Good morning and welcome to BBVA's Second Quarter Results Conference Call. I'm joined today by Onur Genc, our CEO, and Luisa Gomez Bravo, the Group CFO. As in previous quarters, Onur will start reviewing the group figures, followed by Luisa, who will go through the business areas results. Then, Onur will give a brief update on the offer to Sabadell shareholders, and finally, we will open the live to receive your questions. Thank you very much for participating, and now I turn the call over to Onur.

Thank you. Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining BBVA's second quarter 2024 earnings webcast. Let's jump into the presentation as always, starting with Slide number 3. On the left-hand side of this page, you can see our net attributable profit in the quarter reaching EUR2,794 million showing obviously another quarter of record results. This figure is 38% above the results of the same quarter of last year and 27% above last quarter results. Our results, they represent EUR0.47 earnings per share, 28% quarter-over-quarter, and 42% year-over-year growth, both higher growth rates than the ones of the net attributable profit due to, obviously, to the positive impact of the share buyback programs that we executed. And then the graph on the right-hand side of the slide, it shows the excellent tangible book value per share plus dividends growth. We had 20% increase year-over-year and the 2.4% growth in the quarter. We always highlight the importance of this figure to all of you. We are very happy to see a solid number in the quarter, the 2.4%, despite all the market impacts, especially the upper movement of the interest rate curves and the Mexican peso depreciation in the quarter. On Page number 4, our CET1 capital ratio at 12.75%, reflecting a 7 basis points decrease in the quarter, impacted by the market impacts, as I just mentioned in the previous page, but also due to a very positive development in our view of very strong lending growth, very strong lending growth in our core markets, leading to market share gains. I'm sure we can discuss that in the Q&A as well. The 12.75% CET1 ratio obviously is much above our target range and regulatory requirements. Regarding profitability, on the left-hand side -- on the right-hand…

Thank you very much, Onur, and good morning, everyone. We're starting with Spain on Slide number 20. As you can see in the slide, Spain has delivered outstanding record results in the second quarter of 2024, exceeding the EUR1 billion in the quarter, which is an amazing milestone driven by an outstanding performance in all P&L headings on the back of strong commercial momentum. The sound activity trends already observed in the first quarter of the year have been confirmed in the second quarter. New loan production has increased by 12% in the first six months of the year, leading to a 2.4% loan book growth, above the system average. In such a context, we are reviewing upwards our loan growth expectations for 2024. We now expect the loan book to grow at low single digit in 2024 and to continue gaining market share. This is clearly reflected in the P&L, which shows impressive year-on-year and quarter-on-quarter growth, driven by strong core revenue increases. NII continues to grow on a quarterly basis, levered on activity growth and effective price management. As you can see on this slide, the customer spread has remained flat in the quarter, despite declining rates. Fees have also showed another very positive performance in the quarter, mainly explained by the strong contribution coming from asset management and credit cards. Expenses have remained flat quarter-on-quarter, and efficiency has continued to improve to an outstanding 35.4% cost-to-income ratio in the first half of the year. Finally, on asset quality, really no major developments. Trends remain solid. Cost of risk at 38 basis points, fairly in line with our guidance. All in, these very solid underlying trends have led us to also improve our P&L guidance for the year. We now expect NII to grow at low teens. Remember,…

Thank you, Luisa. So for the main takeaways from the presentation of the results on Page 24, let me not take time by repeating, because we always have this commitment that we will be finishing by the hour, but let me not take time repeating the messages, but in our view, it was a quarter that made us really happy, as Luisa was also saying, reaching elusive milestones that we thought we were unreachable some years ago. I mean, you have it in that little box on the right-hand side, delivering 20% in ROTE, Return on Tangible Equity, a growth of 20% in tangible book value per share, plus dividends, and breaking the 40% barrier in efficiency. In our view, amazing numbers in that sense. I know that many of my colleagues from BBVA are listening to this call. A shout-out to our people of BBVA. You are doing an amazing job. You should be very proud of yourselves. Then, Slide number 25 and forward, it's basically the update on the OPA. Given the interest that you have shown on the matter, which is understandable, we would like to update you on the latest regarding the takeover bid process. So Slide number 26. Basically, where we left you off and where we are. First, this is about creating a stronger and more profitable franchise with an increased lending capacity to families and businesses estimated at EUR5 billion per year. Second, the transaction shows our strategic appetite for gaining scale in our core markets and particularly a strategic push for the SME segment in Spain. Third, given especially the ever-increasing need we have been experiencing to invest in technology and the associated large, fixed costs, there are substantial synergies in the combination. And fourth, due to these significant synergies, we decided…

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

[Operator Instructions] Our first question is from Maksym Mishyn from JB Capital. Please go ahead.

Hi, good morning. Thank you very much for the presentation and taking our question. So my one question would be on the cost of deposits in Spain. I was wondering why they declined and how were you able to move part of term deposits back into site because their weight has reduced in a quarter as well? Thank you.

Maks, thank you for the question. It's coming down because the curve is coming down a little bit. And some of the large corporate and even public sector clients that we have, it's basically more or less automatically linked to the curve. And given that large segment clients reducing the cost of deposits for that segment, the reflection of the weighted average is in that 91 basis points coming down to 87 basis points.

Thank you, Maks. Next question please.

Thank you. The next question is from Francisco Riquel from Alantra. Please go ahead.

Yes, thank you. So my first question is on Mexico. The NII is flattish in the quarter despite the 6% growth in loans. So you mentioned that you have resorted more to wholesale funding. So I wonder what is the profitability of the new lending now that the loan-to-deposit is above 100% that you have to resort to wholesale funding. If you are front-loading these issuances or not. So if you can please elaborate on what's the NII trajectory going forward now that the loan-to-deposit is above 100%. On the Sabadell bit, I wonder if you can comment on the condition that you set regarding the antitrust approval. I wonder if you will go ahead with the tender offer regardless of any outcome that may come from the antitrust authorities, if you would agree if the CNMV were to wait for the antitrust approval before authorizing the tender offer. Thank you.

Do you want to take the Mexico one, Luisa?

Yes. Well, in the quarter, we managed the deposit base in Mexico in terms of wholesale deposits and wholesale funding, depending on where the pricing is. Sometimes we rely more on more costly deposits, which feed through the spread, and sometimes we rely more on wholesale funding. What happened this quarter is, as you mentioned, activity growth is higher, has increased significantly, especially on the wholesale side. And we've gone to the wholesale financing, but at the same time managing the cost of deposits, decreasing some of the more expensive cost of deposits as well. I think going forward, we're very comfortable with the profitability that we have, and we'll continue to manage the funding gap in this context. We do expect, however, for the second half of the year to grow in our, the customer deposit base because of seasonality. When you look at the results in Mexico, typically the first half of the year in terms of retail and customer funds is slower in terms of growth than the second half, and we do expect that the credit gap in the following months will be maintained at the levels that they are, and we expect to be finishing with an LCR ratio, which is more or less the same one that we have today. So we do expect customer deposits to increase and to continue managing the pricing of the deposits and the funding on the wholesale side accordingly.

Maybe just a quick addition on this one, because Paco, you were asking about the marginal profitability and marginal return on capital. This is how we function as a bank. Every single loan given at the marginal level, meaning the additional funding needed for that loan, the marginal funding that is needed for that loan, is it justified with the loan prices that we have. That's how we look into this. But at a very high level -- so you have to look into it at a granular level, but at a very high level, the yield on loans in -- you see it in the page as well, the Mexico, it's 14.4%, okay? 14.4%. Our return on equity, in Mexico is 27%. So wholesale funding at the marginal level, I can guarantee you that is very profitable and otherwise we wouldn't have been lending that number, okay? Then your second question is on the antitrust topic for the Sabadell transaction. You asked about the content of this and also the process as I understand. So on both of them, on the content and on the process, the CNMC, the authority here for competition matters. As you all know, it's a highly regarded independent institution. It's up to them, and we have full respect for their decisions, and we have to wait for their decisions, for sure. But you have seen us in the different dialogues relatively confident on the competition-related aspects of this transaction for a few reasons. Number one, there is a clear methodology and there are clear precedents in this case. And this is also being raised by the institution itself, saying that we have a clear methodology on this. Because we have seen very recently some transactions in Spain where that methodology was applied, and CNMC…

Thank you, Paco. Next question please.

Thank you. The next question is from Antonio Reale from Bank of America. Please go ahead.

Good morning. Antonio Reale from Bank of America. My one question is a follow-up on your outlook for NII growth in Spain. You guided to low-teens NII for this year. You've talked about better 2025 trends for the group. Can you tell us directionally how you would expect NII to perform in Spain in 2025, also in light of your commentary on better loan growth, which I guess will affect average balances? Thank you.

Let's go back to the activity growth. As we discussed before, this is not new maybe to most of you, but the spreads will be coming down because the rate curve will be coming down. ECB will be reducing rates in our view. But we have said to you that, that decline we would more or less compensate with two things. Number one, activity growth. Number two, the asset quality. On the activity growth, BBVA Research our independent research entity they are basically still seeing for the market a decline in the lending balances for the market in 2023 of minus 0.5%. They are foreseeing in 2025 that, after so many years, that the market will increase by around 1.5%, the lending volumes. Why? Because the rates will come down, it will trigger more volumes and so on. As you have seen, until May, the Spanish market has declined by minus 2% until May this year, minus 2%, and we have grown this quarter, year-over-year, and so on. We are growing above the market. If what we are expecting in terms of market growth is realized, I can tell you that the activity growth and the loan volume growth for BBVA will be compensating very nicely the spread decline that we would be seeing. And then there is the asset quality. We are guiding to around 40 basis points, as you know. Around 40 basis points for BBVA is relatively high, and we do expect that number to also, in the coming years, we'll see -- I mean, we will see, but in the coming years, to come back down to normalized levels a bit. To cut the long story short, one other point that I would highlight, and then I cut the long story short. The other point that I would put on the table is the ALCO book. In the appendix, you have that detail, but you would see that in the quarter, in the euro balance sheet in Spain, we have increased our ALCO book by EUR7 billion. We did think that when the rate curve was relatively high, that it was a good opportunity to do some more hedging. And as a result of this, the sensitivity guidance that we have been sharing with you, 5% decline in NII, for 100 basis points, step function, decline in interest rates, that 5% is now 4%. So we have been managing further the sensitivity of the spreads NII and NIM to rate declines. All combined, we are quite positive. Antonio, you are asking me 2025 in a very specific way. I can see it from your question. The only thing I can tell you is we are very positive. And we will provide you full guidance, as we always do, for the countries in February, in January, when we do the end-of-year results presentation.

Thank you, Antonio. Next question, please.

Thank you. The next question is from Ignacio Ulargui from BNP Paribas Exane. Please go ahead.

Hi, good morning. Thanks for the presentation and for taking my question. I have one, if I may. How do you see lending and deposit growth evolving in Mexico? Linked to this, I wanted to get your thoughts a bit on how the competition is behaving, particularly in deposits.

I mean, Luisa, you already mentioned it, but very quickly, Nacho, you see a small decline in cost of deposits, as you see in the quarter for us. And we said it multiple times before, but it's a bit of a repetition, but it is important. As you know, 75% of our deposits are retail and SME. As you see in the page, 85% of our deposits are demand deposits. And even more impressive number in my view is 57% of our deposits are below the threshold of insurance scheme in Mexico, which is a very low threshold, which means it's very, very small granular transactional deposits. In that context, we have been defending our cost of deposits. We are basically half of the larger players in Mexico, and we still see it positively. But you're asking NII in general. And again, I think Luisa has mentioned it already. But we can only tell you that we are quite positive. We are quite positive going forward in NII overall for the coming quarters. You see the 12.6% growth in lending. As I did mention in my presentation, most of that growth came towards the end of the quarter, which means it's going to be reflected in the coming quarters even more. So if you have 12.6% growth in loan volumes, the spread might be around these levels or slightly declining, but we are quite positive. I would expect NII to continue to increase in the coming quarters, quarter-over-quarter, because of that activity growth.

Thank you...

Maybe I can add, because I think Nacho was also mentioning about the competition from, I would understand, new players in the market on deposits and the evolution there. I think we have been very consistent in saying that obviously we respect the entry of these players into the market. They've not only obviously the most renowned one, but actually there are other very strong entities coming in. But I think that we have been managing both on the lending and the deposit side very actively as well, competing front to front with them. I think that we are, as we've mentioned, the largest and best fintech bank in Mexico in this regard. What we have been seeing on the lending side is obviously a pick-up in, I think, issuance of cards from these players. Their market share has been growing in the first part of the year. But when you look at the revolving rates of balances, the market share there is still below their peak at the beginning of 2022. It's around 9.6%. So it's growing, not as much as the issuance of cards. And in this regard, I think, as you know, we remain the largest player in the credit card market. We have a market share of above 31%, and we are very comfortable in competing with the players, not only in terms of the balances, but especially in functionality and delivering value to our clients. Today, our MPS stands the highest in the market above these players as well. On the deposit side, what I would say is that we have been very much allowing our customers to have alternatives to the rates that we offer on the deposit side. As Onur was mentioning, our deposit rates are 2.88% in cost of deposits compared to above 5% in the market. This is, I think, a very clear competitive advantage of ours. But that doesn't mean that we haven't been offering alternatives to our clients, especially on the asset management side, which have grown significantly year-on-year, above 25% growth. And we are the leading player there as well in terms of market share. And we will continue to offer the best products available in terms of returns to our clients while maintaining the competitive advantage on the cost of deposit side.

Thank you very much. So thank you, Nacho. Next question please.

Thank you. The next question is from Carlos Peixoto from CaixaBank. Please go ahead.

Yes, hi, good morning. Sorry, so one of my questions would actually be on deposit costs in Spain, and it's a bit of a follow-up from Maks' questions. So my doubt here is, looking forward, should we expect the same behavior or the same pattern of behavior of deposit costs moving more or less in tandem with market rates, given the -- and basically, if you could give some color on how much of the deposit base is pegged to market rates? And then just on the overall group outlook, and pardon me if I missed out on something during the presentation, but basically, given that you have some upgrades in outlook, particularly in Spain, in NII, as you mentioned, do you see this still within the guidance that was provided for the group as a whole? Or do you see it applied to the guidance you provided in the previous quarters for the group, I mean?

Okay. Thank you, Carlos, for both questions. Very quickly on cost of deposits. It will come -- yes, with the curve, it will continue to come down, the cost of deposits. But what matters is obviously the spread. The spread at the moment is [344] (ph). We are expecting for the rest of the year slightly below, not much difference, slightly below, because the decline in the lending yields will be compensated by the cost of deposits decline. On the guidance for the group, as Luisa has mentioned very clearly, we are upgrading basically everything in Spain. We are confirming the revenue guidance that we have been giving to you for Mexico, very clearly confirming what we have in Mexico. We are upgrading Turkey. South America is relatively stable. If you sum them all up, it's a really good picture for the group as well. But I think it was Britta who asked it last time. But what exactly is double digit? Because our guidance to you at the moment is double digit. We maintain that guidance of double digit, but double digit is a lot of numbers. The only thing I can tell you is that looking into the dynamics, we are very positive. I see no reason that we would not be able to replicate what we have done in the first half in the second half. If all the dimensions, all the guidance that we have been giving to you for different countries holds true, which we have full conviction that they would be, then you would see a very good second half as well.

Thank you, Carlos. Next question please.

Thank you. The next question is from Sofie Peterzens from JPMorgan. Please go ahead.

Yeah, thank you. This is Sofie from JPMorgan. Could you just remind us of your hedging policy? How much of profits are hedged in the various different countries? And also, how much of capital is hedged? And also related to this, one of your peers did a quite big FX adjustment for Argentina. How do you think about the FX in Argentina? And should we think about any FX adjustments in Argentina going forward? And then if I may, could you just briefly comment on your digital bank expansion into Germany? And also, maybe briefly how the Italian digital bank expansion is going? Thank you.

Maybe, Luisa, you take the Argentina question. You are the expert on -- for Argentina. But on hedging, Sofie, as you know, we have two types of hedges. We hedge capital and we hedge P&L. Capital, we hedge the excess capital so that the capital -- the CET1 variability is managed. So we only look into the excess capital above the group's CET1 ratio. What is the excess capital in every single currency, and then we do hedge that. Our policy is that we hedge 50% to 70% of the excess capital for capital, the cost, the benefit, everything of that also goes through capital. Then for P&L, next 12-month profits, we typically hedge 40% to 50% of that. And depending on the cost of carry, depending on the currency expectations that we have, we can be within or slightly beyond these ranges, but we typically have this range. At the moment, the most relevant one is the Mexican peso hedge. We do have 54% of the excess capital for Mexican peso is hedged, and we have 52% of the P&L is already hedged. That's why you have seen in the corporate center some positive impact in this quarter.

Yes. Well, we are not applying a different exchange rate to our Argentinian accounts other than the official exchange rate. We'd rather use the official rate for now versus estimating a new one. As you know, the IAS21 guidelines, which came out in August of last year, allow entities to change and use a different exchanger if they believe the current official exchanger is not exchangeable into other currencies. What we've been seeing is, and what we saw last year, is a strong depreciation of the official rate. That's why last year, when the gap between the CCL rate, or the parallel, whichever one, versus the official rate was significant, the gap was above 150% back in September, we didn't take the opportunity of applying IAS21 because we did firmly believe that if the Milei government or Milei won the elections, which is what happened, there would be a strong depreciation of the peso, which is what happened. And therefore, the gap between the official exchange rate and the parallel ones for the CCL one was narrowed. This year, what was -- what has happened this year? This gap has been fairly stable, I would say, during the first quarter, but it has started to increase as of April. It was around 24% of April. Right now, I think in July, last time I checked, it was around 50%, 52%. And why is this the case? Because I think that there is a demand from the market to have clarification on the Argentinian government regarding to the crawling peg and obviously the exchange rate mechanisms going forward. In this regard and the context that we have today, we are monitoring the situation. We do expect a strong devaluation of the peso in the second half of the year. The estimates that we have from our research teams are that the currency could go to ARS1,200 per dollar. Under that consideration, we -- the gap, again, will narrow and we'll be feeling more comfortable than today. So therefore, we are not going to be making any adjustments now. We will continue to monitor the situation. What I can say is that with that currency rate, we would have an impact of around 6 basis points in CET1. And if we were applying today the CCL exchange rate, which is at ARS1,350 to the dollar, the impact on CET1 would be around 8 basis points, and the impact to our net attributable income in the first half of the year would be around EUR30 million lower. So I think it's very manageable. And as I was saying, we will wait and see. And to the news that we expect in the third quarter with regards to the exchange rate mechanisms in [Argentina] (ph).

Very good. Maybe let's provide the sensitivity and that will also help you for the future, Sofie. 10% depreciation in Argentina implies 2.5 basis points in capital. Okay? 10% depreciation, 2.5 basis points. Digital banks, Italy and Germany, given the fact that we are so happy with what has been happening in Italy, and I don't think we have provided that number, but we can do -- we can provide it. We just passed 500,000 customers in Italy, and we just passed, or we are getting very close, actually. It was yesterday, basically a few millions less, but EUR5 billion in deposits, and I do think it's moving really nicely. As a result, we said we will take it to another country, which is Germany, we have taken that decision and the expectation is that in June, July period so mid next year 2025 we will launch in Germany as well.

Thank you, Sofie. Next question, please.

Thank you. The next question is from Pablo de la Torre from RBC. Please go ahead.

Two, if I may. One [Technical Difficulty] distributions and on guidance. Firstly, you have reiterated your intention to distribute excess capital above 12%. Could you please elaborate on the specific timing of that ambition, both if the takeover of Sabadell is successful, but also if the takeover does not materialize? And then the second question was on next year's ROTE guidance. Might be here a bit early, but you have reported 20% ROTE in the first half. You've guided to a higher than 17% in 2024. Consensus has ROTE falling to around 16% in 2025. Could you just provide us with any indication of where you see the biggest upside to consensus here? I know it's early again, but how do you expect revenue to grow in constant currency more or less into next year? Thank you.

Pablo, you say it's too early, and then you are asking for the number. So the only thing I can tell you is that it's too early, really. The only thing is we are very positive. We said it in the last call. Looking into the fundamentals of the business, the activity growth that we see in Mexico. And we are very positive of Mexico, as always. But we are very positive because we have an amazing franchise. And also, the new administration that we are seeing in Mexico. We have seen the new President talk about Mexico and the things that she highlighted, and I looked into everything that she has been saying, and the key things that come out is investments, private investments, nearshoring, growth, energy and infrastructure policy. We have to grow Mexico much more. It's amazing. And even the track record that she has as the governor of Mexico City, we are very positive on Mexico. Spain, as I told you, the spreads might come down. 4% is now the new reduced sensitivity to the interest rates. But we are seeing some clear pickup in activity. And we are still quite positive on the growth of Spain in general in GDP in the next year. So Spain should be relatively well-situated. Then as you have seen today in the presentation, both Turkey and South America they are coming back up. Especially, Turkey, if inflation continues on this path, you might remember this last year this month, we had 9% monthly inflation in Turkey. Last month in June we had 1.6%. If this inflation trend is maintained, we are -- we have a huge option value, huge upside, big upside, let's not say huge, but big upside in Turkey. It's a process still. They still need to…

Thank you, Pablo. Next question, please.

The next question is from Cecilia Romero Reyes from Barclays. Please go ahead.

Hi, thank you so much for taking my question. You have just commented on it briefly, but I would be interested to hear your views on whether you see any catalysts that could improve sentiment on Mexico, or whether you think the results of the election could have any impact on your operational performance in the country, beyond obviously FX. And then I have another question related to Mexico, in terms of what are the rate assumptions that you have on the guidance that you just reiterated? Obviously, because of the political outcome, some economies have been delaying rate cuts. So what is the impact that you've seen higher for longer in Mexico who have involved volumes and cost of risk? And finally, one clarification on the comment that you just made about the antitrust process on the Sabadell situation. You mentioned that a combined market share of around 25%, and I believe, and I just wanted to clarify, you mean total loans will mean a higher scrutiny? If we look at it per segment and SMEs and corporates per what you publish on your analyst presentation, you get to that 25% of loans combined. So I just wanted to make sure that you mean the additional scrutiny is a total loan level and not per segment. Thank you.

The first one I couldn't get. Did you get it, Luisa?

I think the question was something on the sentiment of Mexico because of the...

I was just wondering whether there is any catalyst that you see where the rhetoric will improve on Mexico, where you think the risk perception on the country may improve, maybe perhaps after September.

Thank you, Cecilia. Very good. Now I understand. Thank you so much for the clarification. The rhetoric and what can happen to improve the sentiment, I do think it's partially happening. And you have seen that since the elections, it's the actions and the statements of the government. And we are -- I did mention it before, we are seeing very positive messaging from the government. And we have a clear track record of the President in her previous role. So it just needs a bit more time, in our view, a bit more time. Then on the higher for longer, for Mexico, I think you were asking, but we do have the sensitivities also in the appendix. It's relatively symmetric, changes slightly, but not that much. You do see that every 100 basis points, plus, minus 100 basis points, has a 2.3% plus minus improvement or deterioration in NII. So if it's higher rate for longer, it's good for us because we are asset sensitive. If rates are high in Mexico, in Spain, in Peru, we take benefit out of it. In the case of Mexico, there is the clear that asset sensitivity. So if it's higher rate for longer, good for us in Mexico. Then on the third one, the antitrust and the 25%, it is basically based on, if you take lending, branches, people, in any metric, we don't reach the 25%. We don't. In the lending, 13.8%, [8%] (ph), 22%. And I would repeat once again, we would not be the largest player in Spain, which was recently approved to become the largest one. But we don't trigger the 25% in any sense. You are asking about a certain segment in a certain region, you might be passing 25%. I can give you today, I have it in front of me, in Balearic Islands, in Galicia, in Pais Pasco, in Basque region, there are players who are above what you might be quoting or thinking about BBVA in a certain region in this transaction. The market is a national market. We compete in the national market. In that sense, we don't pass the 25% in short, and the regional perspective on this, there are many precedents out there, which are even higher than the numbers that you might be quoting. Did I miss anything on Mexico? Luisa?

No. The only thing I think that I would add is that in terms of the expectations on policy -- monetary policy, we -- what does higher for longer mean for us we were expecting the rates to come down at the beginning of the year 9%, then the first quarter we're expecting them to come down to 9.25%. Today, we're expecting rates to come down to 10.5%. And that is the main assumption that drives also the view that we have on the NII...

And that's good for us. And that's good for us.

Yeah. Exactly. And that's also on the back of the cost of risk analysis. And that's also the main assumption within that...

In Mexico, I mean, Luisa always warns me on this one, which is true. There will be volatility in Mexico because there will be September, the period of the new government taking -- there is going to be -- there are going to be US elections in November. There will be volatility. But the fundamentals of Mexico and our strength in Mexico as a bank -- fundamentals of Mexico, I will only give you one number. We sometimes quote this, but I think it's super important. The labor costs in Mexico versus US, it depends from sector to sector, but it is one-fifth or one-tenth of the US, and it is now better than China. Cost of manufacturing in Mexico is better than China, is 1/5, 1/10 of US, you cannot stop this trend in our view. So we are positive on Mexico for the future.

Thank you, Cecilia. Next question please.

Thank you. The next question is from Marta Sanchez Romero from Citi. Please go ahead.

Thank you very much. Good morning. So thank you for providing the breakdown of your cost synergies. But it seems that you are only closing just about a third of the overlapped branch network, so those 300 branches. Why are you not being more ambitious? We've seen the Caixa Bankia transaction ended up with Bankia being completely shut down or the equivalent of Bankia being shut down. So I wanted to hear your thoughts there. And just sorry if I sneak in one, quick one. Are you reiterating your high single digit NII growth guidance for Mexico?

Very quick answers to two quick questions. Thank you, Marta. 300 overlapping branches, why lower than other transactions like Caixa? Because the two entities, both us and Sabadell, we have done very recent restructurings of our networks, and as a result, the potential to do more is lower. Then on the reiterating the high single digit, the guidance, yes.

Thank you. Thank you, Marta. Next question please.

Thank you. The next question is from Britta Schmidt from Autonomous Research. Please go ahead.

Yeah, hi, there. Thank you for taking my question. I would like to challenge you a bit on Mexico. I mean, GDP growth disappointed in the last quarter. We're seeing higher rates and there's also a bit of a shift on the retail lending side to more unsecured personal loans versus payroll loans. Could you give us your opinion on what impact you think this will have on loan growth, as well as on the cost of risk going forward? And maybe related to that, also with regards to the Mexican peso devaluation, do you still think that if you were to print double-digit earnings growth this year, that it is possible to grow on this number in 2025, as you indicated earlier? Thank you.

Thank you, Britta. Britta, I have the quarterly forecasts for Mexico and the 2025 forecast, but as we mentioned, we cannot share this early those numbers with you. And as I mentioned, we are positive. We are positive on the first topic you are challenging a bit, the long growth. On that one, we feel very comfortable that long growth is going to be there. Why? Just look at the history. The history is the average last 15 years, average GDP growth of Mexico is 2.1%. Okay? In that context of 2.1% GDP growth, Mexican banking sector, our numbers -- let me give you our numbers, we always grew every year, but on average, double digit. Double digit. How come in an environment of 2% GDP growth, we are growing double digit? It goes back the number that we have been quoting to you many times, but it is important, the banking debt over GDP in Mexico is one of the lowest in emerging markets landscape. It's 33% now, the latest number, which is half of Brazil, one-third of Chile. So there's leverage. Given all these Tequila Crisis that we had in Mexico many years ago, the country is still not having the leverage. So we are able to grow double digit without creating too much cost of risk in a profitable way because there's room for leverage. And if you look into the underlying details of this, you also do see that in Mexico, you do have a very vibrant, because of the remittances, because of the linkage with the US, you do see very vibrant consumer sector and Pemex and Empresas, the company segment. So we are quite confident on the fact that, that double digit lending growth will come as it has come every year in the…

Thank you very much, Britta. Next question please.

Thank you. The next question is from Ignacio Cerezo from UBS. Please go ahead.

Yeah, hi, good morning, and thank you for taking my questions. I've got two as well. The first one is on Turkey, which feels to me is the place where there might be a big amount of upside versus straight expectations. So excluding any hyperinflation and currency discussions, which are slightly outside your control on the local P&L and the underlying P&L I mean, feels like NII margins are probably depressed, feels like fees actually and costs will probably be linked to inflation. So I'm trying to understand if there is a negative offsetting factor against the margin expansion trend that we should be expecting things like trading income, for example, being too high or cost of risk being too low. So framing the discussion a little bit on Turkey. And then the second one, I'm sorry if I missed the explanation. The decline of Basel IV impact from 40 to 15 basis points, what drives that? And if the 15 basis points is a new fully loaded number and that we need to take into consideration or there are some phased out basically impacting '25, '26. Thank you.

Very good, Nacho, thank you for the questions on Turkey. Well, the upside will come from net interest income. The rest, net fees and commissions, net trading income, they will continue to behave as they have been behaving. So we don't see something really negative that might be coming along those lines. The negative might come from cost of risk. We guided you 110 basis points, if you remember, for this year. We are still at 85 or 84 to be specific. So 110 was our expectation. It's coming a bit better. But in an environment of interest rates being at 50%, which it has to be, otherwise the economic correction might not happen, that might have an implication of cost of risk. So if you are asking me what can be the negative in Turkey, maybe in the future cost of risk, we don't know if the rates stay too high. But the upside is clearly there. Upside is clearly there for 2 reasons. NII will improve. You -- the spread that you see which is slightly negative. We are seeing it, even in July, that it is picking up. And if rates come down -- we are very sensitive to rates, but if rates coming down, we have a huge potential upside there as well. So in our view, NII will be improving in the coming quarters. And the second thing is we do hyperinflationary accounting, as you know, in Turkey. If inflation comes down, you do have a major upside also. And inflation, as I said, the June number was 1.6% monthly inflation. It used to be 9% last summer. Then it came down 6%, 3%, 1.6%. In July and August, it might be slightly higher because of the seasonality. But if Turkey maintains this monthly inflation pace of 1%, 2%. First of all, the environment will improve, and it will help in every single line item and especially NII, but then it will help us also in the hyperinflationary impact. On that one, maybe I give you just one number on the sensitivity. 10% inflation with 10% devaluation has a bottom line, including CPIs and everything, has a bottom-line profit implication of around EUR150 million. So if rather than 45%, it's 25%, 20% decline in inflation, just the pure hyperinflation impact would be EUR300 million, bottom line. So we have a clear upside in Turkey in my view. Regarding the Basel?

Well, as we mentioned during the presentation, Onur, these numbers are still very preliminary, obviously, because you know that there are still RTSs that are expected by the end of the year and going into next year. And I think that there are still uncertainties around the final calculations of the impacts of Basel IV. I think the main aspect in the reduced guidance, which again is still preliminary versus the previous one, is due to the review of some criteria, particularly under the new regulation affecting trade finance guarantees, some operational risk. So overall, I think we can expect a lower impact, a much lower impact than the industry average, mainly as well as, because we expect no impact from the output floor.

Thank you very much. Next question please.

Thank you. The next question is from Andrea Filtri from Mediobanca. Please go ahead.

Hi. Two clarifications for me, please. First, if you could elaborate a bit more and give some color on the positives in the others component of Slide 14, what is compensating the large negative market impact? And second, a follow-up from Nacho's question on Basel IV, is the below 15 basis points new guidance a day one impact or fully loaded? Can you provide both please and what is the FRTB component you put in that? Thank you.

What is the -- what component, Andrea?

FRTB.

FRTB trading, okay. On the first question, the Page number 14, what is in other? The positive ones, hyperinflationary impact. You do know that in hyperinflationary accounting, you deduct the hyperinflation impact from the P&L, but it's not a capital item. So you add it back to capital, number one. And then minority interests and the other category, which is around plus 8, plus 9 basis points. So those are the 3 things. Minorities, others, which is deductions, basically, and then the hyperinflationary impact.

Well, no, what we have is an estimate, and again, preliminary estimate, because there are still high uncertainties around these numbers on a fully loaded basis. So we're giving the fully loaded number. We can't give any more details, really, until we have clarity on the RTSs to come. Again, there are some expected by the end of the year, and then we will have a better outlook of what the impact will be going into 2025. On FRTB, what I can say is that the impact is very limited.

So, thank you very much, Andrea. This was the last question. Thank you very much for all of you for participating in this call. Let me remind that the IR team will be available to answer any questions you might have. And I hope you have a very nice summer. Thank you.