Good morning and welcome everyone to BBVA’s Third Quarter 2023 Results Presentation. I am joined today by Onur Genc, our CEO; and Luisa Gomez Bravo, BBVA CFO. As in previous quarters, Onur will start discussing the group figures, and then Luisa will go through the business areas. Afterwards, we will open the line to receive your questions. Thank you very much for your participation. And now I turn it over to Onur.

Thank you, Patricia. Good morning to everyone. Welcome, and thank you for joining our third quarter ‘23 results audio webcast. Before going into the presentation, I want to welcome Luisa to the results presentation in her new role as the CFO of the group, although I believe that most of you have already met here, but welcome Luisa. So results, starting with Slide #3. On the left-hand side of the slide, you can see the net attributable profit reaching €2.83 billion, showing another quarter of record results. Again, over the €2 billion mark, the second quarter that we are passing the €2 billion mark and the 13% above the results of the same quarter of last year. These results, they represent also at the bottom of the page, €0.33 earnings per share, 18% year-over-year growth, a higher growth rate, obviously, than the one on net attributable profit due to the share buyback programs we have been executing. The graph on the right-hand side of the slide, it shows our capital ratio at 12.73%, reflecting a 6 basis points increase in the quarter after discounting the 32 basis points impact on the ratio from the €1 billion ongoing share buyback program that we are, at the moment, executing. Our CET position, obviously, as also the page shows, remains very clearly above our target range and above the regulatory requirements. Moving to Page #4 showing the consistent growth in our operating income with a very robust upward trend, in our view, that serves as an indication of our potential going forward. It underscores also the strength of our franchises and the success of our profitable growth strategy. Page #5, our tangible book value per share plus dividends. It continues the outstanding evolution of previous quarters, 18% increase year-over-year and an exceptional 5.5%…

Thank you very much, Onur, and good morning to everyone. As an anticipated, we are very pleased to share with you a very good set of results. Our organic profitable growth strategy remains well on track in all geographies, as you have been seeing throughout the year with some momentum, especially in those products and segments where we see the greatest value. If we move to Slide 18 in Spain, you will see an outstanding set of results in the quarter of the loan book remained broadly flat with uneven developments by portfolios. I would like to highlight the growth in the most profitable segments in consumer and SMEs, where we continue to gain market share in the quarter and year-on-year. I would also like to highlight this quarter the positive evolution of mortgages, supported by new production levels. However, early repayments, despite starting to show a declining trend, continue to weigh down on the loan stock in the year-on-year numbers. Still, as I mentioned, year-on-year numbers that all slightly better than the ones that we showed last quarter. In terms of P&L, we are posting a very strong pre-provision profit, SCC growing 24.5% in the quarter, 42.6% year-on-year. In line with past quarters, this is driven by NII. NII continues to be supported by the customer spread improvement with which Onur mentioned before, the repricing of the loan portfolio continues, while deposits costs remain well contained. As there is still excess liquidity, and as I mentioned, limited loan growth in the system, our LTD stands at 90%, very much in line with the banking system in Spain. To date, we are not facing major pressures on the positive remuneration with a deposit mix that remains very solid with a limited shift from demanded time deposits, and this leads us…

Perfect. Thank you, Luisa. And let me not literally read what is already on the page. The only thing I would say is that one more quarter, we have reported very strong results. And more importantly, we clearly believe that we have positive prospects going forward. And with that, maybe we open it up to Q&A. Patricia?

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

Thank you. The first question today comes from the line of Maks Mishyn from JB Capital. Please go ahead, Maksy. Your line is now open.

Yes. Hi, good morning. Thank you for the presentation and taking our questions. I have two on Spain. The first one is on customer spreads. It seems that migration to term deposits has been slowing down and so did the beta. And I was wondering, what are your expectations for the through-the-cycle customer spread and how you expect it to evolve in the next quarters? And the second question is on loan volumes then your corporate loan book grew quarter-on-quarter. And I was wondering if you could just share more light on where the demand comes from and what are your expectations for the current – for the coming quarters? And also, what’s the reason for a pick-up in new production and mortgages? Thanks.

Perfect. So on the Spain deposit beta, we guided all of you that it will be around 20% at the end of the year. We still stick with that guidance. But you’re asking for more kind of prospective future-looking perspective on what will happen to the spreads. So Maks, we don’t know what will happen to the deposit costs. It depends on competition. We will see how it evolves. We discussed many times in these calls before that the situation in Spain is a bit different than many other European markets in the sense that there’s so much liquidity in the system. There’s so much liquidity. And as you can see, the banking system is deleveraging. The banking system growth, August this year is minus 3.5% lower loans. The stock is coming down, which means the liquidity that we already have is going to be even more if it continues like this. In that sense, given so much liquidity in the system, the scarce resource is not deposits. So even if you lose some, it’s okay. In that sense, the competitive dynamics is very important, but there are some macro factors that leads us to believe in the fact that deposit costs will be more or less contained going forward. But that uncertainty being there, what I can tell you with the fact is that the lending yields, given the repricings that still need to be done, some of those mortgages that we have had, as you know, two-thirds of our mortgage book crisis every 6 months and one-third every year. And they take the 2 months ago, Euribor, meaning it’s 6 plus 2 and 12 plus 2 months. Given that, we still expect the lending yields to go up until the second quarter of 2024. So we at least…

Thank you, Maksy. Next question, please.

Next question today comes from the line of Benjamin Toms from RBC. Please go ahead. Your line is now open.

Good morning. And thank you for taking my questions. Firstly, on cost of risk, please. Your year-to-date basis, you’re running at 111 basis points relative to guidance of 100 basis points. Can you just clarify the revised FY ‘23 guidance here, which you said was slightly above current levels for 2023. Does that mean slightly above the 111 basis points, which is the year-to-date number? Or has it been slightly above the Q3 print, which was 126 basis points. I presume the former, just wanted to check and is slightly above 111 basis points the right way to think about the run rate for 2024? And then secondly, on costs, Consensus has costs growing at 4% in 2024. That still feels light relative to weighted average inflation. Would you agree with that assertion? Thank you.

Very good. On the first one, very clear to the point question and to the point answer, this is slightly above 111 basis points, not the 100%. So we are seeing some slight deterioration on the numbers that you are seeing at the moment. On this one, let me clarify very quickly because this is one of the numbers that we kind of missed in terms of guidance because we were guiding you around 100 and now we’re at 111, and we are telling you that slightly above 111 for the year-end. On this one, if you look into the delta, delta of what we had in mind at the beginning of the year and where we are today and where we will be at the end of the year. This is mainly coming from the mix. When you look into the growth rate of different geographies, the geographical mix, only the fact that we have grown much more than what you were expecting in Mexico and the fact that in Spain, there is a slight deleveraging minus 1.8% year-over-year decline in the loan balances, only that geographical mix, the fact that we are growing in Mexico and less in Spain is basically 4 basis points. Then within Mexico, for example, when you look into the growth rate of different segments and products, you see that we are growing much more in retail segments, which is great because these are highly profitable, high return on capital, high return on capital segments and products. But that mix change within Mexico, and one of the reasons of the mix change, by the way, is that the commercial – corporate commercial loans, they are affected also by the currency. As you know, Mexican peso has appreciated but is also flowing in to this mix number, another 4 basis points. So just some mix effects, it explains around 8 basis points of that difference. And then there is real deterioration more than what we expected in South America. In the case of South America, you might remember that we guided you for 225 basis points, and now we are revising that guidance to around €250 million. So there is some real deterioration. Why? Because the core geographies that we are in, in the case of Peru, I mean, the expected GDP growth this year is 0.4% with a negative bias. In the case of Colombia, it’s 1%. So the macro situation has deteriorated in some of these geographies, which has led to a real deterioration as compared to what we were expecting. Again, the impact of that is 4 basis points. So the real deterioration versus what we were expecting is around 4%, and the majority of the gap can be explained by the mix, the mix effect of geographies or segments. I hope it’s clear. Then on the costs, you’re asking for 2021 guidance, Luisa, we don’t give 2024 guidance yet. No?

Yes.

Next quarter is the quarter. The only thing I can tell you is that we keep looking into your reports, again, on the overall bottom line that you are expecting from BBVA for 2024. The only thing I can say is that we don’t provide again a country or segment kind of guidance, yet, we will do that next quarter. But at the bottom line, at the profit level, we clearly expect better numbers than what we had in 2023 and that we don’t see in your reports. So hopefully, we will bridge the gap in the coming quarters.

Thank you, Benjamin. Next question, please.

Thank you. The next question comes from Sofie Peterzens from JPMorgan. Please go ahead. Your line is now open.

Yes. Hi, this is Sofie from JPMorgan. Thanks a lot for taking my question. I was just curious on Turkey. As this is very strong, VL ratio fell 3.8% from 4.2% coverage is 100. And cost of risk is only 26 basis points. But how should we think about cost of risk in Turkey going forward, especially with more normalizing interest rates in the country. And if you could just remind us what a normalized cost of risk for Turkey should be? And then my second question would be on capital returns and kind of capital going forward. You state that the share buyback will end by end of this year. How should we think about capital return in ‘24? And how does this got off compared to any growth opportunities, both inorganic and organic growth opportunities that you see and also any capital headwinds that we should be mindful of next year? Thank you.

Very good. On the Turkey Sofie. On the Turkish cost of risk, 26 basis points as you can – as you also said, it’s very low as compared to our historical standards. In Turkey, in 2018, ‘19, we have seen 288 basis points, 244 basis points, but last year, which is more or less a normalized year 2022, if you remember, the cost of risk was 94 basis points. And this year, so far, it’s 26. 26 is too low because given the very high inflation in the country, the payment capability of the customers back of the loans is very high. That’s why it’s very low. So there will be some deterioration for sure once things normalize. And as Luisa mentioned, there is some normalization happening. But you’re asking again maybe for the guidance for next year, again, allow us to do that in the next quarter. But 26% is too low in the historical standards of Turkey. On the capital return, again, we discussed it many times before. We will continue to do what we have been doing in our view. It has been a relatively consistent story. And our – the nexus of all what we do, even the topic of shareholder return is first, delivery. We have to deliver the numbers. And we have to be doing better than competitors. That’s our clear conviction and that’s what we are focused on in the bank. Once we do that, and in our view, we are doing it, if you look into our numbers once again, 17% return on tangible equity. We are also doing 18% year-over-year growth in tangible book value per share, 18%. And still, they are trading below book. This – if you give this to a finance student in any one of the universities that you can pick, it just doesn’t fit. How come the 17% to tangible equity with 18% tangible book value growth year-over-year leads to a less than book share price? So we do clearly believe that we are trading on the fair value of BBVA in that sense, and we also do have the capital. You see 1273 as of today, as of end of September. Given that you will continue to see us buying back some of our shares, and you will continue to see us with very handsome remuneration to our shareholders because we will continue to deliver, which is again the nexus of the whole thing. Luisa, you want to add anything on this topic?

No.

No. Okay.

Thank you, Sofie. Next question, please.

The next question today comes from the line of Alvaro Serrano from Morgan Stanley. Please go ahead. Your line is now open.

Good morning. I guess there are kind of two follow-up questions. One on Spain. In terms of deposit mix, I heard your comments around the customer spread, but specifically on the deposit mix, I see your term deposits are almost flat quarter-on-quarter, which is quite impressive. I realize it’s the summer months and people spend more than save, but can you maybe give us a bit of color of what the mix could look like over the next few quarters in the context of what you’ve already said. I’m thinking, of course, there is been this CaixaBank well-advertised offer, which is low. But as a starting point, you’ve all seen Sabadell pretty aggressive sort of remunerated current accounts are just a bit of commentary of what’s happening under the hood there in that number? And the second question is on to go in the Q3 stand-alone, the cost of risk on my numbers is 325 or so. I acknowledge your guidance for the full year is below 300 basis points. But as we look going forward, it looks like it’s going to be more consumer heavy the growth. Is that a reasonable run rate? Can it go up more than that or less than that? Just a bit of commentary around the provision standalone for Q3 in Mexico. Thank you.

Okay. Luisa, do you want to take the Mexican one on cost of risk. On the first one on Spain, our – as I said, we don’t know on how the competition will evolve going forward. We have – I’ve given you some structural factors on why we think that still the better will be relatively capped as compared to other geographies that you are looking into, I’m sure. As of today, if you segment that beta that you are seeing of BBVA as of today, which is around 16%, the mix or the breakdown of that 16% is in the CIB, large enterprise customers and very large even private banking customers, the beta is around 85%. So it’s already there. Then on the what we call the midsize enterprises and so on the Banco de Empresas, the company segment, it’s around 35%. And then the key thing is the retail, retail, which is the mass segment mainly. And as you know, one of our strengths in Spain is the fact that our deposits are very much spread to a very large customer base and so on. So it’s like 70% – close to 70% of our profits come from retail and SMEs and so on. Around 55% of our deposits are under the threshold of deposit guarantee scheme, which is €100,000. So it’s very atomized customer base that we have. Given that, the beta that we are seeing for that segment is less than 5% at the moment. Given again, the liquidity situation in the country, I really do think that the betas will be relatively capped. But again, you’re asking for the next quarters, again, allow us to do this next quarter when we give you the full picture. But I can give you positive signals on this topic is what I would say. On cost of risk in Mexico, Luisa?

Yes. Well, as you rightly say, the cost of risk in the quarter has increased to 308 basis points. Primarily, this has been because of what Onur was mentioning, a higher NPL entries in the retail segments precisely in those segments where we are growing the most in credit cards and consumer loans. I think this is in alignment with the strategy that we’re following of growth in these segments of gaining market share in these segments. And these are, as we mentioned, segments that yield above 26%. So still very profitable segments. But also we’ve seen higher provisioning needs coming from our early warning signals that are factored into our behavioral risk models. What this means is that when we see one of our customers that is not up to current payment of their payments. And our competitors, we factor in that into our behavior models and that increases, it’s like an anticipatory signal of potential losses, but they are not real losses. It’s just anticipating what’s going on with that client and his other relationships with the banks. Our clients are very much engaged with the BBVA Mexico. We have a very holistic relationship with them and strong NPS. But still, we need to factor these behaviors in the system into our models, and that’s also increased the cost of risk and the impairments in this quarter. But all in all, I think this is very much in line with what we were expecting, as we said, in line with the guidance that we have for the quarter, and we expect, depending on the mix effect going into next year, the mix will drive the cost of risk going forward.

And again, one of the reasons for the mix effect has been the Mexican peso appreciation, which has many more positives for us. We would like to have that at any point in time. But the growth of the Mexican lending book is 11% on average, roughly. It’s around 15% for retail, only 7% for companies. And one of the reasons for that company is 7% relatively lower growth is because of this Mexican peso appreciation. If you isolate for the currency, the growth in the company segment in Mexico would have been 11%. In that sense, the 300 guidance that we have given you and that we still stick to is because of this mix effect and because of the currency impact also on the company segment.

Thank you, Alvaro. Next question, please.

The next question today comes from the line of Francisco Riquel from Alantra. Please go ahead. Yor line is now open.

Yes. Thank you for taking my questions. I want to ask about Mexico. First one is what the customer spread, which is flattish quarter-on-quarter. The deposit EBITDA is still low relative to peers and the longest is flattening out despite the improving mix. So I wonder about the expectations for the customer spread in the coming quarters. Where do you see the terminal deposit EBITDA? And how much repricing is left, if any, on the loan book, now that interest rates are peaking. And also related to this, the loan-to-deposit is still rising to 105%. And I wonder if you have a threshold in term to depot, after which you will start paying up for deposits or if you plan to fund the increasing cap with wholesale debt. And then the second question is about – is a follow-up on capital returns. And if there is any reason why you will not return all the excess CET1 of 12% in the next buyback program? Or will you still leave a capital buffer as we have seen with the current buyback? Thank you.

Very good. On the first one, the deposit EBITDA. And also, you’re asking more on the spread and it’s flattening out, as you have said. Francisco, as you know, I mean, our story, our guidance to all of you for many quarters has been the spread of Mexico is not going to go up too much in the coming quarters, as we have told you. We told you that the key story of Mexico in the NII is going to be the volume growth, not the spread improvement, further spread improvement. You’re asking specifically on the spread, I can tell you that these numbers would be the peaks. And we have been telling you that the spreads will not be increasing too much in Mexico once again. So you might see even a slight decline but not much, a slight decline going forward or a slight increase, it’s going to be around these levels. I would remind you once again also that there is also this concern that when the rates come down, in Mexico, the Central Bank rates, there will be a big decline in this number. That’s not – that’s not true. I mean when you had 4.5% policy rate, not too long ago, some years ago, it was 4.5% policy rate versus the 11.25% of today. Even then, even at that environment where we had for 4.5%, the spread was around 10%, more than 10%. Because of the mix of our lending book in Mexico, when you look into the key, again, strength of our Mexican franchise, it is mainly these credit cards, consumer and so on, they have fixed rate in any case. So you wouldn’t assume even in a very, very aggressive scenario of rate cuts happening too fast, you wouldn’t expect too much of…

Thank you, Francisco. Next question, please.

The next question comes from the line of Andrea Filtri from Mediobanca. Please go ahead. Your line is now open.

Hey, sorry. I was on mute. First question on the composition of your CET1 capital and the second on digital euro. As you pay out capital in euros, and you cannot extract capital from several of your subsidiaries, the FX composition of your CET1 skews towards hyperinflation currencies. Is there an adjustment by the supervisor of what is distributable CET1 for the FX composition of capital? And on the digital euro, what do you see as risks and opportunities of the digital euro implementation? Have you budgeted the impact to your business model? And can you share it with us? Thank you.

Okay. Andrea, thank you for the questions. On the first one, we put it on purpose very clearly at the appendix of our presentation every quarter, the book values of different enterprises, different subsidiaries of BBVA, you can find it at the end. As you can see, if you cannot repatriate some of the dividends that you have in these geographies, it will be locked in the book values. As you would see also from that quarter-over-quarter, you can see the evolution. We are repatriating profits from these geographies. Turkey, the biggest one in terms of book value, again, in the appendix, you would see that it’s the highest hyperinflationary country that we have operation. We have repatriated €350 million of dividends in 2023 already. So that repatriation happens. If you don’t repatriate by the way, the solo, BBVA SA profits and capital ratios would be in such a way that you might not be seeing the value in the BBVA SA. You also have all the details of BBVA SA there. So we don’t see any risk emerging from the discussion that you have. More importantly, unlike many other of our competitors in Europe, we are not only focusing on profits. We are also focusing every single quarter. It’s either the second page or the third page, I don’t know. But every single quarter, we are putting always the tangible book value per share growth. Tangible book value per share growth, obviously incorporates every single currency risk that you have because your capital will be affected from any change in the currencies and the tangible book value will be affected. And you would then have a lower figure. So all of that is already incorporated into our management discipline. And again, you can see the numbers in the documents…

Thank you, Andrea. Next question, please.

The next question comes from the line of Carlos Cobo from Societe Generale. Please go ahead. Your line is now open.

Hi. Thanks for taking our questions. The main one would be on Mexico under risk appetite. I was wondering if you have been taking a little bit that appetite to grow in consumer on the back of the increasing rates and how it’s expected to affect the cost of risk or basically, the message you are conveying today is that the risk return remains very, very attractive in Mexico despite higher rates and higher provisions. And at the same time, in line with that, cost of risk in corporate looks abnormally low, especially on the back of the rate hikes. I was wondering if you could elaborate on that. Why is it? Do you think is it sustainable, or when we look into 2024, we are going to have higher cost of risk in consumer as well as corporates. Second, when you said that you have returned to the mortgage segment in Spain, would it be possible to discuss a little bit your offer? Is it fixed rate loans that you are growing in, or are you seeing a slightly different product, are it becoming more common in Spain with mixed mortgages, like 3 years, 5 years fixed tranches and then floating? I would like to know what’s the pricing dynamics and why you have been able to grow market share where other peers are struggling. So, what is kind of the combination that is working for you? And lastly, sorry, one final question on trading. Could you elaborate a little bit on that line because it’s probably the most volatile and where we have less visibility, are you positive for trading next year? And what was the driver of the trading increase this quarter, this is recurring or driven by any one-off? Thank you.

Luisa, do you want to take the trading or your matter and your specialty? On cost of risk, Carlos, very good question. The wholesale has been behaving really well. But also retail is behaving very well. And I will repeat this once again. We have guided you for Mexico for cost of risk this year to be less than 300. We are still maintaining that guidance. But you are right, in – especially in wholesale, the numbers are really positive. And why is that, because Mexico as a country is doing really well. I mean you might have – you might remember this, but we upgraded, the growth rate, GDP growth rate of Mexico twice this year. The expectation at the moment is 3.2%. It used to be one point something, then it was 2.4%, now 3.2%. What we are seeing in Mexico is really beautiful in multiple senses. Number one, the key problem that we have seen for many years in Mexico has been the lack of investments. And this is the first time after many years that we are seeing a lot of investments flowing into Mexico. The overall growth rate of the investment number is around 9%. Within that, for example, machinery and equipment, which is long-term investment in nature areas, it’s around 19% growth. The FTI in Mexico is up 40% in the first six months of this year. We are seeing a lot of topics related to near-shoring and so on really becoming a reality. I am not sure that you follow it, but the research keeps publishing our – the signals of near-shoring on what’s happening, especially these industrial complexes and the renting of places in these industrial complexes and so on. It’s really, really positive. And given this, after so many years, after decades actually, Mexico has become the number one exporter to U.S., passing Canada, passing China. So, there are some positive, very positive dynamics happening in Mexico in our view. And as a result, by the way, this is corporate-related EBIT, so the companies are doing well in general. But also as directly correlated to this, obviously, the labor markets are very strong. I mean the unemployment rate, obviously, there is some informality. But even if you isolate for that impact, apples-to-apples, the latest unemployment is 2.9%, the lowest in many, many, many years. Given the situation, so there might – it might be too low and there might be some adjustment given the rates, there might be. But overall, the macro situation is clearly helping the cost of risk figures in Mexico in our view. You asked a very specific question on mortgage. If I am not mistaken, 85% of our new production in Spain, mortgages is fixed rate. As others, we also do have a mixed product, but it’s not big in the composition. Again, 85% is a fixed rate product that we commercialize. On the trading, Luisa?

Yes. Well, this year NTI has been increasing, but primarily on the back of global market activity across the board in the different geographies. We have been gaining both on the franchise side as on the leverage side on global markets. I would like to also indicate that with regards to a couple of countries, maybe on Mexico, on the quarter, you may see an impact, a negative impact in NPI that is coming primarily from an exchange that we did in July of short-term sovereign bonds where we received bonds at 9.45% yield, and we replaced 5.5% yield bonds and that impacted our NTI in around €80 million. That’s why in the quarter, you see a negative impact in NTI in Mexico. Actually, considering that the bottom line in the quarter will show quite a good increase. In Turkey, Turkey has been posting outstanding NTI results from – driven primarily from global markets and specifically on FX. So, with the situation in Turkey, with the regulation, the access to dollars, volatility, guarantee, BBVA has an outstanding team in global markets that monetizes this volatility and generates quite sound recurring FX NTI quarter-on-quarter, and that is what you see in this quarter as well.

Thank you, Carlos. Next question please.

The next question comes from Marta Sanchez Romero from Citi. Please go ahead. Your line is now open.

Good morning. Thank you very much. So, first question on Mexico. The Mexican Government has approved tax credits for CapEx for certain exporters. So, how much of an impact could this have on your corporate loan book growth for the following quarters? And a follow-up on your risk appetite on Mexico again, how can investors get comfortable that your risk appetite will not result in a car accident. Can you please elaborate a bit more on what’s driven the increase in defaults or cost of risk that we have seen in consumer? Is it that you have been testing new segments, or yes, any color there would be very helpful. And just a third quick one, an update on the equity hedges in Turkey and Mexico, how much of your carrying value have you covered? Thank you.

Okay. Maybe you can take the equity hedges, Luisa. On the Mexican tax credit to certain exporters, we have not really calculated Marta, to be fair. The specific impact of this on the lending and this and that on the direct impact on our business, the only thing we can say is that it’s another positive trend in the sense of promoting exporting industries and creating incentives for people to near-shore. It’s going to be positive. On Mexican cost of risk, how can we, say Gural [ph], ensure that the cost of risk is going to be – and there will be not a car accident, as you just said. Once again, I would repeat it once again on two dimensions. The first – or maybe I will start top line once again on the topic of we are maintaining our guidance that we have had for Mexico at the beginning of the year, which was less than 300. And in that sense, we are still, again, keeping that, although you see some slight deterioration in the cost of risk in this quarter. But why is that happening, I partially mentioned it in the first answer, but the mix effect. Marta, the cost of risk for the retail book in general is around 600 basis points. The cost of risk around – for the corporate book in general, even in the previous years, it was around 50%. So, the mix effect is huge in Mexico. I would repeat once again and what Luisa also said though, although the retail book comes with that 600 basis points that I mentioned to you, it comes with a higher return on capital. It’s a better book. Even if you look into through the cycle, so you can look into the current losses, but…

Yes. Well, as you know, we typically hedge between 60% and 70% of the aggregated amount of excess capital. Specifically in Mexico, we are currently hedging around 60% of the excess capital. And in Turkey, we are currently hedging around 50% the excess capital specifically. In Turkey, we shifted a little bit the dynamics of the equity hedges after the elections and at devaluation. And we have increased slightly the sensitivity to depreciation because we see the currency being stable in these months and stable towards the end of the year. So, right now, sensitivities in our CET1 ratio stand at around 5 basis points for Turkey against the 10% depreciation and around 9 basis points from Mexico against 10% depreciation. With regard to cost of hedges, which you know we include as part of our CET1 costs as well, we have around 1 basis points per month of cost of hedging in Mexico, and the cost of hedges in Turkey have gone up slightly because of the interest rate evolution and they right now stand at around 1.3 basis points, 1.4 basis points per month.

Thank you, Marta. Next question please.

The next question comes from Britta Schmidt from Autonomous Research. Please go ahead. Your line is now open.

Yes. Hi there. Thank you for taking my question. Two fairly short ones. In Turkey, you described the customer spread as having bottomed now, but can you give us a figure as to what was it in September, October versus the start of the quarter? And whether you expect more net interest income growth to help offset the inflation pressure on the cost base within Q4. And then slightly related to that, what is your expectation for the cost to income ratio for the full year and also the José development in Q4, given that there are some revenue impact such as, for example, the deposit insurance, fund charge in Spain? Thank you.

On the first one, very quickly and directly to the answer, customer spread in July, if I am not mistaken, now, Britta, it was minus 250 basis points and minus 240 basis points in July, and it was 100 basis points positive, 190 basis points in September. That’s why we are saying that it has peaked. So, the average that you see in the documentation is composed of very negative numbers in July. And since then, improving, improving, improving, September number is 190 basis points. On cost-to-income, we still will have clearly independent of the deposit guarantee fund. We will have positive jaws in the year for sure. We don’t have a clear guidance or clear target that we communicated to the market on cost to income, but it will be clearly positive jobs.

Thank you, Britta. Next question please.

The next question today comes from the line of Carlos Peixoto from CaixaBank. Please go ahead. Your line is now open.

Yes. Hi. Good morning. A couple of questions – I have three questions, actually, with quick ones, I hope. So, the first one is actually on the group’s cost of risk guidance earlier in the year, you – the guidance was around 100 basis points for the full year. Right now, we are actually at – or it was actually at 111 basis points in the nine months. I was wondering if you still see those 100 basis points as achievable, or should we expect a level somewhat above that? Second question would be on the cost of risk guidance in Turkey. I am sorry if you had already mentioned, but if I missed it. The final one was actually a follow-up on the bond swap in Mexico. I was just wondering if you could give us a bit more details, namely the amounts that were swapped. And if I understood correctly, you saw a 9.5% yield in bonds to 5.5% was added. So, this has a positive impact on NII over the medium-term, right, just to make sure. Thank you.

Very good, on the first one, yes, we did mention it. It’s going to be slightly worse than 111 basis points is the guidance for the cost of risk. And Carlos, as we mentioned also before, it’s mainly driven by the mix. The mix that we are growing more in Mexico and less in Spain and the fact that we are growing more in retail Mexico and retail, South America EBIT than other segments in Mexico, especially less growth in corporates in Mexico, but slight deterioration as compared to 111 basis points that we already have in the third quarter. Then the cost of risk for Turkey, I don’t think we have provided guidance on that one. But what we can tell you is that the 26 basis points that you see is much lower than our traditional average. And given the fact that inflation was so high, it was very low. Now, that the rates are going up, there will be some negative impact. So, again, not a major, major impact, but it will be increasing from the 26 basis point levels that you are seeing. In terms of the loan swap, you are right, it’s part of what I discussed before. We wanted to reduce the sensitivity of our future earnings to the rate declines. As part of that, we wanted to buy duration and we wanted to buy longer term. And as part of that, we participated in this swap. It was around €2.5 billion in gross amount. We gave to the government 1 year, as you said, 5.5% yield, and we bought 4 years, 9.5% yield. That had an implication. NII impact is limited still. But the NTI impact was minus €82 million. So, the reason that the Mexican overall profit and Mexican NTI, if you look into the details, has come down in the quarter is because of the swap. But we really do think that it might have a very short-term impact on the profitability. But we do think that it was a great deal, and we do think that it will, again, ensure great future earnings in Mexico going forward.

Thank you, Carlos. Next question please.

The next question comes from Ignacio Ulargui from BNP Paribas. Please go ahead, Ignacio. Your line is now open.

Hi. This is Ignacio Ulargui from BNP Paribas. Thanks for taking my questions. I just have two questions. If you could update us on the percentage of deposits, which are being remunerated in Spain regardless of whether the Artem side, particularly focusing on the corporate side? And also, I just wanted to get a bit of if I just look to your strategy, I got the impression that you have bought some additional bonds in Spain in the euro balance sheet. And from the comments that you did about mortgage growth and trying to secure a bit of long-term yielding assets, I get the impression that you are protecting yourself ahead of rate cuts. If I just look then to the sensitivity in the euro balance sheet, it’s more or less unchanged. I mean can you help me just to reconcile both dynamics, the 5% to 10% rate sensitivity with the strategy on the ALCO and the rolling the total mortgages at fixed rates? Thanks.

Very good. Thank you, Ignacio for the question. On the first one, I mentioned it, but let me answer your question with those better breakdown that I have shared with everyone, which is in the case of CIB and large clients, and again, some private banking business also is in the same range. But 85% is the better that we already see, 85%. In the case of Banco de Empresas, as we call it, which is the mid-corporate, the company segment, the beta is around 35%. And in the case of retail, retail include mainly the mass segment, it’s less than 5%. These are the betas. As you can see for the mass segment, we don’t pay basically. And as we discussed maybe many times before, it goes back to the liquidity, it goes back to the fact that deposits are not the scarce resource in Spain, given the fact that there is so much liquidity and given the fact that every day, given the deleverage in the balance sheets, given the lower stock balances in credit, that liquidity is increasing. Regarding the Spain euro balance sheet, very good question, Ignacio, as always. It’s – but if you go back to the end of year, beginning of this year, beginning of 2025, we were telling you that the sensitivity to an NII to rate is 10% to 15%. That’s how we started – how we ended last year. Then we have changed that to 5% to 10% and 5% to 10% is a very large range. You are right that you cannot really see this fixing that we are doing. I can tell you that it has really come down. The number is around 6% now. So, we are at the bottom end of the range that you are seeing. So, we started last year, around 15% to be fair. Today, 100 basis points decline in the rates would only have a 6% decline in NII. And it has been a continuous gradual and we accelerated on this, especially in this last quarter, to be fair, but we have been, again, taking negative carry, taking negative carry, I repeat it, to be able to ensure the future earnings of the bank. I mean negative carry, and we are typically buying middle of the curve 5 years to 6 years. 5 years to 6 years, Spanish sovereign bond, for example, was yielding 3.5%. We could have chosen to put that money into the ECB at 4%, but we said, no, we want to fix this. So, 5-year to 6-year Spanish sovereign, although it gives less than the liquidity facility and 50 basis points less, you wanted to be doing some of this fixing. As a result, the sensitivity is the 6%.

Thank you, Ignacio. Next question please.

The next question today comes from the line of Fernando Gil from Bestinver. Please go ahead. Your line is now open.

Hi. Thank you very much for taking my question. The first one is on the ALCO portfolio and a follow-up. Can you please comment on the evolution of the unrealized losses in the quarter from nearly 1% of TNAV to less than 2.5%. That is one. The second one is, can you please provide your view on the single resolution fund [ph] going into 2024? And finally, on capital requirements, I see the REP 1 basis point up in the quarter. Can you please comment on the capital requirements going forward and remind us of the headwinds, if there are headwinds going forward? Thank you very much.

Okay. On the whole-to-market, I think Fernando, you were referring to whole-to-market – mark-to-market losses. It is true. It’s now – we say less than 2.5%, around 2.4% actually. The reason for that is mainly Turkey. The rate situation has changed a lot. It includes the euro bond, it includes every single entity. But the losses is basically – or the mark-to-market is mainly euro, which is more or less the same, although there has been some curve changes in Europe also, but that change is relatively small, but the situation in Turkey, the other peak components within that is basically the same euro and the Turkish impact on the mark-to-market. The Turkey situation has deteriorated in that sense. But still, it’s – as you can imagine, it was published in the stress test period as well. We have one of the lowest mark-to-market positions that you can imagine there. On the 2024 deposit guarantee fund and the single resolution fund in 2024, the single resolution is expected to disappear and DGF is expected to come down significantly. But we have to see it on how they evolve. On the SREP requirement, Luisa?

Yes. Well, what we can share now is the increase of 25 basis points on the OC requirement, which we published already, yes. So, right now, we have a requirement in CET1 of 8.77. So, it will go up to 9.01 because of this SREP requirement. And then, of course, we will wait for the SREP in December to provide you with the requirements for next year.

So, this was the last question. Thank you very much for all your questions and your interest. As always, the IR team is available for any further questions you may have. So, thank you very much.