Good morning, everyone, and welcome to the BBVA Second Quarter 2019 Results Presentation. I'm Gloria Couceiro, Head of Investor Relations. And here with me today is Onur Genç, Chief Executive Officer of the Group; and Jaime Sáenz de Tejada, BBVA Group CFO. As in previous quarters, Onur will begin with the presentation of group's 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 to everyone, and welcome to BBVA's Second Quarter '19 Results Audio Webcast. As Gloria mentioned, I'm going to talk about the group, the group's evolution and Jaime will focus on the respective business areas. So let's jump into it, Page 3. Starting with Slide 3, we are reporting a very good second quarter in terms of results, value creation and capital generation. This is the same page that you have been seeing in the past few quarters, and very good progress on all the key metrics that we see on this page. So our net attributable profit on the left-hand side of the page in the second quarter is €1.278 billion. This represents an increase of 2.6% versus the second quarter of last year, but as you all know, given the sale of BBVA Chile in July 2018. If we exclude BBVA Chile recurrent operations from the base, from the second quarter of 2018, the true comparable apple-to-apple increase is 5.7%. And comparing to the previous quarter, the first quarter of the year, net attributable profit grew at the strong rate of 9.8%. There are two other very important key messages on this page -- on the -- in the middle of the…

Thank you very much, Onur, and good morning, everybody. Let me begin with Spain, the economy here remains quite strong with GDP expected to grow by 2.3% in 2019 and more than 1% above the European average. We expect GDP growth to continue at healthy levels, around 2% also in 2020. Net attributable profit in the half decreased by 1.7% versus last year. The decrease is fully explained by significant reduction in NTI, down 67% and the release in other provisions. 2018 included significant provision releases from the real estate area. Both impacts are only partially offset by the provision release coming from the sale of the mortgage portfolio that was closed this quarter. The most relevant P&L drivers are first significant NII recovery versus Q1, up over 5%. Thanks to a good commercial activity and an improvement in the customer spread up by 3 basis points, a higher contribution from the ALCO portfolio. And the lower cost of excess liquidity, as we have reinvested part of the excess cash at the ECB in high-quality liquid assets. As a consequence of this improvement, the evolution of NII on a year-on-year basis improved significantly to minus 2.4% in the half, in line to meet our year-end guidance of NII decreasing slightly by between 1% and 2%. The second most relevant driver is again expenses. They continue to go down 3.5% on a year-on-year basis, thanks to the success of our transformational efforts. And finally impairments, that showed a positive figure, driven by provision releases. Excluding the one-off already mentioned, cost of risk would have been 18 basis points year-to-date, more in line with our year-end guidance of around 20 basis points that excludes this positive one-off. Let's move now to the U.S. We continue to expect a good macro for the…

Thank you, Onru. So we are now ready to move into the live Q&A session. So first question, please.

Our first question comes from Francisco Riquel from Alantra.

I will start with NII in Spain. I appreciate, you keep the full year guidance at minus 1%, minus 2% despite the lower interest rate. However, the following in the EURIBOR has only happened in June. So I wonder, you can elaborate what is -- what happens after 12 months? And if you can give some sensitivity on what if the EURIBOR is a bit lower next year on average compared to this year and under the main drivers of the NII going forward? And then the second question is different is Mexico cost of risk. I see that you have done great at GDP forecasts for Mexico twice this year, but you are still maintaining the 3% cost of risk guidance. So I wonder, if you can give more details on what you're seeing on the ground, by loan portfolio I see a small pickup in NPL ratio? And then also on the spectral loss model. How far are we to a change and if you revise again the macro assumptions, so some sensibility also there? Onur Genç: Perfecto. Thank you, Francisco for the questions. Let's start with NII in Spain. So are we sticking with the guidance of minus 1% to minus 2%? We are sticking with the guidance. What were the key drivers that led to relatively positive results in the second quarter? There were 3, I would highlight the 3 of them. First of all, activity continues to grow, although 0.7%. You see it in the activity growth that it is there. And as you can see, the growth is coming from portfolios that we have prioritized, where we can generate much better returns. So activity growth, core business, plus if you look into the spreads regarding Spain in one quarter, we have gone from 196…

Our next question comes from Alvaro Serrano from Morgan Stanley.

Just my two questions are actually both from Spain. You've given the NII sensitivity, thank you very much for that. But you didn't mention among the management levers or among the levers, I don't think you mentioned costs. And I just want, conceptually, how much room do you have to cut costs in the event the margin sort of turns out, the rate cuts turn out to be worse than expected? How much room there is to take out costs even further? And related to that, if I take a step back, my impression at least for BBVA is more in Spain is a low-risk, low-margin business in Spain and hopefully, low cost. But in a world of increasingly more negative rates that seems more challenged than the past. To what extent do you think M&A is necessary to -- in Spain in this sector? And under what circumstances would you contemplate that given the outlook looks definitely worse than we expected at the beginning of the year? Is that not a necessarily source of cost-cutting M&A in Spain as a whole and then for BBVA in particular? Onur Genç: How much room is there to cut costs? I think we have proven quarter after another. And if you compare ourselves with the Spanish, Roman banks, you would see that good performance, again, it's also obviously in the numbers. If you look into the second quarter costs versus second quarter of last year, we have reduced our OpEx by 3.5%, which is in our view a good performing figure. So we have proven, and we will continue on that trend. So 3.5%, it might not be as much going forward, but we are very disciplined on costs, and we will try to create value to compensate for some of the…

Our next question is from Mario Ropero from Fidentiis.

The first one is a follow-up on the NII comment that you made. A 9% negative sensitivity to 100 bps decline in rates. Given the guidance you have given for Spain. This is a decline of only -- roughly €30 million, €35 million for NII for 10 basis points. But you have a mortgage book of over €70 billion. So please, could you help us understand why it is only 9%? And then another question is, could you please tell us the percentage of fixed rate mortgages in your back book? Onur Genç: Let me do the second one right away. The back book is 7% to 8% in the stock, and it's 50% in the flow in the new originations roughly. I'm giving you the rough figures. Regarding the 9% how come? Because there are other dynamics that kick in. So this is a modeling based on the full macro-related drivers. So when the rates come down, our cost of funding -- wholesale cost of funding directly, it comes down. This also rebundles everything. And then also the volume impacts are considered in that modeling as well. We are quite confident in that because we have tested that modeling in the past. So I'm giving you the final output rather than a direct impact on one piece of the balance sheet.

Our next question is from Sofie Peterzens of JPMorgan.

Here is Sofie from JPMorgan. So with -- going or continuing on the NII line, could you just also remind us what's your NII sensitivity is to a 100 basis point move in interest rates also in other geographies. So for example in Turkey, where we saw quite big costs, also in Mexico, where expectations are that they are going to buy trades? So that will be my first question. And my second question is on your capital. You have 11.5% core equity Tier 1, which is what you basically target. Could you just remind us what additional impacts do you expect from Trim model 4 and other regulatory measures? And how we should think about that? And also, on the capital, what really you do with any capital that is kind of above 11.5%? How should we think about excess capital, how it will be deployed, is it M&A or will redirect it to shareholders? Onur Genç: Sofie, very clear questions. NII sensitivity, let me immediately respond to that one first. So again, 9% for the euro balance sheet. It's around 9%, a bit less then -- but around 9% for USA as well. This is net interest income sensitivity to 100 bps parallel decline for a year for the consecutive 12 months. Mexico is 3.4%, around 3%. South America is a blended geography, it's around 2.7%, 3% again. And Turkey has the least sensitivity for multiple reasons that we will take on another call. It's around 1.4%. So the least is in Turkey. So that's the NII sensitivity by country. Then regarding capital and what additional impacts are we expecting? So as I mentioned, this quarter we have done 13 bps from Trim. And in the first quarter, we did 11 bps for IFRS 16, if you remember.…

The next question comes from Marta Romero from Bank of America Merrill Lynch.

I've got a follow-up question -- a couple of follow-ups on capital and the NII in Spain. On capital, the 13 basis points. Where is it coming from? Because I was surprised to see the risk-weighted assets in Spain flat with flat activities. I would have thought that we would see some inflation there. On NII in Spain, how much of the growth is 5% quarter-on-quarter growth we've seen is coming from your -- from managing your liquidity, increasing your ALCO portfolio. Can you give us a sense of your risk appetite going forward? So what is the total volume between ALCO and liquidity in Spain? And how do you -- if you expect to grow that book? And quickly, sorry, on Turkey, what is driving your reduction of cost of risk? The environment remains quite challenging. Your stage 2 loans probably need higher coverage. And you've mentioned that you're starting to see some mass quality deterioration in retail. What is driving that reduction in guidance? And what do you see for next year? Onur Genç: Martha, I partially responded to the first two, but maybe we can have Jaime add another perspective to it. So Jaime on capital overall and then the NII in Spain, then I'll take the Turkey question if that's okay.

Yes, okay. Yes, maybe the -- Martha, maybe the surprise on RWA growth in Spain comes because of the fact that the only impact that of -- coming from Trim that it's already in the Spain's RWA numbers. It's part of the add-on from the Trim and market risk review. The 10 basis points that we have potentially recognized in this second quarter have been assigned to the Corporate Center, okay? So that's maybe the reason why you don't see that RWA inflation. Okay. Second question is regarding NII contribution from the excess liquidity and the high liquid asset portfolio. NII contributions are coming from the -- ALCO book is up roughly €9 million, €10 million in the quarter versus Q1. Having more or less the same amount in the ALCO portfolio, roughly €23 billion. So we've done some net acquisitions but of fairly limited amount. We tried to share with the market a little bit more clarity on the ALCO portfolio. So you have in the annex further info that I think you can take advantage of. The yield of the euro ALCO book is 1.2% and the average duration is more or less five years, very similar to what we had last quarter. In terms of Held To Collect -- and Held To Collect and Sell mix, it hasn't changed much from the previous quarter. Out of the €23 billion, roughly 12.5% for -- in the Held to Collect portfolio and roughly €10.5 billion come from -- are accounted in the Held To Collect and Sell part. And then the last part of the question is the excess liquidity. What we've done with excess liquidity, remember that we were holding roughly €25 billion in excess liquidity at the ECB at the end of last year. We've been progressively…

Our next question is from Stefan Nedialkov from Citigroup.

It's Stefan from the Citi team. Two questions from my side on Mexico. Just looking at the fee evolution year-on-year and Q-on-Q, it looks like to be the weakest performance in at least five years. And then kind of trying to not put it together with the doubling of the foundation contribution. But should we be combining those? I mean have you basically committed to Amort to contribute more in social causes? How should we think in terms of fee evolution going forward? What's the political impact from Amort on you basically, for the next 12 to 24 months? The second question is on the U.S. Onur, I did hear your explanation about the 3 basis points Q-on-Q increase in spreads in Spain. But then when I was at the U.S. spreads they're basically flat, and you guys are increasing. You're basically going down the credit risk curve in terms of previous emphasis on C&I lending, and now it's a lot more credit cards, consumer lending, et cetera. How should we think about the change in your loan mix split going forward? You're obviously not increasing your spreads, but your credit costs should be going up going forward? Any color on that would be great. Onur Genç: Perfecto. Stefan very good two questions. Mexico, the fee decline. You're 100% right, as you -- as the numbers also show. It's mainly related to CIB, the Corporate and Investment Banking. And the lack of deals and lack of activity in CIB given the market context. We are seeing in the pipeline, we are seeing some pickup in those deals in the third and fourth quarter. So the pipeline is relatively strong. But there was nothing -- let me say, structural in that decline. So you asked about the BBVA Foundation and the…

Next question is from José Abad from Goldman Sachs. José Abad: I think most of my questions have been answered already. Only one, maybe follow-up on capital. So to the previous question, was asking you actually how you plan to allocate any capital beyond the current levels of 11.5%. You said that you are always looking for opportunity. So I just wanted to clarify, so you -- do you consider any capital accumulated beyond 11.5% as excess capital? Or you plan to keep commodity capital and get closer or even above the upper bound of your target range now, which is actually 12%? Now second, I mean, a sub question, if you want, is that I -- my understanding has always been -- actually, this target is pre-Basel IV target. So I think someone asked this and I didn't get. So apologies if you already replied this now. But maybe if you could actually give me or give us actually some color on how you are thinking about Basel IV? And in particular, what's the operational risk going forward, so we can actually estimate a proper Basel IV target for BBVA? Onur Genç: Perfecto. Thank you, José, for the question is very clear. The first one is, that we consider above 11.50% excess capital. No we don't. And we guided the market on this one as well. We have a range, 11.50% to 12%. And as we have stated before, we expect to be towards the upper end of that range by the end of 2020. So 11.50% is not the goal. It's the range, and we want to be towards the upper end of that range as we mentioned before. Then the Basel IV, and the impact of that. It's too early to calculate the full impact, José. The only thing I can say is, it's our hypothesis, let's say that way, but relatively strong hypothesis. The impact on the BBVA would be probably less than others, given our usual modeling and given our footprint and how we approach. And then you can also see it in the density, the RWA density of our bank. So we would expect lower than the peers than the European banks. But it's too early to put that number to it yet. And we will hopefully guide you on that one in next year and so on, but it's too early at the moment.

Next question is from Andrea Unzueta from Crédit Suisse.

And I'm going to go back to fees in Mexico. I'm not sure I fully understood the answer or your expectation for the year. If I go to commerce release from Q1, it clearly states that you are revising the charges made to customers, looking for changes into digital channels. So are you revising your commissions in Mexico? And what should we expect for the year? Is it a stable fee line that we should expect? Onur Genç: Andrea, as I mentioned, the key difference the minus 3% quarter-over-quarter. This quarter versus last quarter of 2018, the minus 3% is primarily driven by CIB, Corporate and Investment Banking. As you all know, when you do deals, you get some upfront fees in those deals. And if you look into the sub-drivers of our fee line, it's -- that line, which is showing a decline. And why? Because the market activity in Mexico in the second quarter was muted. So are we revising our fees, in general? We are revising our fees in general everywhere as part of regular business, but are we doing something beyond normal, beyond business as usual? Of course, obviously, not. The key difference, again, is the CIB. So what is the expectation for the third and fourth quarter? You're asking, I guess, very specifically about the remainder of the year. Given the pipeline that I'm seeing, I would expect that we would be better than the minus 3%, but again, it's dependent on the conditions all those deals happening in the CIB book. So we would be -- probably be better but it's not structurally negative topic that you should be alarmed about, is what I'm trying to say.

Next question comes from Andrea Filtri from Mediobanca.

Could you please elaborate on the drivers of the other income line in Spain, Turkey and Mexico in the quarter as they look particularly good versus expectations? Also on TLTRO-III, from your moves on excess liquidity, can we assume, therefore, that you will not be taking TLTRO-III? And are you expecting other Spanish banks to do the same? And is this -- if so, is this expectation already factored in your NII guidance? And finally, on U.S. NII, your funding costs are going up. Is this the driver behind the lower NII guidance? Or is it the lower rates going forward? And can you update us on the specific consumer issue and how you're solving it? Onur Genç: I will take the U.S. maybe. Jaime, do you want to take the first two?

Sure. Okay, on the other income line, I think I said something on the speech, but I'll try to expand a little bit the answer. You see clearly one of the line items that have changed the most versus the first half of last year, I'm going to try to distinguish between the first half of -- compare the numbers between the first half of 2019 and the first half of 2018.

I didn't -- it's in Q2. Because that is the result that we struggle to understand.

Well, okay. Versus Q2, the reasons are pretty much the same, but the numbers are slightly different. Okay, so the difference between Q2 is €47 million, and it's mainly explained by both Spain and the U.S. In the case of Spain, it's up €58 million. As in Q1 of '19, we included higher restructuring charges, okay, that did not take place -- took place in the second quarter. And in the case of the U.S. in Q2, we include some provision releases for contingency risks, while in Q2, we've had some provision charges. Those are the most important changes. On TLTRO-III, we clearly think that it's an interesting funding source for the bank as we feel conditions are quite favorable, although at this point, it's not easy to precise when and how we will participate. We will try to take into account what are the actual terms. Those terms will change depending on what happens with the interest rate environment after the summer, and how our liquidity generation capacity evolves in the next 6 months. We would probably not draw in -- during 2019, although that decision is not yet taken. And probably the first drawing, if at all, will take place in 2020. Onur Genç: Okay. And Andrea, regarding the third question about the U.S., there are two sub questions. I understand, the first one is the net interest income. Is the net interest income slowing down because of the cost of funding? And going forward, is the cost of funding the key reason? No, it's both. It's both. As you might know, in the U.S., the book -- the impact on the books come in different sequence. So for the loans, when the rates go up, for example, it's immediate impact on the commercial book, it's immediately repriced.…

Andrea, I think you asked me -- well, you asked about the other income line.

Yes.

Right. I answer, other -- the difference in the other provision line, okay? So let me answer the question on other income. Okay. The other income at group level is in the second quarter minus €18 million, okay, which compares to Q1 at plus 8%. We need to take into account that, as Onur said during his speech, that in Q2, we include in Spain the contribution to the Single Resolution Fund, okay, which was €144 million. This negative number was offset by €53 million of dividends coming from Telefónica that as you always know, that as you know, they normally come in Q2 and Q4, which is accounted in the Corporate Center. This line also includes quite a good number in Mexico in insurance results, which behaved quite well in the quarter. Overall, €62 million in the quarter versus €40 million in Q1. And then lastly, in the case of Turkey, we also had quite a positive number in this line, €24 million versus €6 million in Q1, and this is partly explained by the reversal of a tax fine that we did in Q2. I hope this explains better, Andrea.

Our next question comes from Britta Schmidt from Autonomous.

I've got two questions, please. Thank you for providing the net interest income sensitivity. Can I just ask, maybe you can reformulate it slightly differently? What will be the NII sensitivity for a 10-basis point reduction in Spain over two years? I'm just asking because I assume that it's probably more than 0.1 of the 9% that you've provided due to loans, for example, hitting the floors. And then my second question will be on loan growth in Mexico. Are you still guiding to high single digits year-on-year? I think this quarter was a bit lower due to the strong Q2 last year. But there are several other banks that have cut their loan growth outlook for Mexico quite recently. What gives you the confidence that you'll still achieve the high single-digit growth? And which segments do you intend to focus on? Onur Genç: Okay, I'll take the Mexico one. On the first one, if I start, it's going to take 10 minutes. So I'm going to give it to you.

Okay. You're right, Britta. You cannot divide simply the sensitivities. The sensitivity in the Euro balance sheet was a 10-basis point decline on a 12-month forward-looking basis. Again, parallel decrease is €52 million. We don't disclose impacts beyond the 12 months. Onur Genç: Regarding Mexico, we still stick to our guidance, high single-digit loan growth. You do see that there are certain portfolios, which are not growing as much, but there are also certain portfolios that we are growing and growing healthily, and also return wise, very good returns. So consumer book, as you can see, it has increased 12.4% year-over-year -- sorry, year-to-date, so very -- year-over-year, which is very, very strong. And same for other books as well. So we stick with our guidance, basically, let me be more open, we stick with our guidance by the end of the year.

Our next question comes from Fernando Gil de Santivañes from Barclays. Fernando Gil de Santivañes: Most of my questions have been answered. But just a quick question on deposit pricing in Spain. And what -- and how do you feel about corporate deposits, what is your mix? And if you plan to translate any further cuts or negative rates to the rest of our clients. That will be my question. Onur Genç: Thank you, Fernando. Yes, we are managing that extra liquidity, as I mentioned at the beginning of the call. If you look into the breakdown of our deposits in Spain, so demand deposits is like 82%, and time deposits is like 18%. But you were asking specifically for the commercial or corporate enterprise deposits. We do have this policy that for very large ticket, depending on the relationship with the customer, depending on the book that we have with the customer, we differentiate pricing. And there are cases, there are cases that we are charging on deposits. And depending on the evolution of the curve, we will continue with the same practice, basically.

Our next question is from Carlos Peixoto from Caixabank.

Most of my questions have been answered, yet already sorry, but just a bit of a follow-up. In Turkey, you're getting towards the cost of risk below 250 basis points. If I look at the first Q, it was 180, second Q, 160, so let's say, 170 for the first half as a whole. My question here is, are you expecting some additional -- some increases on cost of risk because of asset quality, the duration that is still ongoing? I noticed that the NPL ratio went up quarter-on-quarter. Or are you just being cautious simply in playing it safe, but you do see it well below 200? I'm just trying to understand here what is the move there in Turkey? Then on NII in Turkey as well. Do you still maintain the guidance of a flat NII? Or could we see a better performance for the rest of the year, given the evolution that we saw in the first half? Onur Genç: Very good questions, Carlos, really quickly on both. First of all, let me just clarify one thing. In the documentation that we provide on cost of risk, the numbers are year-to-date. So the second quarter number that you see for Turkey, the cost of risk of 157 bps. That is the year-to-date number. So which implies that the second quarter was actually better than that one. And the second quarter number is actually 129 bps. So the blended is the 157. Those are year-to-date figures. So -- but what do we expect for the rest of the year? If you remember, at the first quarterly call, we guided less than 300 for Turkey. Obviously, there's some upside to that one. We would update that we want to be still prudent. We wanted to be -- we want to be still prudent, for sure. So given that we are going to be, at the end of the year, around 250 is the latest that we are foreseeing. Again, just to be on the prudent side. Regarding net interest income, excluding CPI linkers, our guidance, as you said, was flat. And given the latest decision of CBRT, the Central Bank of Turkey, to cut the rates by 425 bps in July, we do think there's an upside potential there. So probably, it's going to be better than flat. But again, we'll see. But in terms of guidance, there's an upside in both metrics for Turkey.

Our next question is from Daragh Quinn from KBW.

One question, just on Mexico net interest income. [indiscernible] here as you were maintaining the guidance there as well of high single-digit growth, in particular given the actual for rates and slower GDP rate cuts, if you could just clarify that. And then a follow-up on Basel IV. I appreciate, you're not able yet to give guidance. But maybe you could point us in the right direction in terms of magnitude, particularly from operational risk. Is it a 0 to 20 bps number, 30 to 50 bps or 50 to 100? I don't know if there's any additional color you could provide there. And maybe just one final question, kind of moving away from results. And I'm thinking that your digital strategy and the strong and continued progress you're making there in terms of digital sales, et cetera, as that penetration level increases, and I don't know whether it's 60%, 70%, 80%, but how do you see, over the medium term, both the size of the branch network and a number of employees evolving of that digital distribution increases? Onur Genç: Very good questions, Daragh. Thank you so much. The first one, Mexico, let me be very straight to the point. Are we retaining the guidance? Yes, we are keeping the guidance. We are keeping the guidance as what it was, high single digits. On the Basel IV, I understand you want to get a range, but we don't have an estimate yet. So I'm -- if I was younger, I could have given you a range, but I cannot there. On the third one, digital strategy. What is the implication on the rest of the cost structure and the branches and so on? Daragh, on this one, I mean we are measuring it very, very clearly in every single…

There are 3 to 5 people on the line. So let me ask you to try to be short in the answers. So next question, please.

The next question come Ignacio Cerezo from UBS.

Can I go back to, I think it's the first question by Paco around the NPLs in Mexico, if you can explain the pickup, we have seen actually in that line segment-by-segment? What are the chances of a pickup of cost of risk in the second half due to recalibration of models for IFRS 9? And the second question on capital. I know you cannot give a number in terms of Basel IV, but do you expect to cover whichever headwind you have within the next two years? Or do you think you can phase it out from '22 to '27. Onur Genç: Well, the Mexico, the pickup in NPLs or the cost of risk, it's not a major pickup, I would say. And the cost of risk of 293 to 298 in cost of risk, for example. But I mean, there was, what you call, this pulling effect because the -- and also, there was this macro adjustment. As you know, we have reduced our macro, I mentioned it at the beginning of the call, from 2% at the beginning of the year to 1.4% first, and then to 0.7% as of last month. So the impact of that is being reflected into the figures and the cost of risk figure. So -- but we don't -- if the question is, again, are we sticking with the guidance? We are sticking with the guidance. We don't see any major negative effect that would be coming along as we see the business drivers. Jaime, do you want to add something? Yes, go.

Yes, actually -- and on the recalibration, the recalibration will probably be positive this year. It won't take place in the fourth quarter of the year. It will take place in the third quarter of this year. Onur Genç: But I care a lot about vintages, vintages of the portfolio, the retail and the SME and so on in the vintages, which is the new production that you do. And what happens after the same period, basically, the harvest, we don't see any negativity at all on the contrary, to be fair. So was it only Mexico? No? Because I was looking for something else. Is there another question? No? Okay, then next one.

And the next one was Basel IV. Basel IV, the answer remains as we've said.

Next question comes from Carlos Cobo from Societe Generale.

Yes, everything has been discussed already. Just a quick one on ALCO. And if you could provide some more detail on -- same as you've done with the Spain, the ALCO portfolio in Mexico, size, duration and sensitivity to 100 basis point change in rates, please? That will be very much helpful. Onur Genç: Okay. The rate sensitivity, as I mentioned at the beginning of the call, it's minus 3%, minus 3.4% to 100 bps parallel decline. So a step function change in the curve for the consecutive 12 months, the impact would be 3.4% in net interest income. On the ALCO portfolio, Jaime, do you want to add anything?

Yes, ALCO portfolio, yes, bear in mind that the sensitivity of the ALCO...

In particular, is it possible?

The ALCO portfolio size went down in Mexico in the quarter by almost €1.5 billion from 6.5% to 5%. The split between Held To Collect and Held To Collect and Sell is -- it's pretty much everything is in Held To Collect and Sell €4.2 billion, and €0.8 million -- not even €1 billion is in Held To Collect. The duration is much shorter than in Spain. It's 1.7% -- 1.7 years. And the contribution to the NII is actually negative. And the carrying cost of this book is negative. So the reduction in rates will definitely help on this.

On the graph here, which are the cost of funding, could you say that, please?

No, I don't have that in front of me, so -- but it should be roughly 8%, 7.9%, but please take this in quotation, okay?

Next question comes from Benjamin Toms from RBC.

Have you invested excess cash that appears [indiscernible] ECB? What assets have you invested in? It looks like it might be predominantly Italian bonds. Is that correct? And secondly, do you expect any material impact from the switching of U.S. LIBOR to software? Onur Genç: On the first, I'll take it, the extra liquidity, what we did with the extra liquidity? No, we did not invest in Italian bonds. It's more -- it's basically all of it, actually, that extra liquidity switch is to a high-quality liquid assets. So they're all high-quality liquid assets. In terms of the switch, sorry, Benjamin, I missed the question. What was the question again?

Changing rates to the U.S. Onur Genç: LIBOR 2? Okay. So it's the process. It's ongoing. It's actually a major project. It takes a lot of time of management and everyone else. That's in the process. But as you know, it's going to be a while. So it's not immediate yet. The key one that we are preparing for is the EONIA as the change. And again, it's a major, major project that we are dealing with a lot these things.

Our last question is from [indiscernible] from ACF.

I got some follow-up questions on Mexico, from nacho and tacos, regarding cost of risk and recalibration of models. I'm surprised to hear that the impact is going to be positive, or should be positive by the recalibration in third quarter. Because I would say that the macro parameters would be -- again, the increases when we engage the provisions. So what would be the sensitivity of those models to a hypothetical case for a deterioration in the macro parameters, let's say, with a -- with a recession in GDP growth? And then the next question on capital allocation. I noticed -- well, congratulations on your results in South America because being around 8% of your total assets is yielding you around a 16%, 15% contribution to your gross margin. Does that mean that you would allocate more capital to that vision? And then last one, if I may. Do you have any views on what kind of measures the ECB could be take going forward in order to alleviate the penalty on your NII in the sense of measures like a clear deposit rate or expanding the APP program by buying financial credit or even, let's say, equity? Do you have any views on that, please? Onur Genç: Thank you so much for the questions. Let me do the second and the first, I will give the cost of risk to you, Jaime. On the capital, are we going to invest -- divert more capital to South America? We are putting capital where the return is. If there's a return in your highlighted debt. And it's not done at the country level, it's done at the micro level. Whatever the capital return is, we put capital right there. So in that context, the answer is yes. If we get returns, we put it in those areas and portfolios. The expectations on the tiered deposit scheme and so on, obviously, it the ECB's decision. We are waiting for the decision. There's the expectation that there would be some sort of that scheme getting in place. But we are preparing our plans to mitigate the impact of interest rates through many other measures. And if tiered interest scheme comes along, we welcome it. If it doesn't, we move along. On the first one, Jaime, very quickly, and then we wrap up.

Yes. Okay, we need to distinguish between a recalibration of parameters, which we do once a year and the macro adjustment that we do every quarter. If you remember, last year at the end of the year in the fourth quarter, we recalibrated with -- including all the info from 2017. What we're doing as we speak and will be accounted for -- in the third quarter is to input in the models, all the data from 2018. And this will, of course, affect the PDs and LGTs because of the inclusion of these new vintages. That is what we call recalibration. 2018 vintages were probably the best been produced in the last 10 years. So when we share with you guys the impact -- the negative impact last year, we also said that this was going to be probably a positive recalibration as we are expecting to have. And as Onur has already said, the negative macro that we are having in Mexico, it's already affecting a little bit the numbers quarter-on-quarter, and it fully explains the increase in cost of risk in second quarter versus the first because the negative macro affected us by €26 million quarter-on-quarter. Onur Genç: So [indiscernible], for macro, we might still register a negative. We might still register a negative from a macro perspective, macro modeling perspective in the numbers. But recalibration, which is based on the portfolios, based on the credit quality that we are seeing versus what we were expecting, that's the impact that we were referring to when we said recalibration. And on that one, it's going to be a positive effect, it seems. That's what we were trying to explain. We passed our time. Gloria, anything else you want to add?

No, just to thank you for participating and to remind you that the entire IR team will remain available in case you have further questions. Onur Genç: Well, thank you so much again for attending the conference call. And hopefully, if you haven't done so, have a great vacation period. Thank you so much.

Thank you.