12% by the end of the year. Your pro forma now is 12.60 something posted buy back, is you still intending to be a top percent by yearend or is 12%, we should think as a medium term target that you will go down to? Thank you.

Very good. Thank you, Alvaro for both questions on Mexico. How much do you reduce the sensitivity by doing all these actions, you see it in the appendix, in the appendix of our presentations, we have all these figures, it was 3.4%, the 100 basis points increase in rates. And it's a very symmetric, relatively symmetric calculation. So it's the other way around also for minus 100 basis points, but 100 basis points. It was 3.4% in the previous quarter. And in this quarter, you will see in the appendix that it's now 2.5%. So when rates come down, we are going to be hurt much less as compared to before. And you are asking are we going to continue on this, we have done a piece of this 2.5, by the way is dollar and so on. So the total is 2.5. And you also see in that page again, as I mentioned before, the cost of hedging in the footnote that we do also have one basis point of cost of hedges for the Mexican peso in addition to this, in the capital figure, you should see all these numbers there. They're the new updates to the appendix pages. But are we going to do more, are we going to increase the ALCO book even more, and so on. We are -- we have done a lot in the second quarter. A bit more can be done, but not to the extent of the second quarter. On capital, you're saying I was passionate about 12%, I'm still very passionate about 12%. I don't know. So you can hold me to my words every time, no, there is no problem. We are still underscoring our clear conviction that we don't like to operate in excess capital, 11.5% to 12%,…

Next questions come from Ignacio Ulargui from BNP Paribas.

Thanks very much for the presentation and for taking my questions. And congratulations, Rafa. I just have two questions. One on Mexico, as I look to your loan to deposit ratio has established around 100, and clearly above 100%. And you keep on pushing for loan growth and gaining market share in Mexico, but you are losing a bit of market in deposits. How comfortable are you with that and how farther we can go on the loan to deposit on the mix in deposits going forward? And the second question is on Turkey, so wanted to have a bit of your thoughts if you can help us to understand a bit on the impact that the potential changes that the Central Bank is taking in terms of removing the caps solely in the target lead spreads? What could be the impact of that into the target lead spreads? And how long would it take to normalize the current customers well in tax lead up. Thank you.

On the loan to deposit ratio of 99% for Mexico, as we just mentioned, we have done it on purpose, our cost of deposits is 2.4% versus the industry average of 4.6%. So we have 220 basis points cost of funding advantage versus a typical average Mexican bank. The reason that you have done this off balance sheet is we thought for those customers as well, it was the right instrument for their investments. But if you like we can start paying to term deposits, and we can get it back. So we have I mean, we have such an amazing franchise in Mexico. So the loan to deposit 99% is not a restriction at all, if you can, if you like we can always improve on that figure. But we are far away from the risk limits also. So at the moment, what we thought is the best value creating opportunity. Also the best strategy for our customers was the strategy that I mentioned to you. It's not coming out in the numbers. But I should also mention to you that we have gained market share in retail demand deposits in Mexico, retail demand deposits, which I think is much important than the broader market shares and the numbers that you see in the deposits. Then on the potential changes in Turkey, let me just say initially that we see the changes that we are seeing lately, and there was an inflation outlook report and presentation by the Central Bank governor yesterday, also outlining the Central Bank's plans going forward. And so we see all these changes quite positive. As we mentioned to you many times Turkey has a great potential but there are some macro fragilities. We do think that the new administration, the new economic administration, they…

We have our next question comes from Carlos Peixoto from CaixaBank.

Yes. Hi, morning. So first of all, Rafa, best of luck for future, pleasure to have worked with you for all these years. Now going to the questions. So sorry, just going back on the capital excess and the comments you made earlier regarding how comfortable [inaudible] 12% CET1 ration and all of that. So firstly, shall we assume then that the average CET1 ratio in the high teens ROTE guidance for next year to be at around those levels? And secondly, so doing here some back of the envelope so right now you were, we hear already have around EUR 2 billion or over EUR 2 billion in excess capital already just important for the share buyback and also on top of that we expect for capital generation throughout the coming quarters. So should we expect quite significant share buyback programs to be announced before the deadline of yearend 2024. And then the second question would be actually on Spain NII, Onur, I apologize if I missed some put, some previous comments on that. But basically, in the previous quarter, you're riding towards 30% rise in NII in Spain, looking at evolution in this quarter. It would, this quarter would have to be the peak in terms of NII evolution in Spain for that to be the case. So I was wondering if you still see 30% as a reasonable level or no, you're more upbeat on the evolution of NII in Spain. Thank you very much.

The second one, Rafa, that’s okay, you take it on NII. I think we did upgrade the 30% today, but let's, Rafa, why don't you take that one. Regarding the other question, the excess capital, are the numbers calculated assuming that we will be in the targeted ratio? The answer is yes to that one. Then you were saying 2.5. You have EUR 2.5 billion excess capital. Does that mean that there will be more share buybacks in that range until 2024? As I understand the question, Carlos, we just announced the share buyback today, and relatively speaking we did the largest ever share buyback relative to our size, the largest buyback program of Europe, EUR 8.2 billion buyback and dividends in the last two years. As I mentioned, let's go step by step. Let's do this EUR 1 billion, it requires an authorization so most likely, we will execute this in the fourth quarter of this year. And once again, it's a continuous process. We are committed to what we have been saying in my view, there is more to come, but we have to do it step by step. You mentioned your Excel. I have my Excel as well. Once again, if I look into our earnings per share, the dividends per share, I really do think there is clearly much more room to go in the share buybacks and in the fact that there is a lot of value in the share at the moment. Regarding the NII, Rafa?

As we already mentioned on the speech. We are upgrading our guidance on the NII in Spain to 40% to 45%. The main reason is just of the end of the day, what we have seen is the increase in the cost of funding in Spain is still probably lagging behind what was the initial expectation at the beginning of the year. So we have been upgrading our guidance on that respect. Today, we are expecting the NII to perform between 40% to 45% for the full year. There's a process in which we believe that there excess liquidity that we have seen in Spain, this is still putting pressure down on the cost of deposits. That’s the reason why also we have been downgrading the beta that we were expecting. Today, we are expecting for the year, a beta of 20, as Onur already mentioned at the beginning of the speech.

Our next question comes from Andrea Filtri from Mediobanca.

Two quick questions on NII and one on capital. On NII, ECB changed the mandatory remuneration yesterday. Do you have any expectations of further harshening of the conditions going forward? And could you also elaborate, just as you have done for Spain on your projection of evolution of NII in Mexico, when do you expect to peak? And what do you expect? What are your assumptions there on the evolution of future rates beta and AlCO contribution? And the second question on capital. What portion of your CET1 ratio is affected by hyperinflation accounting? And could you guide us on the Basel 4 impact? Thank you.

Rafa, maybe you take the, actually there are three questions, maybe the third one on CET1 ratio and the peso of Argentina and Turkey within that. Andrea, on the first one the NII, the further harshening of the conditions going forward. I mean, it's obviously dependent on institutions and people beyond us. So we cannot judge, yesterday's change in terms of not paying to the mandatory reserves, it will have an implication of EUR 70 million to EUR 80 million in 2024, full year September 20. But that was at some point it was going to be happening. So that was kind of expected. To be fair, there is nothing else that we are expecting at the moment. But again, it's dependent on others. So you never know. Then, when do we expect the peak in Mexico? Well, as I mentioned before, we do think that the third quarter and the fourth quarter numbers will continue to increase. The peak in the NII in the absolute number, it depends on many other things. But the growth rate in volumes is the key driver here, not the pure spreads, spreads might be peaking but then NII in my view will not be in the sense that you see the growth rate of our high return portfolios. I mean consumer book has grown 17%, credit cards have grown 22%. SMEs has grown 21% year-over-year in Mexico, year-over-year, and I'm looking into the quarterly growth. So this is the year-over-year in the quarterly growth. I see basically 5% growth quarterly, which is implying that the trend is still there. If these portfolios are growing 5% in the last quarter, and if year-to-year growth is 20%, I do see that the volume growth is sound and is very robust. And I look into the…

I think the question was something how the CET1 is affected the end of the day by the hyperinflation economies at the end of the day, the only, the most significant one clearly is Turkey, given the weight and the group, but a way to measure can be other comprehensive incomes amount on capital related to hyperinflation, and those are 15 basis points. So at the end of the day, the capital that we are generating because of hyperinflation accounting on accumulated terms, at the end of the day is representing only 15 basis points of our CET1 ratio. And the second part of the question was about, I think, what we are expecting on Basel 4. Today, Our best estimates, a bit expected in but Basel 4 is very limited less than 40 basis points in 2025.

Our next question comes from Carlos Cobo of Societe Generale.

Hi. Thank you very much for the presentation and just wishing all the best to Rafa. Three quick questions. One of them is basically following up on the growth in Mexico and thanks for, it's very detailed, and granular color. Deficit something of a challenge year-to-date, loans have grown in Mexico by 4.5. And your target was double digit. So could you -- double digit the growth in the year? But could you elaborate delivery on the dynamics during the year because where we heard from some peers is that higher rates are going to impact the loan demand and we expect this lower demand in from landing the second half. So just quickly, if you can touch on those specific dynamics, it's very clear your views on the long term but why growth is underperforming your initial guidance? If I'm correct in getting those figures. Second, am I correct to understand that the growth, the upgrade in ROTE is coming primarily from the stronger NII in Spain or are there other drivers of your upgrade to the 2024 ROTE guidance. And lastly, this is more of a general question on valuation on everything you said. The stock is some the value of the European Union some peers may say similar things but at the same time, the only thing we hear from banks is that they want to do share buybacks, to boost this capital. Why aren't you putting your extra capital at play? If you think there's opportunities to buy cheap banks, when you can obtain returns above the cost of equity? So if there are no banks are not putting the capital play that they're not seeing value either. Or am I wrong? Why aren’t you considering acquisitions? Thank you.

I have to start with the last one. I mean, Carlos, if you know some of those cheap banks, we should have an offline discussion on who they are. And then we are looking into every single opportunity of capital deployment as a competition of scarce resources capital, which return is the best for our shareholders. That's how we look into it. Obviously, there's a strategic perspective overlay on this, obviously, we want to grow. But it has to make sense from a capital return perspective. And we don't see those opportunities as you are, as you're saying, as compared to that the execution risk is basically zero. And we see a huge potential in our own share price. I'm not going to repeat myself, but we see that clear value in our share price. As a result, it's very normal that we consider this as the capital deployment opportunity. Regarding the growth, the first question that you asked, first of all, the numbers that you have seen there, the growth of 11.1% year-over-year for Mexico, broken down into retail and wholesale, retail portfolio growth is 15.3% and Wholesale is 7%. A part of that 7% the company segment they impress us, the company segment is 7% because of the devaluation of the dollar versus or the appreciation of Mexican peso, let me say it that way. There was 12% appreciation of Mexican peso in the year so far. And if you take out that impact out that 7% becomes 11% in the company segment, but our core strength is in the retail portfolio. And that retail portfolio, there is no dollar lending there, in the retail portfolio, we see still very strong trends. I did mention to you, I mean, the quarter-over-quarter growth in consumer is 4.44%, credit cards 5.6%, SMEs 5.1%. This is only the quarter. If you analyze this, this is the last quarter. I mean, you do get to that 20% that I'm telling you about. So if there is some softness, it is in the wholesale segment, and there is the impact of the currency that you have to be factoring here. The second question, did I miss a question? ROTE?

In 2024, related to an improvement just in NII in Spain.

It's basically NII improvement in, revenue improvement in Mexico and Spain that drives the most of it. But Mexico as well.

We have a next question comes from Marta Romero from Citi.

Thank you very much. Quite a few follow ups. The first one is the Mexico ALCO. What's the right way of looking at it from the outside? How do you measure your interest rate risk appetite? So should we look at it relative to your current accounts and equity? I don't know if you can give us some guidance on what the end game for that ALCO should be in Mexico. The second question is fees in Spain. You've been very resilient, seeing the performance of your peers. I mean, it's been a bit of a catastrophe. What explains that performance? Do you think that you still need to update your prices and low and bring them down given that you're making a lot of money on your NII. So you're going to be, your margins on fees are going to be lower? Or is it just that you're gaining so many customers? Can you explain a bit? What -- the reasons behind the that outperformance. And the third one, I'm going to push my luck. But given that you've given your ROTE target is pretty vague already. And then it's complicated to calculate how that translates into euros because it's over excess capital and we need to put, or evaluate into the equation and so on. Can we get some sort of commitment from or not commitment, indication of a bottom for that for earnings next year? Is it like EUR 7 billion a reasonable number or thank you.

The 9.5, thank you, Marta for all the questions, the 9.5 yield that we have on the ALCO book is the key driver for the growing that ALCO book. But in Mexico, what is the endgame you're asking and you're asking about sensitivity. I mentioned that before. But in the previous quarter, we had a sensitivity 200 basis points of 3.4%, NII sensitivity. Now, using all those ALCO strategies, we took it down to 2.5%, 3.4% has become 2.5%. And as I mentioned, we increased our ALCO book by EUR 3 billion, and we extended the duration also in the process for the whole to collect portfolio. We do think that we have done a big part of it, there might be a bit more that we can be doing in the third quarter, but the most of it is done. The second question the fee income in Spain, we are really doing well. It's across the board, asset management, quarter-over-quarter numbers, you see in the document that 4% is the average growth in the fee income in the quarter-over-quarter for Spain. When you break it down asset management quarter-over-quarter up 4.7%, credit cards, which we have been pushing, it's a relatively small business, but it's EUR 77 million fees in total cards and POS. In Spain, it's up 19%. Insurance, we have an insurance venture with Allianz, you might know, 9%. So it's across the board. It's growing very nicely. What is down, we were charging fees a bit last, a year-over-year comparison is completely driven by that. Deposit fees are now gone. But in general, all the line items I'm looking into in there in front of me now they are doing really well. Then ROTE invitation for bottom kind of an expectation for next year profit. And also you mentioned this sensitivity of the currencies and so on. I would encourage Marta, you and everyone else to not only look into ROTE, but our guidance on tangible book value as well. Tangible book value incorporates everything. It's a beautiful metric. So you have everything included. And on that one. We are also basically saying rather than 9%, as you see in the document, we are upgrading our expectation there as well. So that should be the guidance of value creation. The expected profit for next year, don't do this to us. So we'll do it next -- in the first quarter of 2024. But maybe there is only one clue that I can give to you as we are expecting. It's going to be better than 2023.

We have our next question is from Britta Schmidt from Autonomous Research.

Yes, hi, there. Thanks for taking my question. And just one on the fee income in Mexico. I mean, in line with the comments that you just gave on Spain, maybe you can break down the drivers there and comment a little bit on the sustainability because that’s been a line that performing very well, actually over the last couple of quarters.

Rafa, do you want to take this one?

I don't know if I got the question.

Breakdown fee income in Mexico.

Fee income in Mexico, whether it's going to continue? The answer is yes. The answer is yes. Because it's based on payment systems and payment systems is going so well. So it's going to continue. We have to pick up some speed now we have 10 more minutes.

We have our next questions from Ignacio Cerezo from UBS.

Yes, hi, there. Good morning. Thank you for taking my questions. I've got three quick ones, hopefully. First one is on the buyback authorization process by the ECB. Given this kind of outside the normal channel, basically, in terms of time in the year, we're sticking to a three four month approval, or is there anything different basically this time around? Second, I'm sorry, if I'm not reading the numbers correctly, but in local currency, the NII in Turkey went up a little bit in the quarter, considering the margin compression was quite significant, if you can elaborate on that. And then into next year. I mean, obviously, the cost of risk actually most of the units is probably below a normalized level. Is it logical to expect to pick up of course, the risk in ‘24 versus ‘23 on a group basis. Thank you.

On the first one, Ignacio, it's four months actually. So we submitted our request to ECB today. So the four month calendar starts, they can do anytime within the four months but that's the regular process. On the Turkish number, the current figures, you see it on page 19 of the presentation. It doesn't show that NII increase, so I didn't get the question, maybe in constantly you were asking it, the Turkish NII.

Local figures.

Local figures? Local figures NII is impacted by CPIs, CPIs kick into the NII in the local figures if you are looking into it, and the CPIs, again delivered a good number and the cost of swap has come down a bit. So it's beyond customer. It's more the wholesale topics that is impacting the local figures. Was it a third question?

No, it was second. And the guidance?

No, I think at end of the day, we'll see at the beginning of next year, but we are not thinking, we believe that the performance of the portfolio is just clearly in line where we were expecting and that’s the reason why we are maintaining our guidance in terms of cost of risk for this year.

Ignacio, I think we do get also a lot of benefit from the fact that the countries that we are in are not highly leveraged still. I mean, I repeat this over and over again. But in the case of Mexico, the house, the banking debt over GDP, let's focus on that, the banking debt over GDP is still 38%, basically half of Brazil, 40% lower than Colombia, and it's at the same level as Nicaragua, the leverage is important. So we are growing our book. But still, it's a very highly under penetrated country. And in the case of Spain, you do know this, but household debt over GDP is now 35 percentage points lower as compared to 2010. Corporate debt over GDP, 50 percentage points, it used to be around 120% of GDP. Now it's 70% and lower than Europe for the first time. So the leverage, the deleveraging that we have been seeing in Spain, and the low leverage of Mexico, these two countries especially is a safeguard in my view, all the cost of risk going forward.

So thank you, Nato. This was the last question. So thank you for all your questions. And while we'll leave it here. And just let me remind you that the entire team would be at your disposal to answer any further questions you might have. Thank you very much and Onur, I don't know if you want to close.

No, I just want to thank everyone and if you have not done your holidays, happy holidays. Happy summer and see you next time. Thank you so much for joining.

Thank you.

Thank you.