Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) Q4 2018 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to BBVA Full Year 2018 Results Presentation. I’m Gloria Couceiro, Head of Investor Relations. And I’m honored to introduce you all to Onur Genç, Chief Executive Officer of the group. And as always, here with us today is Jaime Saenz de Tejada, BBVA Group CFO. Onur will begin with a presentation of group results and then Jaime will review the business areas. We will move straight to the live Q&A session after that. [Operator Instructions]. And now I will turn it over to Onur to start with the presentation. Onur Genç: Thank you, Gloria. Good morning, everyone. This is my first results presentation with all of you. So first of all, I would like to welcome you all. Thank you for joining in. Moving on to our fourth quarter 2018 results presentation. I’m on Page 3. In summary, despite some negative macro and currency movements in some of our core markets during the year, our diversified business model proved its resilience once again in this year, in our view, and we have posted very strong results in 2018. Three messages to highlight and they are all depicted here on this page. The one on the left-hand side, we recorded a net attributable profit of EUR 5.324 million in 2018, representing a 51% increase versus last year. As always, there were some nonrecurring items that have affected our 2017 and also 2018 financials, respectively. So if we exclude those nonrecurring items, and to be more specific, Telefónica impairments and China CNCB sale in 2017 and the impact from the sale of BBVA Chile in 2018, we recorded a 7% year-over-year increase on a more comparable basis. The good news is that despite the macro and the currency headwinds and despite the hyper-inflationary accounting standards now applied in Argentina in 2018, we believe we posted very healthy numbers, thanks to the very positive underlying core business drivers as displayed, and as I will talk in a second, by the strength of our core revenues and our strict discipline in cost management. The second message on the same page, on Page 3, in the middle – at the middle of the page, is the fact that we maintain our clear focus on creating tangible value for our shareholders. As you can see from the chart, in 2018, we increased the tangible book value per share plus dividends with a double-digit percentage and to be precise by a growth rate of 10.1%. And the third important message on this page, on the right-hand side of the page, we would like to highlight is that we continued to improve on our profitability ratios in the year. Return on tangible equity in the year was 12.5% and return on equity was 10.2%. Both of the numbers there, excluding nonrecurring capital gain from Chile and excluding the key nonrecurring items also for 2017, return on tangible equity for 2017 was 11.5%. So the significant improvement on already one of the highest return ratios in the industry is well worth to mention on this page. Moving on to Page 4, Slide number 4. These are the highlights of the other pages that I would be talking to you about, but as a summary, the key highlights. So the start with, as we already mentioned, the net attributable profit year-over-year growth is driven by a strong growth in core revenues. So net interest income plus fees have grown by more than 10%, 10.4% to be specific, in constant euros. In some other core metrics, as you see in the page, we have passed through some aspired thresholds. So on point number two, continued focus on efficiency has led us to go below the 50% threshold, basically on the back of excellent evolution on costs. Efficiency ratio improved almost 90 points, 89 basis points in the year, to 49.3%. And as we will see in a second, we show positive jaws. Jaws, growth in revenues minus growth in costs, in all of our businesses without an exception, which in our view was a very, very good trend. The trend in digital sales and digitalization of our customers is once again outstanding, as you see on point number three. Digital sales rise above the 40% mark of the total units sold in the year for the first time versus 28% a year ago. Digital customers, up by 20% in the year to 27 million. This is, again, a landmark figure because it implies that more than 50% of our customers are actively interacting with us through digital channels. Similarly, if you look into the mobile customers, the number of mobile active customers exceeded 23 million, with a yearly growth rate of 29%, and we expect to pass this 50% threshold here in 2019 as well. Risk indicators, point number four, continue to be very sound with a good trend in NPL reduction dropping 61 bps versus 2017. The coverage ratio has increased to 73%. We have seen some slight pickup in our cost of risk, which I will talk more about shortly. Number five, point number five on the page, the resilient capital ratio that increases 26 bps in the year despite the market volatility and the IFRS 9 impact. And as we mentioned, on number six, profitability ratios also improved in the year. Return on tangible equity at 12.5%, again, excluding the capital gains from the BBVA Chile deal, and tangible book value per share plus dividends growing about 10%. Moving on to Slide number 5, this is the profit and loss highlights for the year. At this – looking at the summarized P&L, we, again, would like to highlight the fact that net interest income is growing above 10% in constant euros. Net fee income growth is also robust at 9% in constant euros. NTI contribution, on the other hand, has been lower. Year-over-year comparison is also affected by the gains we have had last year from the sale of our CNBC, the Chinese stake, but even if you exclude that, our trading income was soft given the macro conditions. The other income line is negative because this is the line item where the hyperinflation adjustment in Argentina is recorded, included, but in aggregate, in total, the gross income grows 4.3%. At the same time, the costs were once again contained, as I mentioned, due to our strict cost discipline, increasing 2.5%, which is, obviously, below the revenue growth and also well below the blended inflation rate of 5.7% in our footprint. As a result, pre-provision profit was strong at EUR 12 billion, growing at a rate of 6.2%. Impairments, I move on in the page to the other line items, impairments decreased in the year driven by the Telefónica impairment in 2017. But if you exclude that non-recurring item, impairments were up 17.1%, driven mostly by Turkey and partially offset by lower provisions elsewhere. Net attributable profit, as I mentioned before, grew 51% in the year in current euros or 78% in constant euros. But again, excluding the non-recurring items, again, the capital gain from BBVA Chile in 2018 and its recurrent operations in 2017 and 2018, the sale of Chinese stake and the Telefónica impairments in 2017, net attributable profit growth, as you see on the page, the second column from the right, 7% in current euros and 22% in constant euro terms. Moving on to Slide 6, and this is the breakdown by geography. Excellent performance in Spain, notably 63%, helped by the improvements in the real estate portfolio. And also, the U.S. at 57% growth year-over-year. While Mexico continue growing at a very strong double-digit rate. On the other hand, Turkey and South America, as you can see on the page, declined in current euros due to the complex macro environment in the year and the associated currency devaluations. We do believe this page is critical to highlight, the resilience of our diversified business model. We talk about this very often, but it's a good representation of our talk. In a very complex year like 2018, where we see significant declines in the contribution of some of our geographies, as you can see here, Turkey and South America, we still managed to grow our bottom line profit in a very healthy way on a comparable basis because of that diversified business model that we have. Moving on to Page 7. Slide No. 7. Moving on to the quarter, the fourth quarter of the year. Basically, most of the key messages that we have highlighted for the full year holds for the fourth quarter results as well. To be more specific, core revenues growing at a very robust rate. Net income – net interest income plus the fee income growing at 11.3% at constant euros, 11.3% blended rate. Lower NTI contribution than in the same period of 2017, but higher than previous quarters. As mentioned before, the other income line is negative due to the hyperinflation adjustment in Argentina. But overall, in aggregate, the gross income, growing 4.7%. Efficiency improvement, again, as like the full year, is very visible with costs increasing 1.7% less than the revenue growth, obviously, and also well below the inflation rate for the mix of geographies that we have. As a result, the pre-provision profit was EUR 3.2 billion, growing at a rate of 7.6%. Impairments decreased in the quarter, again, mainly driven by the Telefónica impairments, so the year-over-year comparison might be a bit listed and so that's why we exclude this impact. Excluding this impact, impairments significantly increased in the quarter, 84%, due to the additional requirements for some very few large-ticket loans in Turkey. Cost of risk in Turkey is actually in line with the guidance that we have provided before. To be more specific, we have closed the year with 244 bps in the year. But still, the impact on the fourth quarter numbers was very visible, obviously. Moving on to Page No. 8. So this is the core revenue growth. As I said, like the full year, in the fourth quarter, the key highlight was our core revenues have grown in a very robust way. And you see it in this page. So if you move to our revenues breakdown, net interest income, it has accelerated. So our net interest income in the fourth quarter was up 12.3% versus a year ago, and up more than 5% versus last quarters, with an outstanding quarterly performance across the board, in most of the geographies, practically in all the geographies. We also benefited, obviously, from the higher contribution of CPI linkers in Turkey. But overall, the core operating business drivers were very robust, as you see on the page. Positive evolution also in the net fees and commissions, 7.4% versus the same quarter last year. Net trading income, on the other hand, as I mentioned before, was lower in the year and in the quarter due to lower ALCO sales and Global Markets results because of the market's evolution. Total revenues, when you sum them all up, it was impacted again by hyperinflation adjustment in Argentina, main impact is in the other income line. But total revenues were up 4.7% versus fourth quarter last year, and growing 5% in the quarter, yet again, supported by core revenues. In short summary, strong core revenues in the quarter, partially offset by lower NTI and hyperinflation adjustment in Argentina. Page No. 9. Slide No. 9. This is about efficiency, I talked about it a bit. It's very important and I think we continue to show high resilience, as you see on the page. One more quarter, we continue showing positive operating Jaws. It is indeed very satisfying to see our expenses growing well below the growth rate in revenues for so many quarters now and despite high inflation in some countries of our footprint. To be more specific, in 2018, our costs grew 2.5% versus last year in constant euros, well below the 10.4% growth in core revenues. Also, as I said, below the inflation rate in our footprint, which was 5.7% blended in the last 12 months, excluding Venezuela. And these figures that I mentioned are even better on a quarterly basis. So, 11.3% versus 1.7%. Efficiency ratio, as you see on the page, has improved 89 bps to 49.3%. And as I mentioned, this is the year where we passed the 50% landmark. If you track the CNI without hyperinflation adjustment, the improvement was going to be even better with 160 bps. So it was a very good year to note in terms of efficiency improvements. We continue – obviously committed to improve efficiency in the context of our transformation. And once again, I believe our track record shows well how we are delivering and how high it stands as a priority for the management across the group. Page 10, this is the efficiency view across geographies. The improvement in efficiency is particularly noteworthy, and I mentioned it in a previous page. I think it is particularly good because of the homogeneity of the improvements in all the markets. As you see on this page, on Page 10, without an exception, in all the countries, the efficiency improvement is very visible. I would particularly highlight the case of Spain, where costs continue to go down, minus 4.6% year-over-year, and Mexico, with costs growing well below the inflation rate as you see on the page. A large part of this, we believe, has to do with our push to digitize the business, not only to drive the efficiency but also to increase the sales. So as a segue to the next page, if you go to Page 11, on some few pages, I would like to talk to you about the transformation program that we have and how we are evolving in those. I mean, this is, obviously, a topic discussed by many as a core value driver, digitization, but our conviction level on the need to address the changing nature of the interface with – we have with our customers is much higher than others. We started this journey much earlier than others, and we believe we are already reaping the business benefits of that focus. So if you look into this page, Page Number 11. Digital sales, it keeps growing at a very fast pace in all of our geographies, reaching, again, very significant levels. For the first time, we passed the 40% threshold, 40.7% of all units sold in the year were sold digitally. This was 27.5% one year ago and it was 16% in 2016. So the economic value of digital sales, we also measure that beyond the units and the economic value of digital sales or total sales is 32%, labeled as PRV in the graph as you see. This was 12% two years ago. So the steady growth trend is also very consistent across markets which also makes us particularly happy, both in units and in value. As you see in every single geography there is a clear trend of upward growth and we are very happy about that as well. Slide Number 12, this is one of the landmarks that I mentioned upfront, 50% of our customers are now digital. Underpinning the growth in digital business is the continuing digitization of our customer base. I mean, digital customers up 20%, as I mentioned upfront, and 20 – it's now 27 million clients who are interfacing with us in a digital way. Our mobile active customers also grew 29%, even better, and it reached 43% penetration. This accelerated adoption is also expected to reach more than 50% in 2019 in mobile. We are also very happy that our app was once again awarded as the best banking app by Forrester and by the World Finance in 2018. So all of this is good, but how does that translate into business results? And I would like to share with you a few pages on the tangible linkage between our drive of transformation and how it links to business results. On Page 13, on the left-hand side of the page, we see the evolution of credit cards sales in the U.S., which is a very – obviously, a high-margin product in the U.S. During the last 12 months, we have increased our total credit card sales by 89%, the total. In the same period, the credit cards sold digitally, it grew 184%. The digital penetration in the sale of this product is 43%. So 43% of the products sold in the U.S. for credit cards is sold digitally. And as importantly, if not more importantly, as highlighted in this example, digital helps us acquire new customers. So 92% of all digitally sold credit cards in the U.S. last year were sold to new customers. So this was an acquisition engine, new customer acquisition engine for us. Another example is how payroll accounts have evolved in Mexico during 2018, if you look into the middle of the page. In 2016, the Banco de México, enabled the regulation to facilitate payroll migration. So we took that new regulation as an opportunity to onboard new clients using our digital capabilities. Payroll again, obviously, a very high value product. Payroll migration to BBVA through the digital means is now very easy and convenient, using our app or through the web. As a result, as you see on this page, we gained seven new payroll accounts for each one migrating to another bank. So it gave us a net inflow of 331,000 accounts. How did we achieve that? Again, same story. 70% of the payroll acquisitions were done through digital channels in a very seamless and convenient way. And then on the right-hand side of the page, you see an example from Spain for enterprise clients. So in 2017, BBVA launched Click and Pay, as we call it, a solution for SMEs, where the SMEs can easily access a credit line to cover their treasury needs for providers, payrolls, taxes, imports, whatever. And we experienced a net growth, with new production in 2018, growing 13% versus 7% in the market, much higher than the market, again, a very important product. Then the competitive differentiation is, again, mostly triggered by digital sales. The penetration of digital sales in this product in commercial loans has increased from 13% to 61% in 2018, so a very, very good development here as well. All of these are examples of products, but this is true across the board. As we have mentioned in past quarters, and now I'm on Page 14, the more digital a client is, the more profitable it becomes. There's obviously a chicken and egg here. I mean, there's a natural tendency for high-value clients to engage with the bank in a digital way, but we still see this dynamic as a self-reinforcing one. Digitization, it's a process with different steps. So in the first step, typically a client will start engaging through inquiries only. These clients are still 44% more profitable than non-digital customers. Next step implies beyond the inquiry, operating or doing servicing through digital channels. These clients are 84% more profitable than non-digital. And then the next level brings clients to acquire products digitally and they buy products digitally, and these clients are 150% more profitable than the non-digital ones. And then finally, on Page 15, another clear benefit of digitization and the transformation that we are going through. And these are some of the reasons why we think our core revenue drivers were as robust as we have seen in 2018. You see the NPS figures here. With the help our digital assets, we have maintained leading positions in the Net Promoter Score across our footprint, with number one position in six countries. In some of our core markets, we are definitely number one and number two in the case of Colombia. Digitization, as you see on the right-hand side of the page, drives customer satisfaction and engagement for our clients. And as a consequence of this, obviously, attrition rate is much better for digital customers, 47% lower than the non-digital ones. Going back to the financial indicators and going back to risk. So I'm on Page 16. Sound risk indicators, as the page says. Our risk indicators continued to be very sound. We have seen higher impairments, as I've mentioned to you initially. So 31% higher than the third quarter and it's primarily driven by Turkey, both by the macro update we have done in our models for Turkey and also, for provisioning for a few large – very large tickets, but with sustained, low overall cost of risk for the bank of approximately 1%. NPLs were significantly reduced by EUR 3.4 billion versus last year, and our NPL ratio decreases by 61 bps versus last year. So our new number, as you see on the page and before, is 3.9%. And coverage ratio remained stable at 73%. So again, except a few large-ticket items in Turkey, we have seen across-the-board improvements in cost of risk and across-the-board improvements in our NPLs and coverages. Solid capital position, page number – Slide number 17. And again, as we talked before, this is a clear management priority and focus. We have a very solid and resilient capital position. CET1, we are closing the year at 11.34% as of December 2018. The ratio has remained stable versus September 2018 as organic generation, that remains very healthy, has been offset by some year-end adjustments, to be more specific. So the fourth quarter results contribute 29 bps, of which we deserve 10 bps for dividend and AT1 coupon payments. The increase in RWAs in constant euro detracts 13 bps, mainly driven by activity growth in almost all business units as well as the annual update of the operational RWAs. As you know, we do it every year, which has taken place this quarter. And lastly, the other's bucket, it detracts 6 bps from the ratio. This bucket includes, among others, a slight decrease in eligible minority interests as well as some year-end adjustments due to pension commitments, valuation updates and also higher prudent valuation. I would like to note that in fourth quarter 2018, market-related impacts due to AFS portfolios and the effects have been almost neutral, unlike the previous quarters, as we will talk to you in a second. Regarding the letter – the appreciation of the Turkish lira and the Argentine peso – Argentinian peso has been partially offset by the depreciation of Colombian and Mexican peso. But going back to the full year numbers on Slide number 18 – Page number 18. Year-to-date evolution – regarding year-to-date evolution, CET1, fully-loaded, has increased by 26 bps. On the one hand, we have absorbed the IFRS 9 full implementation impact, which was minus 31 bps, and we have generated 50 bps from the sale of BBVA Chile. Excluding those extraordinary items, capital generation in 2018 added 7 bps. Our capital has proven very resilient in a year of very high volatility for us with markets-related impact deducting 37 bps. You see the 37 bps as the third bar from the right, minus 37 bps. This is basically two components: The severe depreciation of the Turkish lira and the Argentinian peso. As you know, year-to-date, the Turkish lira has depreciated by 28% and the Argentinian peso depreciated by 57%. So that got reflected into these numbers. And then the second component that is feeding this minus 37 bps is the mark-to-market evolution of the AFS portfolios, and Telefónica evolution and the sovereign portfolios that we have. All in all, the CET1 stands at 11.34% at the end of the year, well above the regulatory requirements. Having said this and in order to be better prepared to face the future regulatory developments with clear comfort, we have considered it reasonable to increase our capital target to a range between 11.5% – 11.50% to 12%, and we expect to be in this range by the end of this year, by the end of 2019. And at the same time, very important, we maintain our announced 35% to 40% cash payout dividend policy. Once again, I would like to highlight the quality of our capital, with the highest leverage ratio of the peer group at 6.4%, as you see on the page. Also worth to mention that we have more than covered our AT1 and Tier 2 buckets on both phased-in and on a fully-loaded basis. On this subject, I would like to point out the fact that we have recently announced also the early redemption of our CRD4 AT1 issued back in 2014, I think. Regarding MREL, we already complied with the requirement and our funding plan also ensures the fulfillment in 2020 when it will be binding. To this point, our future funding needs will be limited – worth to mention that it will be limited to the rollover of senior debt and the covered bonds maturities for MREL-eligible instruments. Moving on to Page 19. I talked about capital and dividends. Again, to be very specific, regarding our dividend, we will submit a proposal to the competent government bodies to distribute a cash dividend gross of EUR 0.16 per share to be paid in April of this year once, obviously, approved by our Annual General Meeting. In case of approval, this would result in a 37% cash payout, excluding capital gains from BBVA Chile sale, in line with our shareholder remuneration policy. The April 2019 dividend would be 7% higher than the one in April 2018 and it is important to remind you that, going forward, there will be two cash payments per year, tentatively as we have done in October and in April. Slide 20 is the last page that I have before I pass it on to Jaime. This is something that we mentioned also at the beginning, at the first page. To conclude this overall section, I would like to reiterate once again the following two facts, which are very important in our view: Our tangible book value per share, it has increased 10.1% in the year including dividends and despite the market conditions which took their toll, as we have just seen on some of our assets, especially in some core markets. And we continue to lead our peer group in terms of profitability ratios. Our return on tangible equity, as I said, excluding the non-recurring capital gains, which makes us even better, but if we exclude those, our return on tangible equity was standing at – is standing at 12.5%, which is, again, one of the leading ratios in the whole peer group. It was too many numbers for my first meeting. Thank you for listening. And now, let me turn – now turn it over to Jaime for an overview of the business areas. Jaime?

Thank you very much, Onur, and good morning, everyone. Let me start with Spain in which strong remain – in which growth remains strong as we continue to grow above the euro zone, with an expected GDP growth rate of around 2.4% in 2019 and 2% for 2020. Net attributable profit in 2018 grew by over 10%, and this despite net trading income decreasing 16% on lower ALCO portfolio sales. The main P&L drivers continued to be core revenue growth, expense reductions and lower impairments and provisions. Core revenue grew by 1% year-on-year, thanks to an excellent fee performance, growing 7.7% and above our mid-single-digit guidance, coming mainly from asset management and retail banking services. Costs have gone down by an impressive 3.8%, much better than expected at the beginning of the year, thanks to the ongoing transformation efforts. Impairments decreased by 35% as asset quality metrics continue to improve. NPLs decreased by EUR 1.7 billion in 2018 and cost of risk stands at 21 basis points, also beating our below 30 basis points guidance. Provisions and other gains and losses are also down by over 20%, mainly explained by lower restructuring charges. Positive NII growth in the fourth quarter, up by 1.2% versus Q3; driven by a better loan mix and a slight increase in the arrival rates, especially in December. However, for the full year, NII is down, mainly explained by the lower contribution from the TLTRO, as the underlying business remained broadly stable. And this, despite having a worse-than-expected environment with subdued loan growth and interest rate hikes being postponed. Loans are almost flat versus last year. In retail, the deleverage in residential mortgages is fully offset by growth in the most profitable retail segments, consumer and very small businesses, while growth was subdued in the commercial portfolios. The public sector, as you know, continues deleveraging. The better loan mix and a slight increase in the arrival rates has allowed the customer spread to increase by 2 basis points in the last quarter. In summary, we continue to improve the profitability of the Spanish business despite the rate environment. Let's turn now to real estate. Our exposure to the real estate sector has decreased by over 60% in 2018, thanks to the closing of the transaction with Cerberus and additional portfolio sales. The Cerberus deal was closed in Q4 and sets a milestone in BBVA Group strategy as it implies a substantial derisking and will allow the runoff of the real estate exposure faster than initially expected. Let me point out that as of December, we still have around EUR 1 billion of net assets in our books pending to be transferred, and this will take place in the first half of this year. Regarding the P&L, we've delivered on our year-end guidance, with a net attributable profit – loss, sorry, of EUR 79 million versus below EUR 100 million losses guided at the beginning of the year. This compares with net losses of almost EUR 0.5 billion in 2017, helping to boost the BBVA's profitability in Spain quite significantly. In 2019, the real estate unit will be integrated into Spain Banking activity and its contribution to the group will be negligible. Moving now to the U.S. After a strong 2018, we continue to expect good macro prospects for the Sun Belt region. GDP will grow by 3.2% in 2019 and by 2.9% in 2020, well above the expected growth of the U.S. as a whole. During 2018, net attributable profits is up by over 50% in current euros and over 57% in constant, with NII being the main driver of the P&L by growing 12% in constant euros versus 2017, in line with our double-digit growth guidance, supported mainly by higher volumes, more profitable loan mix and higher customer spreads. Loan growth has also reached our mid-single-digit growth expectations, up by 7.4% in the year, and with a well-balanced growth between commercial and retail portfolios. In retail, we have focused on consumer loans. They are growing by 28%, boosted especially by digital loans. Customer spread continues to increase, positively impacted by the rate environment, a more profitable lending mix and a successful strategy to contain the increase in the cost of deposits, which is becoming more challenging as competition intensifies. Expenses are up by 5% in the year due to the higher commercial activity linked to the growth of the consumer lending business. Operating Jaws remained positive, with efficiency improving by 200 basis points in the last 12 months. Impairments are down by 2.6% versus last year, which compares well with a loan growth of 7%. In 2018, we’ve released some of the provisions charged in 2017 for the hurricanes and have also benefit from a positive IFRS 9 macro impact. 2018 cost of risk stands at 39 basis points, better than our low 40s guidance. Additionally, we have been positively impacted by a lower effective tax rate as a consequence of the fiscal reform approved at the end of 2017. In summary, very strong results and a significant improvement in the profitability of our Jewish franchise, delivering together with Spain, a very strong performance in our developed market footprint. Let’s now move on to Mexico. The many uncertainties that were on the table at the beginning with 2018 have diminished significantly after the new NAFTA trade agreement and the new government commitment to macro stability. BBVA Research expects Mexico GDP to grow at around 2% both – in the next two years. Once again, BBVA in Mexico continues to deliver very strong results. Net attributable profit increases in 2018 by 9% in current euros and 16% at constant, better than our expectations at the beginning of the year, supported mainly by a good performance of core revenues, strong expense control and significantly lower impairments. NII continues to grow around 8% in constant euros, in line with our guidance, supported by activity and a higher contribution of the global markets portfolio. Loans are up by 9%, with quite a balanced growth between retail and commercial. Commercial loans activity benefited from macro uncertainties, while the mortgage and consumer portfolio have been supported by the increase in consumer confidence. Customer spreads decreased after higher deposit cost and a slightly more-expensive deposit mix. Fees increased by 5% year-on-year in line with our expectations and mostly driven by investment banking and mutual funds. Our cost control efforts further improved operating Jaws. Gross revenue was up by 7.5%, while costs are growing below 3%, which compares very well with an average inflation rate of around 5%. Despite being already best-in-class, we continue to improve our cost-to-income ratio, now below the 33% mark from 34.4% as of December 2017. Impairments are flat versus last year, even after the good loan performance, and cost of risk ends 2018 at 307 basis points, well below the 330 basis points average of the last four years. In Q4, a model calibration, especially retail, explains the bulk of the increasing impairments. These calibrations has only take place once a year. Having said this, we remain confident that for 2019, this positive trend in asset quality indicators will continue and we expect cost of risk to remain around 300 basis points, significantly below previous years’ averages. These solid results show, again, BBVA’s leadership position in Mexico, both in terms of market share and profitability and the resiliency of our franchise. For 2019, we, again, expect to grow our net attributable profit in constant euros in the high-single digit range. Now in Turkey, after the significant tightening in monetary and fiscal policies, the rebalancing of the economy is already well underway. GDP is now expected to grow around 1% in 2019, with current account deficit and inflation also adjusting rapidly. In this volatile environment, net attributable profit has decreased by 31% in current euros as a consequence of the depreciation of the Turkish lira. Despite this, 2018 results shows guaranteed capacity to even increase by 2% its pre-provision profit in current euros over 40% in constant. That has allowed us to absorb the increase in provisioning needs due to the macro scenario. The main drivers behind the strong pre-provision profit performance are: NII, up by 30% in constant euros versus last year, supported by a higher contribution from the CPI linkers that more than offsets the reduction in the TL customer spread; and the significant decrease in the foreign currency loan book. In 2018, the CPI linkers’ contribution increases by EUR 544 million as a consequence of the higher inflation reading. TL loan growth was up by only 4% year-on-year due to the slowdown in economic activity and the increase in interest rates. The foreign currency loan book is down by 19% year-on-year. Customer spreads in TLs have contracted significantly versus 2017 due to the higher deposit cost, especially in the second half of the year. The floor was reached in October, and since then, spreads are trending up as the cost of deposit improves. Net fees show a very strong performance, over 34% year-on-year, with a good evolution across the board. Expenses grew below inflation, again, in 2018, improving the cost-to-income ratio by 460 basis points to 31.9%. The increased provisioning needs in 2018 are mainly explained by the wholesale portfolios, the majority in foreign currency, and the deteriorated macro, resulting in a cost of risk of 244 basis points for the year, in line with our updated guidance of around 230 to 240. The NPL ratio stands at 5.2% and coverage at 81%, positively impacted by the reclassification of a large ticket from the loan portfolio to financial assets at fair value. Without it, the NPL ratio would have increased to 6.4% and coverage would have remained at 73%. And finally, South America. GDP is expected to improve in 2019 in South America. Colombia and Peru will continue to grow strongly, while Argentina is expected to contract but less than in 2018. The area results are impacted by the sale of BBVA Chile in Q3. And as Onur has already mentioned, by the use of inflationary accounting in Argentina, we have impacted all P&L lines, and this makes comparisons difficult. Let me provide some more color on the evolution of the three main countries in the region. First, Columbia. Net attributable profit increases by over 16% versus last year in current euros, driven by core revenue growth and lower impairments. NII is up by almost 10% and growing above activity, thanks to better customer spreads helped by lower deposit costs. Loans increased by 4%, with gross buyouts to retail portfolios up by 9% year-on-year. Provisions decreased by 10% as last year’s numbers include a one-off for large-ticket. In Peru, the bottom line is growing by 12% – sorry, 14%, also explained by NII and lower provisions. NII is growing above 10% and also above activity, and thanks to lower funding cost. Lending is up by 2.5%. And as in Colombia, retail segments continue to be the main growth driver, growing at around 9%. And this is especially true in consumer loans and credit cards, where we continue to gain market share. And finally, in Argentina, inflation accounting has reduced 2018 results by EUR 266 million to a loss of around EUR 30 million. Loan growth rates are down due to the macro environment, but NII continues to benefit from higher rates and our short-term governments bond portfolio, as well as better customer spreads. And now, let’s turn back to Onur for some final remarks. Onur Genç: Well, thank you, Jaime. Final remarks – a few final remarks. I would like to reiterate the very robust performance in our core revenues and efficiency; the strong value creation, as highlighted in the tangible book value per share, and double-digit profitability in a relatively difficult environment of 2018. I would also reiterate the solid set of results in our core markets. I would highlight the fact that we are seeing how digital transformation is leading to revenue growth and efficiency improvement and making us better competitively. And finally, I need to emphasize the resilience of our capital position despite the heavy market volatility that we have gone through in 2018. So maybe before concluding, let me give you some color on the expectations and the expected operating trends for 2019. In Spain, we will continue to focus on margin improvement through loan mix, on improving efficiency; costs will go down slightly this year as well; and maintaining a strong risk profile, with cost of risk in the mid-20s, and this is including real estate. In the U.S., net interest income will continue to be the main P&L driver, growing at mid-single digit and with still some bias towards the consumer book – consumer loans. In Mexico, we expect solid growth to continue, similar to 2018. Net interest income growing at high single digit, driven by activity growth. Positive Jaws will remain as in 2018. And cost of risk will continue to be around 300 bps, significantly below the average over the last few years, as Jaime has already remarked. All of this will make the bottom line in local currency grow at high single digits in 2019. In Turkey, solid pre-provision profits will help to outperform in a challenging macro environment. Here, the cost of risk will be less than 300 bps, around 300 bps, in that range, and we will see as the year evolves. Finally, in South America. We have good prospects in Andean countries. Regarding Argentina, it will continue to be impacted by hyperinflation but at a much lower extent than in 2018. Thank you very much for listening. Now I give the floor to Gloria for the Q&A. Gloria?

Thank you, Onur. We are ready to move into the live Q&A session. [Operator Instructions]. So first question, please.

Thank you, Gloria. As a reminder, Q&A session starts now. [Operator Instructions]. And our first question comes from Alvaro Serrano of Morgan Stanley. Alvaro, your line is now open. Please go ahead.

Good morning. Two questions. First of all, in Turkey, you just mentioned the 300 basis points cost of risk guidance, but obviously there’s still a substantial Stage 2 portfolio. Can you give us a bit of sense how the visibility is improving in Turkey and when could we see sort of the cost of risk come down more substantially in there? Just your general thoughts. And the second question, the increase in your capital guidance. You’re going to 11 – between 11.5% and 12%. You’re almost there, so it doesn’t seem like a problem. But can you share with us the rationale for fixing the capital between target – between 11.5% and 12%? Why that level? And just to understand if we should expect that to go up again at some point in the future or not. Just interested in your thoughts. Thank you. Onur Genç: Thank you, Alvaro. I'll start, and Jaime, please, jump in with any additions. On the first one, the Turkey guidance on the cost of risk, less than 300 bps. We see all declines in that group of Stage 2 and also Stage 3. We feel comfortable with this less than 300 bps guidance. But it depends a lot on macro and it depends a bit on the currency as well. Because as you know, most of these loans that we have in those stages are foreign currency loans. So we will see and we will closely monitor. When is it going to go down and when can we give you a much lower guidance, we have to look into the market, basically. And our current guidance is less than 300. And depending on the micro, it might be even lower. We'll see it along the year. On the capital guidance, the rationale for 11.50% to 12%, yes, we might be reaching it. We expect to reach it, actually, by the end of the year. And so in your question, I presume that you are asking isn't – it's not too aggressive, so why that low? Actually, I mean, there are some regulatory developments that we are preparing ourselves for. So Trim impact will be coming in this year; IFRS 16 will be coming in this year; and there might be some other regulatory developments coming in. So we are putting a level that we feel comfortable that we will reach and we feel that's going to provide us clear comfort as we get towards 2022 and Basel IV and so on. Jaime, anything to add?

No, it's perfect.

Thank you, Alvaro. Next question please.

Our next question comes from José Abad of Goldman Sachs. José, your line is now open, please go ahead. José Abad: Hello, good morning. Thank you very much for the presentation. My first question is on Turkey, a follow-up here. So you are guiding for less than 300 basis points, as you just said. But you finalized, actually, 2018 with 500 basis points, no? And I've been checking your forecast from your research team and you're forecasting GDP to slow down further from 3% in 2018 to 1% next year. On inflation, you're expecting inflation to go down from 20% in '18 to 16%. So I guess, here, we have a lower contribution from linkers going forward and you also have a higher cost of risk, but you are guiding for a lower cost of risk. So I guess, two questions. If you could first give us a bit of more granularity over how this cost of risk is going to evolve over the year. When do you expect this to peak and maybe at which level, so we can understand how to get to these 300 basis points, given that you finished 2018 at 500 basis points. And the other is also how you are going to do – what's going to be the combination between, actually, top line and provisions in order to prevent the bank from being loss-making next year? And a second question, if I may, on corporate governance. I believe you cannot make any comment on the investigation, on the Villarejo case. I only have one my question here, which is, given that – according to press news, I mean, you started this investigation last summer, so six months, seven months ago. What actions have the board taken to date in order to prevent similar cases in the future? Onur Genç: Okay. Thank you, José. On Turkey, let's start with Turkey. You are right. I mean, the cost of risk for the fourth quarter was around 500. To be precise, it was 488 bps in the fourth quarter. But for the full year, full year, it was 244 bps. 244. So we don't – and let me maybe qualify a bit the fourth quarter, the 488. There was a good chunk – there are actually two effects. There was a calibration of the model, so it was a macro adjustment that we did due to IFRS 9, as you know well. And there were some provisions for very specific few number of wholesale clients. So 488, in our view, was a very prudent action on our side to be prepared. And again, to be prudent, but 488 was the exceptional number. And if you look into the full year, again, the number was 244, not – fourth quarter number was the exception, not the full year. So coming back to less than 300 and how it will evolve throughout the quarters. As I said, our guidance is less than 300, our guidance. This depends a bit on the development of the currency and this depends – and we are providing the GDP and inflation guidance, but it's very tough to provide currency guidance. So it will be depending on the currency evolution throughout the year. And at the moment, as we see it, it will be less than 300, as I said, in the guidance. Regarding corporate governance. You are saying it has started in June, which is true. But the nature of the investigation has evolved as we got new information. But the – it's a – what I can say very clearly is that this is a very thorough and detailed investigation underway. As it's ongoing, we cannot add any more comments to avoid interfering with the investigation. We take it very seriously, and we have to wait for the results of the investigation. Thanks, José.

Thank you, José. Next question please.

Our next question comes from Vanessa Guy of JPMorgan. Vanessa, your line is now open.

Hi. Good morning. I have two questions. The first one is on the capital, and I was wondering if you could provide some guidance as to what the impacts will be from Trim, IFRS 16 and other regulatory developments? And the second one is more – it's more on the NII developing in Spain and how we should think about it going forward, especially in 2019. Thank you. Onur Genç: Okay. I'll take the capital. Jaime, why don't you take Spain. On the capital, again, two impacts, as you highlighted, Vanessa, are the ones that we're expecting for next year, 2019, Trim and IFRS 16. IFRS 16, our expectation as it stands now, is going to be around 12 bps. And for Trim, it's going to be – it's still a work in progress. I mean, our internal models are not as heavily used as some other peers or as other banks. So we expect a range of 20 – in that range of 20, maybe 25 in that, and we are still – it's an ongoing work that we are conducting. And we will see. But the total, let me be more specific, is going to be around 40 bps. On Spain, Jaime.

On Spain, the guidance that we're expecting for NII – for next year is for NII to remain flat. We're expecting activity to be more or less stable during the year. Good pickup in the last quarter gives us confidence. But still we expect some deleveraging in the mortgage portfolio and the public sector book, more than compensated by a good performance expected both in consumer and small and medium-sized companies, which are our area of focus. On the spread side, we should continue to see a slight spread improvement. The arrival rates were increasing during the last – especially during the month of December in the last quarter. That should feed into 2019 even if rate hikes are expected to be postponed. Some offset will come from lower contributions from the ALCO portfolio. You've seen that the size has reduced significantly in this fourth quarter, and that will affect negatively NII next year. Onur Genç: Vanessa, it's worth to mention that the – in the guidance that you see, we say margin improvement due to loan mix change. As Jaime said, our consumer book, although it's a small book, it has grown 22% in 2018, and we expect that trend to continue. So the loan mix is going to be moving towards more high-margin products.

Thank you, Vanessa for your questions. Next question, please.

Our next question comes from the Daragh Quinn of KBW. Daragh, your line is now open. Please go ahead.

Hi, thanks for the presentation. I guess, on Turkey. Just given what you're seeing so far at the beginning of the year, can you give any more comfort or confidence or realized us, notwithstanding maybe the evolution of the loan-loss charge that you're absolutely confident to guarantee you won't need additional capital, or is it still a bit dependent on how the macro evolves next year? And then on Mexico, obviously you've given fairly clear guidance for 2019. But so I didn't catch in the presentation, just the explanation for the increase in provisions in Q4. And on capital for the group, the guidance you've given, I guess, given how confident you were that 11% was the right number. Now you've raised that up towards 12%. You flagged some regulatory impacts, obviously. But how much confidence can we have that for 2020 or 2021 that that capital level won't need to go higher? And are you concerned – despite the fact that over the last, say, two years, you've generated more than EUR 9 billion in profits, but CET1 ratio has only increased by only 35 bps. So are you concerned that the level of capital generation is relatively low? Thanks. Onur Genç: Thank you, Daragh. On Turkey, regarding the next quarters and the evolution for 2019, I would once again reiterate the fact that in the fourth quarter, we have taken two major impacts, two major numbers in the provision numbers for Turkey. The first one was a macro adjustment, as you know, IFRS 9. We look into the macro and we are prudent in those calculations, and we have taken a very high figure in the provisions for the macro adjustment. Plus – and even more importantly – so 40% was more on macro; the other 60% was – it was around EUR 365 million to be specific, for very specific large-ticket clients. We are comfortable with the provisioning levels of those clients now. But as I said, this is an ongoing, evolving discussion. We don't expect any more additional major tickets for those specific clients in terms of provisioning to come in early 2019. But again, it depends on the macro. We'll see how it goes along. We reiterate our guidance that it's going to be less than 300. But given the fact that it's a macro-wise volatile environment, we have to look and see. In terms of that and whether that will affect the capital ratio of Garanti, as I'm sure you all know, Garanti is the best-capitalized bank in Turkey. I mean, looking at the capital adequacy ratio, it's 16.5%, well above the requirement of 12.5%. We have TRY 13 billion of excess capital in the bank. So we don't see any concerns for the capitalization level of Garanti. Mexico. On Mexico, increase in the provisions on quarter four. We ended the year in Mexico with 307 bps of cost of risk, the full year, 307. This 307, let me qualify it, in the past 10 years, the average cost of risk for Mexico was 340, 3 4 0, for the 10-year average. And 307, the 2018 number was the best in the past 10 years. The hike in the provisions for Mexico in the fourth quarter, again relates to IFRS 9. It's a recalibration impact, as we call it. We have looked into the 2017 numbers and 2017 evolution of the – especially the retail models in consumer and credit cards. And the 2017 overall impact for recalibration created like an EUR 80 million, EUR 90 million of recalibration impact. But then we look into the models, we don't expect that recalibration to repeat or the provision level to be very high for 2019, that's why we are guiding, as you – as I said at the end of the presentation, we are guiding around 300 bps for 2019 as well. And around 300 bps, as I said, is going to be one of the best in the past 10 years. On capital, how much confidence do we have and we have done all these profits, but the CET1 has not gone up as much, if I understand your question, Daragh. Very simply, I mean, this year, let's take 2018, let's take 2018. The IFRS 9 impact was 31 bps in 2018, 31 bps. And we had an additional impact of 37 bps, what we called market-related impacts. 37, more or less equally split between FX and AFS. Given the markets, we have taken that 37 bps on top. So there was some relatively large-ticket impacts on our capital ratio and despite that, we have increased our capital position by 26 bps in the year. So how confident are we? It's – obviously, it's evolving throughout the year. I'm looking in front of me, the numbers since 2014. In 2014, we were 9.7%; then 2015, 10.3%, 10.9%; 2017 was 11.1%; and we are ending the year, this year, at 11.34%. So we are confident that we can create that additional capital position.

Thank you, Daragh. Next question please.

Our next question comes from Stefan Nedialkov of Citigroup. Stefan, your line is now open. Please go ahead.

It's Stefan from the Citibanks team. I've got a couple of questions. And Onur, welcome to BBVA. My first question is on Mexico. I'm still not clear on this calibration of the models. Would love to know more about the nature of it. IFRS 9 is supposed to be forward-looking. I'm assuming this has to do with how the loan book is shifting more towards consumer. If you can just confirm that rather than, say, looking backward and calibrating historical parameters that might be feeding into your models. The second question is actually on Mexico as well. Looking at the spreads. Customers spreads were down in the quarter by around four basis points and it looks like your deposit funding costs are going up quicker than you can reprice your loans, even though you are doing more consumer lending, that is supposed to have a high yield. Could you just elaborate a little bit on the level of risk you might be taking in your Mexican loan book going forward versus the competitive environment? So yes, that will be on Mexico. And just one last thing, if I may. I'm not sure if you mentioned any guidance on the U.S. business. If you have, if you could please repeat it, that would be great. Thank you. Onur Genç: Very good. Thank you, Stefan. On Mexico, as you have indicated clearly, IFRS 9 is forward-looking, but what I was trying to say was we were looking at the vintages of 2017. And when the vintages are observed, we were taking a forward-looking perspective in the calibration looking at the vintages. So obviously, it's not past-looking, but you use the data of the past to have a perspective on the future. When we looked into the 2017 vintages, in the first half of 2017, the vintages were giving us some signals for the future, which we, again, wanted to be prudent and we wanted to reflect that into our forward-looking loan originations. And as you all know, IFRS 9, when you have those recalibration or macro impacts, you take all the changes of the future and then you take it to the present and you take it in one shot. And that was the impact in the recalibration. But when we looked into the vintages of the second half of 2017, where we adjusted the models in that time period, we are very comfortable. Based on that, our forward-looking perspectives are actually not bad. That's why, again, we are guiding towards around 300 bps versus the past 10-year average of 340. On the spreads, you have exactly the fair points, the customer spreads in Mexico, slightly down in terms of the – the spread and cost of funding is going up slightly, as you say. But I mean, we are in a very high-growth market. There is, obviously, very high competition in Mexico. We are seeing some, but I think we are going to be around those regions for next year as well. But Jaime, do you want to jump in? Go ahead.

Yes, the main impact in the fourth quarter has been mainly a mix effect, okay? Because on the peso – on the peso spread, it's true that it went down by 4 basis points, but the U.S. dollar customer spread went up by 17 basis points. So it's been mainly a question of increased exposure in U.S. dollar what has affected the blended effect. Onur Genç: Mix effect.

Yes. We have quite strong performance even in the fourth quarter. Onur Genç: And then the third question on the guidance for the U.S. Basically, on activity, mid-single-digit loan growth, with some bias towards consumer loans. As you might have seen in the numbers, we have grown in the consumer book 28% last year, maybe not this high, but still there will be some more bias towards consumer loans and mid-single-digit overall loan growth. In terms of P&L, net interest income, it's going to be the key driver of the bottom line. High single-digit growth in the net interest income. And asset quality, it has been exceptional in the past few years. We will expect it to normalize in the next year. So cost of risk around 60 bps, mainly because of the mix change again, because we are moving very – we are moving into the consumer and credit card portfolios in the U.S. Those are the books that we haven't grown in the past, but in the past 1 year and 1.5 years, we have grown in those areas, and we are going to see some impact in cost of risk.

Thank you, Stefan. Next question please.

Our next question comes from Ignacio Ulargui from Deutsche Bank. Ignacio, your line is now open. Please go ahead.

Hi, good morning. Just have two questions on the – the first one comes from fee income in Mexico, how do we see that evolving in 2019 and whether – could you update us in the discussions that you're having with the regulators and with the government on the topic? And the other one is, if we look to South America contribution in euro terms in this quarter, could we take that as the sort of like recurrent level for 2019 going forward? Or there should be additional adjustments to make due to the hyperinflation or depending on the hyperinflation performance of Argentina? Onur Genç: Very good. Thank you, Ignacio. On the fee income in Mexico, as you know – I mean, the – our fee income generation has been robust in the past few years. And if you're asking about the fee proposal that is on the table now, I mean, the proposal to limit the banking fees in Mexico, as far as we see, it’s open to changes. And we expect the final regulatory outcome to serve the needs of Mexico. I mean, Mexico is a market, where the bankerization levels as compared to other markets is relatively low. We expect the new legislation and proposal to help serve the needs of Mexico and to increase the bankerization levels in the country. And as we have seen lately, the banking sector view is now going to be incorporated into those proposals. And we are long-term investors in Mexico. I mean, it’s one of our core markets. It’s a market that we have been continuously investing for so many years. Whatever is good for Mexico is good for us. And I think this banking proposal – fee proposal is going to yield good results for Mexico, and we are going to be part of that one. In terms of South America, as you know, in 2018, just to be specific, the hyperinflation accounting adjustment was EUR 266 million, because of Argentina in 2019 – again, it depends on the macro, it depends on the inflation for sure, but we are expecting less than EUR 100 million in that adjustment line. So, it’s not going to be based on the current expectation. And as you know, it can change depending on the macro. We are expecting a much lower negative adjustment on hyperinflation from Argentina. And with regards to the rest of South America, Colombia has increased its profits 16%, constant euros this year; Peru has increased its profits 14% this year, very robust franchises that we have in multiple countries in Latin America. So, we expect the strength of the region to continue, except this hyperinflationary adjustment that we will be living through next year as well.

Thank you. Thank you, Ignacio. Next question please.

Our next question comes from Britta Schmidt of Autonomous Research. Britta, your line is now open. Please go ahead.

I’ve got two questions please. One on Turkey, on the net interest income. You’ve commented that the TL customer spread has improved again towards the end of the quarter. But obviously, the inflation outlook is also looking different. So what contribution of CPI linkers do you expect for 2019 and how do you expect the overall net interest income in Turkey to develop? And then secondly, a question on capital. You mentioned, helpfully, the IFRS 16 and Trim impacts. That’s definitely very useful. You also said, looking out further, there will be more impacts. Do you see any sort of Pillar 2 guidance impact coming from the NPL regulations that have recently been proposed, specifically with regards to the calendar impacts?

Sorry, Britta, would you mind to repeat your last question please?

The second question was with regards to comments regarding the capital target increase. You said there’ll be IFRS 16 and Trim in the near-term, but also other impacts in the longer-term. Are you referring with this potentially to Pillar 2 guidance requirements that might come in as a result of NPL calendar effects? Or if not, maybe you can detail what else you have in mind in terms of regulatory developments. Onur Genç: Very good. Thank you, Britta. The second one, Jaime, why don’t you take the capital one on Turkey. The CPI linker contribution, we expect it to remain basically flat for 2019. The expectation that we had, as BBVA Research published it as well, is 16% inflation in 2019 in Turkey. Based on that, it’s going to be more or less flat. On the capital, Jaime?

No, the only major headwind that we have in the future in terms of capital consumptions is clearly Basel IV implementation in Europe. We know that the impact will be much lower than what’s expected for the whole European banking system, but that’s what guides our increase in the capital targets. Regarding the NPLs, we don’t expect any short-term impact. I think if there’s anything there and – there will be enough time to cover those expected provisions.

Thank you, Britta. Next question please.

Our next question comes from Andrea Filtri of Mediobanca. Andrea, your line is now open. Please go ahead.

Yes. Good morning. Most of my questions have been answered, but I just wondered if you could give us a bit more detail about the cost of risk sensitivity from IFRS 9 in the different geographies, assuming, let’s say, a 1% slowdown in GDP growth to be able to have a better understanding of the overall cost of risk evolution for the group under different economic scenarios? And do you also have in mind any impact on CET1 from EVA guidelines? Or do they overlap with Trim and with Basel IV as you were mentioning before? Thank you. Onur Genç: Andrea, I have this tendency to give the tough questions to Jaime. So Jaime, do you want to comment on both?

Yes. I think EVA impacts overlap with Trim, because the SSM, as you can imagine, uses EVA guidelines in their Trim analysis. On macro, it’s an impossible question to answer, because models are affected by – right. Onur Genç: Precisely, Jaime...

No, no, it’s – models are affected by many, many things, GDP, unemployment, interest rates, FX; and correlations, as you can imagine, are completely different within countries, within portfolios, so the blended is quite a complex matter. I wish I could do something as easy as that. Onur Genç: Thanks, Jaime.

Thank you, Andrea. Next question please.

Our next question comes from Carlos Peixoto of BPI. Carlos, your line is now open. Please go ahead.

Hello, good morning. Carlos Peixoto from CaixaBank-BPI. First question would be on the cost side. I was wondering, across – well, basically, talking a bit generically across geographies, where do you expect to see relevant changes on the cost base or where can we expect some efficiency improvements to be kicking in? Whether in Spain, is there further room for improvements still amidst the synergies from past acquisitions? On the second question, I was touched a bit on litigation risks. I mean, I guess that throughout 2019, we could have some visibility on the IRPH market theme. I was also wondering whether there are any potential additional litigation themes, for you in particular or for banks in general, that we should think about when looking into potential impacts or potential balance sheet risks going forward. Onur Genç: Thank you, Carlos. Thank you for both questions. The first one on the costs side. As I mentioned, this year, the overall growth in costs, despite very high inflation in some of our countries, was 2.5%. And this 2.5% compares with the blended average of inflation. And the blending – the weighting is done by the operating costs of different geographies of 5.7%. So in the context of 5.7% inflation, we have managed to grow our costs only by 2.5%. And this is because we are ultra focused on efficiency, as always, and we will continue to be doing that next year. So for next year, overall, we expect the same efficiency gains to come through because we are investing in this transformation program and we are seeing the benefits of that program, and we will continue to reap the benefits, in our view, in 2019 as well. But in terms of your asking specifically any geographies and so on, I can very clearly tell you that, again, the focus is everywhere. But in Spain, for example, we have reduced our costs by 3.8% this year. And next year, we expect a slight decline, continued decline in our cost base on an absolute level on the overall euros. Regarding litigation risks and IRPH. Basically, we agree with the Spanish Supreme Court on the transparency of the IRPH loans. I mean, as you all know, this is an index published by Bank of Spain in the official gazette, and so it’s a very well-known, transparent, officially published figure. So we agree with the supreme court’s decision on this, and we are waiting for the European Court of Justice ruling as well. And given the complexity of the matter, we think it’s too early to talk about any potential impacts, also without seeing any of the conclusions, any of the decisions coming from the authorities. But we will continue to observe it very closely and we will continue to take our position on the topic. Other topics, I mean, as you know, Carlos, I mean, in Spain, there are these type of topics that come to our table time to time. We will continue to observe. We cannot comment on something that we don’t know for sure yet. But we will continue to observe the developments.

Thank you, Carlos. Next question please.

Our next question comes from Marta Sánchez Romero of Bank of America Merrill Lynch. Marta, your line is now open. Please go ahead. Marta Sánchez Romero: Hello, good morning. Thank you very much. I’ve got a couple of follow-up questions on Turkey and capital. First, on Turkey. Could you share your capital sensitivity analysis? What needs to happen to the currency for Garanti to need more capital? And the second question related to capital. You seem very confident, you could get to the 12%. Just to be clear, is this before or after the regulatory headwinds you’ve mentioned? Do you have any asset disposals in the pipeline? The press has been mentioning your Chile open lending business, your insurance business and headquarters in Mexico. So if you could clarify that if, as part of getting to that 12%, you’re including some non-organic capital generation. And lastly, and I think Jaime has mentioned it a bit, but just a clarification. Do you expect Trim to address some of the Basel IV risk-weighted asset inflation? And here, I’m talking about mortgages in Spain. Your density is very, very low and well below the output flows under Basel IV, do you think Trim could anticipate some of that? Onur Genç: Okay. Thank you, Marta. Maybe I’ll take, very quickly, the second one. And then, Jaime, you take the first and the third. The second one, 12%, is this before or after the regulatory developments. As you have just mentioned, the most immediate ones, IFRS 16 and Trim impacts, are included in our planning. Basel IV, which we have to see. And as you know, it’s going to be coming in, in 2022, that is not included in our forecast. And that’s exactly – precisely the reason that we are raising our capital target, because we want to be prepared and we have to have a clear comfort for such developments. But Basel IV is not included in that planning. And as follow-up in that question, you were asking about inorganic opportunities and whether the numbers are included and so on. Some, but not in a major way, you are very specific on one thing, which is about Chile, Forum, the auto lending business. Marta, as you know, we will continue to look into the opportunities. We were – we received some expressions of interest and we started this process, but at the end of the day, it depends on whether we find the right value for our shareholders, for our stakeholders, for our businesses there, we will see. But in terms of whether that’s – whether it includes that a bit. But again, that’s why we are providing you the range. And 11.50% to 12% is going to be mostly, I can say, mostly generated through organic capital generation. Jaime, on the first and the third.

Okay. On Turkey sensitivity, our current FX sensitivity in Turkey for a 10% depreciation on CET1 is 55 basis points. So, we lose 55 basis points of capital for every 10% depreciation of the currency. In order to not to make money in Turkey, we need a – of course, this depends on the pre-provision profit, but on average, we need a cost of risk of around 600 basis points. So, not only the very high capital that we have, the amount of pre-provisions that we have locally, I think, gives us I think quite a significant buffer to sustain any potential headwind that we can – that can take place in Turkey. On Trim and Basel IV, on the mortgage portfolio. Funny enough, the Trim on the mortgage book is actually the only one that has finalized as of today. And we have not received any add-ons on that portfolio from the supervisor. That's why we do not have any impact about Trim on the fourth quarter. So I don't think it's something that should concern us.

Thank you. Next question please.

Our next question comes from Carlos Cobo of Societe Generale. Carlos, your line is now open. Please go ahead.

Hello, thank you for the presentation. And yes, many of my questions have been answered. But I'd like to touch on a quick question on the new arrival index. If you have more visibly on when that's going to be rolled and how that could affect your pricing in Spain, specifically. And then the other one, well, you've touched on that. But you said you don't expect new charges on the clients, the big tickets you've reviewed in Turkey. But I wonder whether there are other clients that are on the line to become more distressed after all the macro slowdown. And I don't know, if you still have to go through another part of the wholesale banking portfolio and that could push provisions higher in terms of single names. Onur Genç: Thank you, Carlos. I'll take the second one. Jaime, why don't you take the first one. On the second one, as I said, Carlos, it depends a lot on macro and, more importantly, on the currency. Turkey has been doing great, actually, in the last quarter after this hiccup in the currency in the summertime period, August. In the last quarter, fourth quarter 2018 the currency actually has depreciated by 16%, which is a major figure. And as I said, for the large-ticket loans, our expectation, if I have said that we don't expect anymore, it was wrong. What I'm saying is, given the FX sensitivity of those loans, it depends on the currency, and it's very tough to forecast the currency in terms of – in short time periods. To cut to long story short, I said it probably a number of times, but we stick with our guidance of less than 300. This might involve continuing to move some large tickets, but a good chunk of those tickets will be driven by the foreign currency development. And lately, as you know, we are seeing, actually, very positive developments with respect to currency. And overall, I mean, the macro situation, based on the latest signals, there's a clear new economic development program announced in September by the country, as you know, and a very robust program. We are seeing some positive developments on those as well. So we'll see bottom line, guidance less than 300. Jaime?

Okay. As you all know, benchmark regulation is affecting significantly all indexes all across the world. And in Europe, that's also the case. The Belgian regulator is currently coordinating all its efforts around new arriver. It's true that we need to phase with the new regulation and the lower activity and at least in certain durations. We'll see what comes out of that. But I think the authorities are working on alternative rates to be used. ESTER should be a potentially good alternative as is to replace EONIA. So this is an ongoing process. We're all working very hard to try to be prepared because this clearly involves significant amount of work, but it's still too early to qualify the situation.

Okay, thank you. I think it’s time for the very last question.

Our last question comes from Mario Ropero of Fidentiis. Mario, your line is now open. Please go ahead.

Hello, good morning. Thank you. Two follow-up questions on NII in Spain. The first one is, could you please specify the contribution from TLTRO to NII? And then the second one, given the decrease in the ALCO book in the fourth quarter, could you please give us some indication about the size of such ALCO going forward?

Okay. I think you said TLTRO. If you remember, in 2017, we accrue for 1.5 years, for 18 months of TLTRO. We did not want to start accruing until we had sufficient clarity that we were going to be able to reach the loan targets set by the ECB. In 2018, we only accrued for 12 months. The difference is 48 million between 2018 and 2017, which is why we always say that it explains the majority of the decrease in NII in Spain. Regarding the ALCO portfolio, it went down by roughly EUR 6 billion in the fourth quarter. As we already guided, significant maturities, especially on our Italian exposure. So the current size stands at EUR 22.5 billion. Duration because of those increased maturities in the fourth quarter has increased from 3.3 years to 5 years now. The size, which is a question, the size of the portfolio will probably increase slightly, but something along these levels, I think, is the minimum that a bank of our size can afford to have.

Thank you. Thank you, Mario, and thank you all for participating in this call. Let me remind you that the entire IR team will remain available to answer any questions you may have. Onur, do you want to add anything? Onur Genç: No, I mean, just to reiterate the same messages. I think this was a very challenging year in terms of the macro developments and the associated currency movements in some of our geographies. As I said, 25% depreciation in Turkey and 48% in Argentina, but despite those macro and more important, the currency movements, this was a year where our diversified business model, in my view, proved its resilience. I mean, we have increased our profits by 51%. On a comparable basis, we have increased our profits by 8%. And the things that we care a lot about, tangible book value per share, has gone up by 10%. We have one of the highest return on tangible equities in the banking industry. So we are happy. And it's my first investor's call. I want to thank everyone for their patience and for their support. Thank you to you all.