Good morning, everyone, and welcome to BBVA Second Quarter 2020 Results Presentation. I'm Gloria Couceiro, Head of Investor Relations. And here with me today is Onur Genc, Chief Executive Officer of the Group and Jaime Saenz 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. And now, I will turn it over to Onur to start with the presentation.

Thank you, Gloria. Good morning to everyone. Welcome and thank you for joining us. I hope that you and your families and friends are all healthy and safe in this environment. Let me also express my support to those affected by the pandemic and my deepest condolences to the relatives and friends of those who passed away. So let me start with slide number three, by updating you on BBVA’s response to this environment. As mentioned in our previous quarterly results presentation, our three priorities to navigate this crisis remain the same. So, first and foremost, to protect the health and well being of our employees, our clients and the community, in general. This has been our number one priority from the very beginning. We acted with anticipation before the official government measures were put in place, activating plans in order to have as many of our employees as possible working from home, 86,000 of them working from home at some point. I really would like to also put focus on the fact that in this situation, our bank -- thanks to the technological investments that we have been doing in the many years to-date, our bank has been performing as usual, thanks to our people. And again, thanks to our technological capabilities. Our second priority in this environment has been to continue to provide an essential service to the economies that you operate in. We are managing the branch network in a very dynamic way, based on data. As of June, 87%, of our physical network is open, versus 69% as of March. So it has been improving day by day. We have also leveraged, more than ever, our competitive advantage in the digital front. Our digital and mobile customers have reached their maximum ever, 60% and 56% respectively,…

Thank you very much, Onur, and good morning, everybody. Let me begin with Spain. As Onur said there is taxation for 2020 have been revised downwards, with BBVA Research expecting a GDP contraction of between minus 10 and minus 15, due mainly to a longer and more intense lockdown than initially expected. On the other hand, 2021 expectations have been revised upwards BBVA Research now expecting you to be to grow between 3% and 9%. In terms of activity, loans have increased by 2.7% year-to-date and better than expected, driven by the strong growth across commercial segments and very small businesses, supported by government programs. That more than offsets the negative impact of the lockdown in retail portfolios. For 2020, we now expect total loans to increases slightly versus the slight decrease before. In the first half BBVA Spain delivered an outstanding pre-provision profit, up by almost 20% versus last year. And that's despite the challenging environment. Thanks to card revenues growing by 3.6% year-on-year in the half, driven by strong growth in fees up almost 7.5%, thanks to higher fees in CIB and asset management. NII grew by 1.7%, mainly due to lower wholesale funding costs and higher contribution from the global markets and the ALCO portfolio. For 2020, we now expect NII to increase slightly in line with activity versus a slight decrease we have before, higher NTI, up almost 80%, mainly driven by ALCO portfolio sales. And then we also have a remarkable decrease in operating expenses down over 6%, and exceeding expectations. For 2020 for the whole year, we expect expenses to decrease by more than 5%. And we could even – we could even beat this – this half of evolution. This strong performance of operating income has allowed us to absorb the increasing loan…

Very good. So to close the whole session with the final remarks conclude first, reiterate the resiliency of our operating income, successful crisis management in our view, differential digital capabilities, they're coming up to be very clear messages of this quarter. Our focus on cost control and efficiency improvement is clearly being seen in the figures in our view. Third, significant improvement in our risk indicators that allows the provision from floating in the first quarter, and we have done some more, but in retail line we have our expectation that we have been guiding you in the first quarter. And lastly is a solid capitals generation in the quarters already achieving our year end targets much earlier than what we forecasted. So with this, I conclude the presentation. Gloria, back to you for the Q&A.

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

[Operator Instructions] The first question today comes from Francisco Requel [ph] from Atlanta. Francisco, please go ahead.

Good morning. Thank you very much for the presentation. I will start with Mexico. Two questions here. First on the on the asset quality, I mean, do you currently -- I seen the presentation a 25 -- 40% of household loans are currently under payment holidays. If you can give us some color of portfolios, how many of the claims have been furlough? Or have areas in the past, if you have ever managed such a high level of moratoria? And the 5% cost of risk that you are guiding for the full year is close to that historical peak, but why do you think that this tiny say no wash in? And they got Mexicans on the top line in volumes. I see that you are still – but I wonder, if you are still willing to meet then the strong loan demand, given the lack of state support, or if you are planning to adopt more prudent risk taking criteria? And then on the outlook for the NIA, so you are considering that they moratoria -- four month moratoria will not be rollover just in that plugins are already prepare to pay the loans again. I will say if you can explain a bit more on the dynamics and volumes and margins? Thank you.

Okay. Thank you, Francisco. So asset quality, 34% are payments holidays. It is high. Yes, but it is also inline with some other countries that you might see in the appendix of the presentation, you would see the details of the different portfolios by countries. And this is relatively mid range or some of the other countries that you would be seeing. It's what is demanded in the market. But what I will be seeing in that payment holidays? Most of those deferrals are payment holidays. They will be due in July -- late July, which is these weeks -- this week, and also mostly in August. So we will see, but the first signals that we are getting is not bad at all. So the first signals we are seeing some customers are already closing their loans or paying their installments in the consumer loans and mortgages and so on. The thing that I would like to highlight regarding Mexico is first of all, close to half of the deferred portfolio is mortgage -- close to -- in retail, close to half is mortgage. So there's a clear collateral value that we should be taking into account here. So we are guiding in the asset cost of risk number for Mexico to be flat to slight decrease that what we had been seeing in the first half. In every other country, we are seeing a significant decline in the second half or cost of risk. In the case of Mexico, in our forecasting, in our thinking, we think it's going to be slight decrease, but not much given the situation of the country. What is different in Mexico? First of all, the pandemics still continues in terms of the new cases and so on. And the second, the government…

Thank you, Francisco. Next question, please.

The next question comes from Carlos Cobo, Societe Generale. Carlos, please go ahead.

Hi. Thank you very much for the presentation. A couple of questions for me. One is on the site assets. We have a couple of different approach to these, well, lower quality assets perhaps over the last couple of years from peers. And I would like to ask you about, your total exposure to DTAs. It’s true that tax loss carryforwards are slow, but what do you think about the quality of other time difference on grantee DTAs. And if you have gone any updated absorption test on those DTAs and is any chance of seeing impairments here, like to see your views. And secondly, if you could update us on your CET1 target for the end of the year, capital progress has been better than expected. And now, you're close to the high end of the range, as you said. So, are you raising the target or capital formation in the second half? That’s great. Thank you.

On EPAs. Jaime ?

Okay. Okay, so first of all we have guaranteed EPAs of €9.4 billion. Those are guaranteed by the state. They do not expire and they do not depend on future results. As you know, we pay a fee for them every quarter. That's roughly 17 million of fees net of taxes, which are recorded on the on the corporate center, income tax line. And then we have 4.8 billion of non-guaranteed EPAs that are currently deducting 67 basis points in CET1. For these we need to do projections and we do update our projections as you can imagine every single quarter. We did we did a major change at the end of 2019, in which we increase the years, in which we evaluate the DTH, we used to use only a 10 year P&L forecast and we increase it to 15 after realizing the peers were all along those lines. And we feel that we will be generating in years ahead, even after the lower income expected, especially in the next couple of years in Spain, enough taxable revenue in order to recover these non-guarantees EPA. So, we do not expect unless things change significantly, we do not expect any impairments on these EPA numbers.

And Carlos on the CET1, we are very likely that it would be above our target range by the end of year. As you all know, there are some corporate transactions that were announced some time ago, Paraguay and also Allianz, the partnership on insurance. They will be adding, when they are completed, they are not sure that they will be completed by the end of the year. But when they are 13 bps, there are some pending regulatory impacts that we will be benefiting from, especially on the software treatments, our expectation would be 12 bps, 13 bps on that one. Also considering those additional impacts, we would be very highly likely we would be above our target range at the end of the year. So what then we are not planning to raise our 225 to 275 goal that we said actually a quarter ago. According to ECB recommendation, as you all know, our Board of Directors, we committed that we would not be making any dividend payments for the year 2020 until the uncertainties caused by COVID-19 disappear and in any case, we would not do any dividend distribution before the end of 2020 fiscal year. So, we stick with that, but going forward starting from 2021 once the COVID uncertainties dissipate and the existing supervisory recommendation is eliminated, our clear intention obviously is to give that back to the shareholders. So, we will resume our dividend payments. And as we have mentioned before the COVID crisis, we would also explore other shareholder remuneration methods, like share buybacks. So, we will go back to our lever but we are not planning to raise our target. No.

Thank you – thank you, Carlos. Next question, please.

The next question comes from Alvaro Serrano of Morgan Stanley. Alvaro, please go ahead.

Thanks for taking my questions. Good morning, everyone. Can you hear me, okay?

Yes. Alvaro, we can hear you well.

Yeah. Thanks. I have follow-up on Mexico and then on cost. On Mexico, I think Jaime outlined that the impacts from the payment holidays was €107 million in the quarter. I just was wondering around the NII recovery in the second half that you've pointed to, how much visibility you've got on that, is that €107 million. I mean, you said that August was the biggest rollover, how quickly that's going to come back. And how sure are you that most of that's going to come back? And related to that is on the loan production. I mean, it's recovered from the lows, but it's still -- you were pointing out the recovery is slower in Mexico and loan production still looks like 40%, 50% lower in consumer up until June. So I was wondering what visibility you have, how confident you are in that NII recovery and anything you can point it out, point us out on in terms of volumes? And the other question was on cost, more generically, I mean your cost performance was obviously very impressive, 7% better than consensus in the quarter. So impressive that it kind of -- I mean, how are you doing it from a qualitative point of view, and I know you've given the guidance by division, I don't have time to do all the numbers yet, but conceptually, what are you addressing in the cost and how sustainable that is going forward? Is Q2, the right run rate, is there extraordinary from COVID. And more thinking about sort of long-term trend and next year's trend, I know you don't give guidance, but conceptually, what is their extraordinary in the quarter and what is sustainable? Thank you.

Thank you, Alvaro. On the Mexico question the €107 million, the impact on the NII from the payment holidays, it will disappear as Jaime mentioned, as of August, so that $107 was basically for the quarters, most of it is done. So for the second half, you would see very little of that one. So you can take that one out in terms of extrapolation for the second half. In terms of the loans and the volumes and so on, our guidance would be mid single-digit growth, driven mostly by wholesale portfolios. As you said, we see some softness in retail production, and as I mentioned, it is partially deliberate. We just want to be cautious. These are times to be prudent and that's what we are doing. But overall, we still see single, mid single-digit growth mainly by wholesale, because we are the largest bank in Mexico. We are seeing from very credible, big wholesale clients some demand. So that will be there. So mid single-digit is the expectation for the broader volumes for the whole portfolio. And as I mentioned for the NII, flat to slight decrease in overall NII, that's why I was saying that the second quarter should not be extrapolated at all in terms of the percentage. On the retail, you also ask about the curve. Again, it's in the appendix, you would see that basic mortgage is back to where it was. So mortgage in April was 70, now 100, consumer in terms of Index 200 of pre-COVID. It in terms of consumer, it was around 30% in April, and now it's back up to 60%. And again, it's partially deliberate on our side. That 60% even in July, we are seeing some gradual, gradual pickup, but we should not be rushing into it.…

I got a – once you add up all the guidance that I provided in terms of expenses, you will be able to see that what Onur has just said, it's up. I think it's very relevant that we are expecting a better second half of the year in pre-provision profit overall for the group versus the first half, particularly supported by better performance in both Mexico and Latin America, which as Onur has said, the areas that have been more effective in Q2.

Thank you. Thank you, Alvaro for the questions. Next question, please.

The next question comes from Marta Romero of Bank of America. Marta, please go ahead.

Good morning. Thank you very much for taking my questions. I've got three quick ones. The first one on dividends, your message is very clear nothing until we get more clarity on the effects of that pandemic, when the time comes to redefine your dividend policy, I was wondering whether you may consider bringing the script dividend back or you're happy to leave that script in the past? The second question is a follow-up on the outlook for Mexico's top line. Your fees in local currency are 17% below last year, how fast and to what level do you expect the fee line to recover? How much is volume driven? How much is lower prices? Do you see political pressure to keep prices low given what's going on? And the third one, sorry – quick, quick one, looking at your coverage ratios by stages. Stage one loans show coverage of 66 basis points. For years your cost of risk has been around 100 basis points. Shouldn't you have at least 100 basis points coverage for stage one loans or am I taking the wrong approach here? Thank you.

Okay. Thanks, Marta for all the three questions. On dividend is -- let's do it very short and sweet. Is script going to come back? The answer is clearly no. We announced this some years ago. We said we are going to be consistent, predictable on our dividend policy. It's cash. And the percentages are clear. So we'll continue with that approach. On Mexico. I didn't get the thing, but you were asking about the fee income, I think the minus 17%. The fee income, as you know, there are three things that drives that. Number one, the payment systems, in the case of Mexico is more important than even other geographies. So the card, credit card business, the merchant acquiring business, so the overall payment business. That's the key reason why the decline has been there, minus 17%. And on that one, what I can tell you is that it goes back to the economic activity. What I can share with you is if you look into the spending that we are seeing on our cards, and plus on our merchant acquiring terminals in Mexico, the spending in the country on -- in the week of 12th of April, with an index of 100, 100 is last year same week spending. On the 12th of April, the number was 68. And in July, early July, that same number is 96. So there is a clear pickup in spending and in economic activity, which will drive a good part of the fees and commissions. The second most important relevant thing in the fees and commissions is insurance. A good part of the insurance fee income is driven by retail loan production. So if you produce in retail, you will recover some part of that as well. Again, you have in…

Yes, I think this is really important in the yearly cost of risk, what you describe as underline, we include provisions not only for the Stage 1 portfolio, but also for the Stage 2 and 3s, as Onur has said.

Very good.

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

The next question comes from Ignacio Ulargui from Exane BNP. Ignacio, please go ahead.

Hi. Hi, good morning. Thanks for taking my questions. I just have two questions. One, if you could give us some detail on the performance of those payment holidays that have expired in Mexico and in South America. I mean, I see that in Mexico, there's €1.1 billion of moratoria have expired so far. How this has performed? Whether clients have been paying or not, to get a bit of a sense of how we could expect those. And the second thing is, on the NII guidance that you've given in Mexico, I assume this in local terms. Thanks.

Ignacio, yes, NII guidance is in local terms.

Yeah, it's always -- the old guidance is always in constant, to be able to make them comparable. On the first one, on the deferrals, Ignacio, it's -- again, most of it is expiring, actually, this week. We are watching it actually daily, and most of its expiring, it is actually in August. But the pieces that we have seen is, what we call, return to payment ratio, which is the key KPI that we are seeing, is actually improving every single week and month. Why? Because the deferral period actually changes depending on how late the loan was when we deferred it. So when we deferred loans, in April, the ones that were even late at the time, let's assume there was a loan 30 days late, we only give three months to that one. If the loan was 60 days late, we only gave two months deferral to that customer, if you know what I mean. So depending on the initial starting point of deferral, we changed the deferral period. So the ones that are expiring that we are seeing now, is actually the ones that were already late and the funds that first expired were the most problematic ones. So we started in early June with a very small portfolio of deferral returns payments ratio of around 20%. And in the last weeks, we are seeing 60%, 70% in certain portfolios, the consumer portfolio, and even the ones that are expiring now, were already late when they were deferred. So when the real deferrals come and expire, which is again this week, and in August, our expectation is that number is going to go even higher. These numbers, as I did mention, are better than what we were expecting. But we have to see, especially, this week and August, to be able to better judge on this, but the first signals are quite, quite positive.

Thank you, Ignacio. Next question?

The next question comes from Adrian Cighi of Credit Suisse. Adrian, please go ahead.

Hi, there. Adrian Cighi from Credit Suisse. Thank you for taking my questions. Three quick follow ups, please. On the cost of risk, you reiterate the guidance for this year. Do you see some of the elevated costs of risk potentially shifting into the next year, given the moratorium in a number of geographies? Or do you expect a sharper decline towards more normalized into next year? On capital, very briefly, you've mentioned the corporate transactions in the software intangibles, do you see any other sort of potential headwinds or other impacts from TRIM or other regulatory sort of developments? And then thirdly, just follow up on costs. You've mentioned quite a quite a number of, sort of, cost measures have been taken. Looking at bottom up this quarter or this year, do you expect some of these to be temporary, i.e. coming back in 2021? Or should we consider these as a sort of more permanent cost reduction? Thank you.

On cost of risk, do we expect this to trickle down to the next year, obviously. But in retail, which is the key portfolio here, on retail and SME book, most of the deferrals you will see it again in the appendix would be expiring in the next three months, especially in August. So given that the trickling down to 2021 would be much or less in retail, we will see most of it. And it's all factored in the 150bps and 180bps expectation. For corporate wholesale portfolio, there might be some trickling down, but there might be some trickling down even 2022 and so on. So, on those ones we will see. We will see in 2021. On the headwinds, the TRIM, on the TRIM, as you all know, they are delayed to 2021. We already updated you in the last quarterly presentation. But on the TRIM impact, especially on the low default portfolios, which is the last remaining TRIM that we have. We would be having 10bps, but again in 2021. So from this year, they're taken out and some others another 5bps that you might be expecting in 2021.

Yeah, from the BBVA guidelines, some on PD, LGD will probably have an additional 5 basis points hit, but also delay for 2021. So we don't expect any supervisory nor regulatory hits in the second half of 2020. And on the other hand, we will have the tailwinds coming from the treatment of software.

Yeah.

We will probably add to 12 to 30 basis points of capital in the second half of this year.

Yes. On the cost, how temporary sales would we expect some structural reduction out of it? Yes, you should expect some structural reduction out of it as well. Roughly one-third of the decrease in terms of the programs that you put on the table, which led to this reduction, roughly one-third of that is variable compensation related. So that variable compensation is a decision for this year. So for next year, we'll see. So that might be the temporary component or the most temporary component out of it. The rest, we are trying to make sure that most of it is structural. In the case of, for example, hiring and FTE numbers, you would again see it in the holding. I mean, we are close to 15% to 20% decline in the holding costs, because we are being very attentive, again on variable compensation, but also on hiring. Until the end of June we didn't hire anyone to anywhere. Since the end of June for networks, for client service, for sales, we are selectively open the hiring. For Corporate Services as we call them, we are not hiring. So that all of that is structural, you will keep that FTE advantage, in the coming years as well.

Thank you, Adrian. Next question, please.

The next question comes from Sofie Peterzen of JP Morgan. Sophie, please go ahead.

Yeah. Hi it's Sofie Peterzen from JP Morgan. I was so wondering if you can go just tell me about your NPL uplift when I look at your NPL as they grew as you can see in this quarter or for many quarters increased from 3.6% to 3.7%. So, my question would be at what point do, you expect NPL to beat. And last simple question would be on growth. I wondered if you can clear that, as you see you can see that additional price to be unlocked and premiums have gone up. It is something that, we potentially should expect? And my last question would be just on NPL outlook. I know you mentioned [Technical Difficulty] Thank you.

Well, Sofie, we didn't want to interrupt you, but your line was completely broken. So we couldn't get to your questions. We only got pieces of it. So maybe let's try if not, please dial back again with a different line, so we can get the full answer, so we don't miss you out. But the first one was on the NPLs as far as I understood, on NPLs, the outlook on NPLs. You have seen a slight pickup in the second quarter in the NPL, mainly because of wholesale client, actually one single client in Turkey, so we don't see any increase in the NPLs at all. Again, because of the deferrals, and because of the government support programs that we have in place, if you are deferring people don't go to, again in the installment loans, they don't go above 90 days, because they are paused on their payments. That's why we are now -- we are not seeing any negativity on the NPLs. We will see, depending on the August results, some pick up maybe in the third quarter, but we are not seeing, again, at the moment those trends. There is one important thing here though, we did those deferrals, but obviously all of those deferrals were done at the request of the client, and in some cases, we were proactive, in certain cases, the client was proactive in getting that deferral. We could have been facing a situation where the clients could have said, forget the deferral, I'm not going to pay, I don't have the money, I'm unemployed, I closed my business, I'm not going to be doing any of those payments. And that didn't happen, which is a great signal in terms of willingness to pay from -- on behalf of our country. So the deferral is not giving us the true picture on the NPL yet, so maybe we will see some more NPLs in the second half of the year. But if we manage those deferral programs proactively and in a client specific way, we do feel in terms of cost of risk and the NPLs, we would not see major, major hikes. The goodwill. Is it more to come, Jaime?

I think we have a very small goodwill, actually, we only have €2.7 billion of goodwill as you know, because we required detail in Q1, €1.8 billion of these comes from the U.S. where we did a significant impairment in Q1 of this year, but also Q4 of last year. And since we did it in April, things have recovered quite significantly in the U.S. in Q2, even more than what we were expecting when we did impairment. So we are quite confident that no additional impairments will need to be done in the short-term.

Thank you, Sofie. Next question please.

The next question comes from Daragh Quinn of KBW. Daragh, please go ahead.

Hi, good morning and thanks for the presentation. Question on Spain, on the corporate loan growth, what does your eyes look for demand there once the ICO loans are fully dispersed? And then a second question, just on -- you're seeing how the business has performed during a lockdown? Is this changing your view on the speed or ability to reduce the physical distribution branch network? Do you think the recent comments or changes in approach maybe from the ECB, coupled with the ongoing conditions, foods accelerator only to re-evaluation of consolidation opportunities in Spanish markets? Thanks.

Well, on the on the Spain loan growth, we do expect growth. Overall, the BBVA research actually estimates in terms of total loan growth to be single digit at the lower end of the single digit, but we do expect that to be the case for the industry and we will be aligned and if not betters. Again, most of the growth as you have seen is driven by the wholesale segments mainly because the ICO continues by the way until the end of September. As you all know, we have done much better than competitors in ICO. Our original share was 11.1%, if I'm not mistaken, given the performance that we had using those lines, we are now getting more than our fair share more than 16%. So we have done really well on ICO and we will continue to do that in the third quarter. Because as I said, given that performance, we are granted additional lines more than others, and that will be running until the end of September. So the third quarter you will see some ICO health growth. Overall for the year, we will see clear growth in wholesale, in mortgages, some deleveraging, in consumer, some deleveraging. As you know, consumer has been growing very significantly in the past three years. But this year, given the production being low, especially in the second quarter, we will see some deleveraging on consumer as well. So retail segments, negative probably and wholesale segments robust positive that's the expectation on the volumes in Spain. Speedo velocity of physical, closure of physical and so on. As we said many times before we are -- we were one of the first in my view, we were the pioneers in saying that digital is going to be a competitive advantage for the banking industry. We have invested so much in it, and we are getting the benefit out of it. In that dialogue in that speech that people are giving many years ago, we were also saying that it doesn't mean that people will disappear. But it does mean that probably physical spaces would be not needed, that's the trend. That trend would be accelerated somehow, the people will still be there because we still need to provide advice on financial products to our customers, but the branches will become less relevant probably and in that sense, the acceleration will be there. So we have closed, we are planning to close 160 branches this year in Spain, some acceleration or that pace might be expected for the coming years. The third one was consolidation in Spain. We said many times before, we always look into it. Our pure focus is organic growth. We have a game to play. In all the markets that we are seeing, we are gaining market share, thanks to digital, thanks to our people. That's our focus and if opportunities arise, which we always analyze, we will look into them as well.

Thank you, Daragh. Next question please

. The next question comes from Andrea Filtri of Mediobanca. Andrea, please go ahead.

Yes, thank you for taking my questions. Two questions one on capital and one on cost of risk. On capital, just understanding better in a dynamic way. How much risk weighted asset inflation do you envisage from breaking migration and when you think it will start to emerge? And at what point would you be prepared to grow your CP1 targets or to go above your target to appease the market about the headline numbers? And of cost of risk, what is the main factor which could imply further material coverage charges in your view? Thank you.

Okay. On rating migration, we are already seen some impacts from rating migration -- but actually very minor in Q2 with numbers. That impact will probably be a little bit stronger in the second half, but probably more towards 2021 as some of the more notorious mature. By itself, the fact that two-thirds of our RWAs are being calculated using standard models means that rating migration has less of an impact. So, it's mainly the large corporate sector -- the large corporate segment meaning mainly CIB, plus the sovereign portfolios, the ones that will be more affected by ratings. Having said so, in the case of sovereign portfolios, everything that as you know, everything that you sell local currency base and in geographies that are Basel-compliant are zero risk weighted and will not be affected either by those rating migrations. So, that is something that we will start to see as our quarters go by. It will be under the RWA column and, of course, as you can imagine, is factoring in all the guidance that that we provide.

On the capital topic, I would like to add one thing. Our distance to MDA and as you know, it's calculated on the phased-in basis is 304 bps. Our requirements is, I think, among the large banks is the lowest in Europe. And I hate to say this, but those factors somehow are not seen too much in the reports that I see and read. If you look into the distance to MDA, 304 bps, it is one of the most -- one of the healthiest distance MDAs that you can find. So, would we change our target? We don't think so. I mean, 225 to 275, I think it's a very safe target. But obviously, it will be decided on dialogues with many other stakeholders. Regarding the cost of risk, what is the main factor that might triggers further COVID-related provisioning? If I pick one thing, lockdowns. If there's one number, lock -- one word lockdowns. We have seen it in different countries, independent of the country changes a little bit from one country to another. But every week of additional lockdown triggers 0.5 to 1% decline in GDP every week. So, if there are strict lockdowns coming back in in certain countries depending on the sensitivity of 0.5% to 1%, we will see impact. And we will see impact on fee income, we will see impact on especially on cost of risk. As it stands, given still the spikes in many countries, I believe as a society we are somehow learning to live with it. That's why you are seeing this credit card spendings in every country going above 100 index now in many countries, because the COVID is still there, but we are finding your way. But if you go back to strict lockdowns, that will impact the numbers.

Thank you. Thank you, Andrea. Next question, please.

The next question comes from Britta Schmidt of Autonomous Research. Britta, please go ahead.

Yes. Hi, there. I've got three quick questions, please. The first one is to follow-up on M&A. Those who comment also hold for other geographies, for example, the U.S. The second one is on the U.S. Could you detail how much PPP fees were net interest income? And what sort of delta we should expect there for the coming quarter? And then lastly, could you give us an idea as to what inflation has been included in the Turkish CPI expectations for the year? Thank you.

On the first one I take and then the rest maybe Jaime. On the M&A that comment is valid for every geography, not true for any geography. We will always look into it if there is value creation for our stakeholders. On the rest, PPP.

I think we haven't provided that number. But we have provided that we disburse the 3 billion of PPP loans during Q2 and the fees standard. So you can more or less calculate the average. And then on…

It's around €100 million, but not all of it is registered in the second quarter.

Yes. All right. We've actually we've registered roughly €70 million in Q2. Sure. Okay. And then on inflation, we started the year accruing 8.5% in the first quarter. In the second quarter, it went down to 7.5%. So the average of the first half is actually 7.8%. Our current expectations for year end inflation is 10%, which probably means and that the year-on-year comparison of these impact on NII is minus 75%. And – sorry, €75 million affecting first half numbers, which clearly means that the second half is going to be much better, not only than the first half of 2020, but also much better than the second half of 2019.

Thank you, Britta. Next question, please.

The next question comes from Stefan Nedialkov of Citigroup. Stefan, please go ahead.

Thank you. Hi guys. Good morning. It’s Stefan from Citi. A couple of questions in mind. First, on the cost of risk, the 150 to 180 guidance. Last quarter you told us that the upper end corresponds to a second wave. So just wanted to prove that a little bit further. Have you changed your second wave estimate? And in a way is the reiteration of the 150 to 180 basically, because you just feel more comfortable that there's not going to be a second wave and hence your second wave estimate increase on the upper end of that range? The second question is on Mexico. You have been saying in the past that really NII is much more driven by threats than rates. When you look at the new production, how much scope there is for repricing on the new loans? And if you can just give us some more color on the percent of floating loans versus fixed loans? Also on Mexico in terms of the cost of risk, you basically seems to be guiding to 500 basis points for the full year. Some more color would be very welcome in terms of things like how many of your payroll back – consumer loan customers are employed by the stage, percentage guaranteed by agencies. And in terms of ratings, do expect defaults to happen at the B level and below? Or are we talking more like BBBs and below, any color around that would be greatly appreciated? Thank you.

Jamie, take the first one.

Sure. Cost of risk -- customer's guidance at the end of last quarter was to between 150 and 180. And we gave us -- that wide range, because of the uncertainty on the environment. But we didn't specifically said that at the higher end of that range was because of a potential second round at all. It's simply because it was complicated to – we didn’t have sufficient info on the specialty, how the shape of their recovery was going to look down the line. I think we have more info today on how that shape is looking in the countries that entered the crisis before. And we are starting to see these V-shape recovery in Turkey, in Spain, in the U S maybe not so -- maybe not in every single country, in every single product, sorry, but overall that's clearly the message which, gives us a lot of confidence, even more than once we had at the end of Q1 that we will be within that, 150, 180 range at the end of the year.

And once again Stefan on this one -- the thing that matters to us is again the lockdown, if there are strict lockdowns or not. So this second wave has become a fluid motion in my view. So if you have strict lockdowns coming out in October, November, it might affect the number otherwise we are in certain cases, we are in the second wave in certain geographies or we are in extended first wave, whatever you call them. So you should look into the strict lockdown. Regarding Mexico, the numbers are already there. So all the retail loans are practically fixed in the corporate portfolio, only a certain segment or the large segment is variables. On the 500 bips. There's so much question on this one. So you tempted me into it. I will give you a bit more details on Mexico and the deferrals and also the percentages that we see. First of the all, in terms of the -- in the retail portfolio, retail and SME portfolio, because the rest is one-on-one client management and we are, we are doing really well on that portfolio, but on retail and the SME, what you should know it's around, the total stock of deferrals is like €8.5 billion. 47% of that is again, mortgages. And the very high percentage or those mortgages are less than 60% LTV, but 47% is mortgages. Consumer loans, 24% of the deferrals is consumer loans. And roughly two-thirds of that is to our customers who have payrolls with us, so relatively well contained, two-thirds of that 24%. The rest 14.5%, 15% is credit cards and there's, you know, the ticket size of a credit card loan is much lower than the – than a typical instalment loan. And then another 14% is small business.…

Thank you. Thank you, Stefan. We are running out of time. So clearly we have time for the very last question. Next question, please.

So today's last question comes from Carlos Peixoto of CaixaBank. Carlos, please go ahead.

Hi, good morning. Thanks for taking my call. Carlos Peixoto from CaixaBank BPI. My question would actually be on the on fees just a one in particularly in Spain, basically in the release information that was some coming back from corporate transactions in the quarter. I was wondering how much this could be seen as a one off effect in the polling that what type of expectation do you have for fees for the full year? Thank you very much.

Okay. For net fees and commission, we expected is a slight decrease in 2020 versus 2019 and mainly due to the lower asset management fees and to the lower activity that that we've had due to the lockdown. When people go down, transactional activity tends to go down and those are the fees that are more affected and also the reduction in low production on the retail side that also tends to generate a significant amount of fees also conditions these, these, these guidance. Overall CIB has, has delivered. They're way above budget in Spain and overall in the group and is allowing us to offset part of the negative impact, so, as Onur has previously said, as long as we don't have another lockdown, we should expect a better second half of the year overall.

Okay, so thank you, Carlos. And thank you very much to all of you for participating in this call. Let me remind you that of course, the entire IR team will remain available to answer any questions you may have. Onur, do you want to close?

No, I'm just -- I just want to extend my sympathy and empathy to all of you who are on the other side of the call. It's very tough to understand the numbers, very tough these days. But in our case, we have tried really hard to be as transparent as possible for you to be able to have a perspective on how the business and the numbers are evolving. The IR team -- we have a wonderful IR team, so please don't hesitate to reach out to them. If you need any more details, but broader message is a message of positivity, I would say. Thank you, so much for all joining in.

And have a wonderful summer.

Have a wonderful summer. Exactly. Thanks so much. Bye-bye.