Earnings Call Transcript - BBVA Q2 2021

Patricia Bueno, Head of Investor Relations

Good morning, everyone, and welcome to BBVA's Second Quarter 2021 Results Presentation. I am Patricia Bueno, 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's CFO. As in previous quarters, Onur will begin with the presentation of the group results, and then Jaime will review the business areas. We will move straight to the live Q&A session after that.

Onur Genc, CEO

Thank you, Patricia. Good morning, everyone. Welcome and thank you for joining our second quarter results audio webcast. I hope everyone is safe and sound. Let's dive into it, starting with slide number 3. On the left side of the slide, you can see our net attributable profit, excluding nonrecurring impacts, which continues its upward trend, demonstrating very good progress. The number has risen to €1.294 billion in the second quarter, indicating a doubling of results compared to the same period last year, when we faced extraordinary provisions due to COVID. Compared to the first quarter of 2021, our net attributable profit has also increased nicely by 25%. We are prominently reporting earnings per share at €0.18, reflecting solid growth. These figures represent the highest quarterly results we have ever achieved while maintaining all the accumulated extraordinary reserves from 2020 intact for COVID. We are not releasing any reserves built for COVID in 2020. For comparison, please note that these figures exclude nonrecurring impacts, specifically the results from our US business sold to P&C, and the one-off restructuring costs from the collective layoffs in Spain. When including these factors, our final reported profits are €701 million. The graph on the right side of the slide illustrates our capital position, with the CET1 ratio now at 14.17%, taking into account the US sales and the restructuring in Spain. This indicates a new level of capital strength, providing us with significant strategic options. Even with the planned 10% share buyback, our capital position will remain strong at 12.89%, well above our target range and minimum requirements. The CET1 ratio was calculated based on the share price as of July 22, which suggests a share buyback amount of €3.5 billion. I'm pleased to inform you that following the ECB's announcement last week, we have already taken steps to initiate the program in the fourth quarter of 2021, as previously discussed.

Jaime Saenz de Tejada, CFO

Thank you very much, Onur, and good morning, everybody. Let me start as usual with Spain. Economic growth is strengthening in the country. The GDP growth estimates for 2021 have been revised upwards by a full percentage point to 6.5%, remaining at 7% for 2022, mainly thanks to better data in the first half of the year. Growth going forward will also be supported by the next-generation EU recovery fund, as you all know. New lending flows, as Onur has commented, have increased by 13% quarter-on-quarter. On top of a very solid loan demand in retail segments, credit is steadily picking up in the commercial sector, except in CIB, where it's still lagging. This has allowed for a quarter-on-quarter loan growth of 2.3%, with the consumer portfolio growing over and the SME book at 3.4% quarter-on-quarter. Even the mortgage book is showing improvement in Q2. For the full 2021, we expect the loan portfolio to remain broadly flat, with consumer lending growing at high single digits. Looking at the six months P&L, BBVA Spain delivered an outstanding pre-provision profit growing by 13.2% versus last year, mainly driven by strong core revenue growth, up over 4%, supported by a strong fee performance, up 16%. This was led by activity recovery and robust growth, particularly in banking fees, especially from credit cards and asset management, along with insurance fees, positively impacted by the closing of the JV with Allianz since December of last year. This dynamism allows us to expect fee growth in the mid-single digits for the whole of 2021 versus our high-single-digit guidance before. Another highlight of the half is clearly net trading income, thanks to the strong Global Markets results, particularly in Q1. Our continued cost control efforts have seen expenses decrease by 2.2%, resulting in a significant improvement of our efficiency ratio now at 49% in the first half of 2021, compared to almost 55% at the end of 2020. For the whole of 2021, and including the savings from the restructuring plan recently announced, expenses are expected to go down by around 3%. Net attributable profit year-to-date was also positively impacted by the significant reduction of impairments, mainly explained by the front-loading of COVID-related provisions set aside last year and the very good dynamics of NPL net entries. As a result, the cost of risk for the first half of 2021 stands at 45 basis points, which is better than expected. For the entire 2021, we now expect the cost of risk to stand below 40 basis points, clearly better than the original guidance. Overall, a very good set of results in Spain with first-half net attributable profit reaching pre-COVID levels of €745 million. Let's now move to Mexico. In Mexico, we have once again improved our GDP growth forecast for 2021 to 6.3% and also for 2022 to 3%, driven by better investment and consumption supported by the higher US demand and record remittances, which should support activity and asset quality trends in the second half of the year. Year-to-date, the loan portfolio is growing by 2.1%, driven by retail segments, as we've discussed before, which is up 3.3%, with wholesale segments also in positive territory.

Onur Genc, CEO

Thank you, Jaime. It's my 11th call with you, and it's one of the best quarters that we are showing in terms of results, in my view. Instead of summarizing, I will jump into the last page, which I believe you have all been looking for. You have been asking for this for quite a long time. BBVA has not done this for many years. I would like to announce the upcoming Investor Day. In this event, we will have the chance to share with you more details on our strategy, goals, and targets. We had to postpone the one that we previously announced due to the pandemic. The pandemic is still ongoing; however, by popular demand, we have decided to move forward with this. Please mark November 18th on your calendar. This event will be fully online, still due to the pandemic. Patricia and the investor relations team will be in contact with you with more details in due course. And before going into the Q&A session, I want to mention organizational announcements. As part of those changes, Jaime, our dear CFO, is assuming the group's Chief Risk Officer role. I would like to congratulate Jaime for his new position, and thank and recognize him for the terrific job that he has done as group CFO for the past seven years. Jaime has been recognized several times as the best CFO in Europe and Spain. He will be missed in this role, but he will contribute immensely to the bank in his new position. Congratulations once again, Jaime. Rafael Salinas, our current Chief Risk Officer, will be the new Chief Financial Officer for the bank. He has a lot of experience and will join us for the next quarter's earnings call as the new CFO.

Patricia Bueno, Head of Investor Relations

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

Operator, Operator

Our first question comes from Sofie Peterzens from JPMorgan. Sofie, your line is now open.

Sofie Peterzens, Analyst

Yeah. Hi. Here it's Sofie from JPMorgan. Thank you very much for taking my question. On the presentation, you mentioned that you have initiated discussions on the tender share buyback. Could you elaborate a little bit more on what this means, what the timeframe is, and when we should expect you to start buying back those shares? How should we think about the timeframe for the 10% buyback? Will it be done within six months, or is it a shorter or longer time period? If you could elaborate on this, that would be great. My second question relates to the reserves. You mentioned on slide 14 that you haven't touched your COVID management reserves. Could you remind us how much unused COVID reserves you still have? Thank you.

Onur Genc, CEO

Thank you, Sofie, for both questions. On the first one, as we mentioned today a few times, this is an important program for us. Our expectation is that we are going to start the program in the fourth quarter. We have initiated the process. You're asking what does that mean. We submitted our application to start this process yesterday to the respective authorities. It takes some time for them to evaluate and approve this. The maximum timeframe foreseen for that is three months, which means, if approved, subject to regulatory approvals, we will start the process in the fourth quarter. You asked about the timeframe to complete the €3.5 billion buyback. Given the size and some restrictions on this, the most relevant is market regulation; we cannot buy back more than 25% of the daily average max volume of a certain period. Therefore, it will take time to complete this. Given the size of €3.5 billion, we believe it will take six to nine months to complete the full program. Regarding the unutilized COVID management reserves, there are two components to be aware of. The first is the macro adjustment, which accounts for the regular portfolio deterioration based on probabilities of defaults, loss given defaults, and so on, adjusted each quarter with macroeconomic evolution. Since the first quarter of 2020 until the end of the second quarter of 2021, the macro net effect on provisions has been around €700 million to €800 million. So, that's one piece that is still available. If the macro improves, some releases might occur from that. The second component is the management adjustment, where we recognize potential future issues for specific clients even if there are no current signs of trouble, which totals around another €700 million to €800 million. In total, we have around €1.5 billion, including both adjustments. Of that, approximately €450 million is allocated to specific portfolios while the remaining €350 million is reserved at a general level. I'm providing these details because it is essential. Since the onset of COVID, we've accumulated provisions of €1.5 billion, allocating some of it to certain portfolios while holding some in reserve. Given the signals we're seeing, we foresee potential releases from these reserves, especially in 2022, though we remain prudent about these forecasts. Until we see clear signals on economic development, we will hold onto those reserves.

Patricia Bueno, Head of Investor Relations

Thank you, Sofie. Next question, please.

Operator, Operator

Our next question comes from Ignacio Ulargui from Exane BNP Paribas. Your line is now open.

Ignacio Ulargui, Analyst

Hi. Thanks very much for taking my questions. And good luck to Jaime in his new position. I have two questions. One is on NII outlook. What should we expect for the second half, particularly focused on Spain, after one of your competitors has offered a more prudent guidance today? How do you see competition and loan growth demand in the coming two quarters? Also, linked to that, you have been quite bullish on the Turkish recovery of NII; what should we expect? Will we start to see a recovery of margins on interest rate hikes getting absorbed? On the cost of risk, you have guided 410 bps at a group level, while the first half has been around 100 basis points. Where do you see the deterioration coming in your franchise, or is the aspect that you want to take on shares still in light of what you have recommended in Sofie's question? Thank you.

Onur Genc, CEO

Thank you, Ignacio. On NII in Spain, we should have put this in the presentation as well. Year-to-date, you have year-over-year growth, and I don’t comment on competitors, but our numbers are quite positive in terms of volumes, looking into quarter-over-quarter figures. As of the end of March and end of June, we are seeing growth everywhere except for CIB. Mortgages, after the core time, are growing. Consumer is growing at 4.3% stock. Commercial companies are also growing. Everywhere, with the exception of CIB, we see growth. In the second quarter, Jaime mentioned that we are confirming our perspective on the fact that NII will deliver what we projected at the beginning of the year, which is quite positive because the volumes are coming in strongly. Regarding Turkey, you can see in one of the charts we put here. That is what we wanted to reflect on the eventual growth of margins. I’ll keep monitoring it closely. We expect continued improvements in margins in Turkey unless there is a new rate hike, which we don’t foresee. Concerning the cost of risk, 110 is what we’re guiding, and there’s not much of a difference between 100 and 110; we don’t see negativity in the second half at all. But 110 aligns with our expectations based on what we see in past portfolios.

Jaime Saenz de Tejada, CFO

No, it's perfect.

Patricia Bueno, Head of Investor Relations

Thank you, Ignacio. Next question, please.

Operator, Operator

Our next question comes from Carlos Peixoto from CaixaBank. Carlos, your line is now open.

Carlos Peixoto, Analyst

Hi. Good morning. Thank you very much for taking my questions. On the share buyback, just a follow-up. Given the share performance and depending on future performance as well, I'm wondering the cost associated with a 10% buyback has increased since you announced the intention to do so. So, up to what level of capital are you willing to go with the 10% buyback, or should we consider the buyback more in near-term capital deployment terms, or where do you see the limitations to that? On the asset quality front, we've seen an increase in NPLs across several business areas. At the same time, we’ve witnessed some deterioration in coverage levels, which I assume is part of the cycle we are in. To what levels of coverage could the NPL coverage decline, and what levels do you see as the minimum or the level at which you wouldn't be comfortable any longer? I appreciate it if you could give us some insight on that. Thank you.

Onur Genc, CEO

Thanks, Carlos. On the first question, as I said, the AGM approval is up to 10%. We have calculated, as shown in the document, the CET1 post-buyback, which shows 12.89%. We will execute this in tranches. Our commitment is to proceed to buy back up to 10% as per AGM approval. On the NPL coverage, we don’t have a strict commitment or goal on coverage. We assess each client individually; that drives our provisioning strategy and, by extension, coverage. On Page 45 of our report, you'll see that our coverage is 77% versus the European peers' average of 66%, with Spain at 64% and Turkey at 69%. We are more conservative compared to the rest of the industry. Regarding the deterioration, there have been specific one-off increases, particularly in Turkey, related to a client included in Stage 3 this quarter, but it didn’t require provisions.

Jaime Saenz de Tejada, CFO

Regarding the comment on deterioration in certain countries, we saw deceleration in Turkey, attributed to that specific client. However, the underlying behavior of retail and commercial portfolios remains very stable.

Patricia Bueno, Head of Investor Relations

Thank you, Carlos. Next question, please.

Operator, Operator

The next question comes from Francisco Riquel from Alantra. Francisco, your line is now open.

Francisco Riquel, Analyst

Yes. Thank you for taking my questions and best wishes for Jaime. First question on Mexico; can you update us on NII guidance and the impact of the changing interest rate outlook? You were budgeting for rate cuts, if I remember correctly. While I know the sensitivity to rates is limited in Mexico, is there any upward bias on that guidance due to the delayed repricing into 2022? I wanted to inquire about fee income growth; it was a positive surprise this quarter. If you can provide an update for the group and main units and explain the source of growth—are you raising tariffs or benefiting from external factors helping market growth or improving customer engagement? Thank you.

Onur Genc, CEO

Thank you very much for your questions. On the first one regarding NII, the local currency Mexican peso sensitivity to a 200-basis point increase is around 1.5%. This positive sensitivity indicates that impacts will come towards the end of the year, leading into next year. We expect NII trends to be favorable this year as you are already seeing in the production figures we provided. In terms of fee performance, our year-on-year fee increase is up almost 20% across our footprint, driven mainly by banking services related to credit cards and payment services owing to the economy reopening. Additionally, asset management has performed extremely well in Spain, particularly net entries and market performance as well as insurance fees resulting from the joint venture agreement with Allianz. We're also seeing significant strength from CIB in the first half. On a quarter-on-quarter basis, fees are up 6.3% for the same reasons, and while we typically do not provide guidance on fee income growth other than in Spain, we have upgraded our guidance for Spain to mid-teens from the prior high-single-digit growth.

Patricia Bueno, Head of Investor Relations

Thank you, Paco. Next question, please.

Operator, Operator

Our next question comes from Benjamin Toms from RBC. Benjamin, your line is now open.

Benjamin Toms, Analyst

Good morning. Thank you for taking my questions. Firstly, regarding the ECB announcement last week on dividends and the guidance, do you think the board will need to follow that statement when deciding the fort year's dividend? Considering BBVA is ahead of its ROT target, will that influence their decision? Will this guidance affect your aspiration to remain within your target range over the next two to three years? Secondly, during your presentation, you mentioned that you do not expect any significant regulatory impacts for the rest of the year. Are there other headwinds to consider, particularly key regulatory concerns for next year? Thank you.

Onur Genc, CEO

Benjamin, we had some problems with the line, so I hope we caught everything. On capital and the board's decision related to dividends versus ECB guidance, it is the board's call. However, our anticipated ending for Q2 is 14.17%, which is 557 basis points above requirements. We are one of the lowest requirement banks in Europe. When comparing our capital positions, we hold one of the best. In that context, given our capital position and the organic capital generation, we can make capital decisions with confidence. Regarding the regulatory headwinds, we completed new definitions of default this year, along with other essential transformations. Next year, the only remaining aspect pertains to LGD guidelines, which may come in at 10 to 15 basis points. Unlike other years, we expect 2022 to be a light year concerning regulatory impacts. The major impacts will arrive in 2023 based on Basel changes.

Patricia Bueno, Head of Investor Relations

Thank you, Benji. Next question, please.

Operator, Operator

The next question comes from Maksym Mishyn from JB Capital Market. Maksym, your line is now open.

Maksym Mishyn, Analyst

Hi, good morning. Thank you for the presentation and taking my questions. I have one technical question. What was the final impact of Coinbase on your accounts in the second quarter? I also have a question on restructuring in Spain. Does the agreement you have reached with the labor unions limit you from any further restructuring in future years? Thank you.

Onur Genc, CEO

On Coinbase, the impact scored was slightly lower than we anticipated, which is not strictly just Coinbase, but the Propel Venture business overall. In total, the impact for the quarter was €160 million, with €110 million classified under net trading income and €50 million under other income. This is below our earlier guidance of €200 million to €250 million due to a decline in Coinbase's share price since our last discussion, plus a delay in good trading income from one of the other portfolio companies. Regarding future restructuring, the existing agreements do not legally bind us. We can undertake additional restructuring programs if needed. While this isn't part of our short-term plan, it's feasible.

Patricia Bueno, Head of Investor Relations

Thank you, Maksym. Next question, please.

Operator, Operator

Our next question comes from Benjie Creelan-Sandford from Jefferies. Benjie, your line is now open.

Benjie Creelan-Sandford, Analyst

Yes, good morning everyone. Two questions for me. And first of all, in Spain, after this strong performance this quarter, it seems a bit cautious to guide for flattish trends still. So, I'm wondering whether there are specific weaknesses you expect in loan growth in Spain for the second half of the year? Additionally, what do you think could be the impact of the next-generation EU funds on the loan growth in your European business? The second part is on Mexico. You've mentioned this already, but if we look at consumer lending ex-cars, we’re still seeing a year-on-year decline in Mexico. Can you discuss more how you see that developing through the rest of the year and share insights on the volume growth mix in Mexico moving ahead? Thank you.

Jaime Saenz de Tejada, CFO

I'll take the first question. On Spain, the behavior in Q2 has been notably good, with growth reported at 2.3%. Another highlight is that with the exception of the CIB portfolio, all remaining portfolios experienced increases over the quarter. The consumer and credit card portfolio has grown particularly in our smallest business segments, at growth rates of 4% and 3%, respectively. We expect these trends to be maintained through the second half of the year. Regarding CIB, the previous year’s Q1 and Q2 shows a significant number of client drawdowns that results in a large base effect. This will start to diminish, leading into Q3 and Q4, which should help in the market sense. We're maintaining our guidance of broadly flat; however, we are now more confident that this guidance may be exceeded.

Onur Genc, CEO

Benji, you're specifically referring to page 21 of the presentation. The retail segment appears to be performing well. The credit card business is growing in year-over-year balances. The only segment not seeing growth is consumer, attributable to COVID factors impacting demand. However, the Q2 performance in consumer lending ex-cars shows a quarter-over-quarter growth of 1.2%. Credit cards are now showing a 4.8% quarter-on-quarter growth, and SMEs are realizing 5.4% growth. Overall, we see a positive outlook across Mexico. Production in terms of new cards, the limits allocated in Q1 compared to Q2 are up 14%. So the production is scaling up, and you should start reflecting that in balances in the later quarters.

Patricia Bueno, Head of Investor Relations

Thank you, Benjie. Next question please.

Operator, Operator

Our next question comes from Marta Romero from Bank of America. Marta, your line is now open.

Marta Romero, Analyst

Thank you very much. I have a couple of follow-ups regarding NII in Spain. Your previous guidance was minus 1% to 2% this year, but you're running at plus 1%, assuming similar levels to Q2? Can you update whether what has driven the improvement in the quarter? You've performed better than your competitors. Is this driven by lending activity or could there be factors linked to ALCO portfolio additions and TLTRO? Finally, would you assert you have a greater risk appetite in Spain compared to your competitors? You're guiding for strong growth in consumer lending. Does that suggest your cleaner balance sheet and stronger capital position is allowing for this increased risk appetite? Thank you.

Jaime Saenz de Tejada, CFO

Thank you, Marta. I’ll address the inquiry regarding NII in Spain. There are no one-off events to qualify in Q2. The data shows an increase in average loans up 0.6% this quarter along with a improved mix of products. Consumer and SME loans are more profitable. The Euribor re-pricing is almost complete; the mark-to-market of our portfolio at these historically low 12-month Euribor levels is now over. The first half of the year allowed us to benefit from TLTROs as we fulfilled the volume requirement; we expect the same at the end of the year to continue benefiting. While there was a slight improvement to our ALCO contribution in Q2 relative to Q1, it was marginal. Provisions on NPL recoveries were decent, but there was nothing significant. Overall, performance has aligned with our expectations, confirming our guidance. The Q2 of last year included a significant one-off influenced our numbers, so we are very confident to repeat the performance throughout the year.

Onur Genc, CEO

Marta, regarding your second question on Spain’s lending appetite—historically speaking, our cost of risk has been lower than that of competitors. We pursue growth in sectors we deem lower risk. In Spain, our consumer loans predominantly feature payroll clients, which reduces risks and defaults for us. With over 70% of these loans processed digitally, the convenience of relationship with our customers differentiates us from competitors. The yield for a consumer loan is around 6%, so we ensure that the cost of risk for that is comparatively minimal.

Patricia Bueno, Head of Investor Relations

Thank you, Marta. Next question please.

Operator, Operator

Our next question comes from Mario Ropero from Bestinver. Mario, your line is now open.

Mario Ropero, Analyst

Hi, good morning everyone. A follow-up question on fee guidance in Spain. You mentioned mid-teens in 2021. If you were to repeat what you did in the first half, you would achieve around 20%. Should I interpret this as any one-off in the fee number in Q2, or are you just giving yourself some leeway? Regarding capital, could you clarify if any decision regarding excess capital will be deferred until the buyback is completed, or are these completely independent processes you can manage concurrently? Thank you.

Jaime Saenz de Tejada, CFO

I’ll take the first question, Onur. On fees in Spain, nothing especially relevant except we did collect extra fees related to successful asset management earlier in the year impacting overall fees in the first half versus the second. The trends in the preliminaries remained quite steady overall.

Onur Genc, CEO

Regarding your second question about any additional capital deployment decisions, they're independent processes driven by value creation. We don't postpone potential opportunities until one process completes. If we see value-driven opportunities, we will pursue those. We are not compelled to spend excess capital; we will prioritize value-added projects—M&A or capital returns—based on their merits. As for share buybacks, the first 10% program we aim to initiate in Q4, and we have initiated the necessary application process with the ECB. It’s essential that our capital deployment alternatives compete for delivering the best value to shareholders. This disciplined capital approach has been evident in our past decisions, including the sale of the U.S. business.

Patricia Bueno, Head of Investor Relations

Thank you, Mario. Next question, please.

Operator, Operator

Our next question comes from Stefan Nedialkov from Citigroup. Stefan, your line is now open.

Stefan Nedialkov, Analyst

Thank you, and good morning, guys. Jaime, all the best in your new role, and welcome to the new Head of Finance. A couple of questions here. Please let me know if I repeat any queries due to line issues. Number one, regarding Mexico, you seem to be guiding for stable margins for the rest of the year. Consumer lending and credit card volumes appear to impact overall NIM in Mexico. With limited rate sensitivity until the year ends, what is your outlook for 2022? It might be too early to comment; any color you can provide regarding evolving competition relating to consumer lending, credit cards, and SMEs heading into next year would be helpful. The second question is on digital metrics; the rising digital penetration numbers—ranging from 60% to 66%—are impressive. How does digital feeding contribute to your overall fees? I'm keen to understand the underlying value from going digital. Finally, regarding the Investor Day on November 18, will you be breaking with tradition by providing an ROT target? Thank you.

Jaime Saenz de Tejada, CFO

Thank you, Stefan. On the first one, Mexico; I expect margins to slightly increase in the second half due to the favorable customer mix. We are seeing good production levels in high-margin products retail lending as well. For 2022, while I can't give guidance, I remain optimistic as our market share has grown year after year driven predominantly by credit cards. As of now, our market share in credit cards has reached 30.4%, and we’ve seen a 224 basis point increase in the year-over-year market. Overall lending shares increased by 59 basis points. I am proud of our performance in Mexico and suggest you visit our teams; they are working exceptionally well. We have a great bank there and the best talent. Regarding digital, while we don’t specifically track fees from digital channels, you can see a 54% digital share of accounting entry-generating transactions versus 24% just three years ago. It’s a good metric indicating that we’re improving in terms of transaction volumes in the digital space. We’re leading in terms of competitive digital penetration.

Onur Genc, CEO

Regarding the ROT target at Investor Day, we haven't finalized that, but we'll put something on the table.

Patricia Bueno, Head of Investor Relations

Thank you, Stefan. Next question please.

Operator, Operator

Our next question comes from Pamela Zuluaga from Credit Suisse. Pamela, your line is now open.

Pamela Zuluaga, Analyst

Hello, good morning, and thank you for taking my questions. I have a couple—first, on the guidance of 110 basis points for cost of risk. What does this imply for the release of provisions on overlays mentioned earlier? Is there further potential upside on that guidance? You also talked about pricing actions on margins; could you give us an example of differentiation versus market pricing? Lastly, you mentioned you're nearing completion on Basel III, but could you provide insights into the impact of Basel IV?

Onur Genc, CEO

On the 110 basis points, for the overlay utilization perspective, it’s very limited now—it won’t impact the guidance we provide. If things continue to improve, there might be releases from that, probably more in 2022 once we see portfolio developments. Regarding pricing, especially in mid-corporate sectors, we have implemented a system to ensure that every loan contributes adequately to returns on regulatory capital. Essentially, each new loan must achieve return criteria set under capital demands while managing exceptions adequately. This discipline differentiates us positively from other institutions. On Basel IV, we will be among those least affected by the output floor implications; no significant adjustments on our end are expected since we already maintain a solid risk density.

Patricia Bueno, Head of Investor Relations

Thank you, Pamela. Next question please.

Operator, Operator

Our next question comes from Andrea Filtri from Mediobanca. Andrea, your line is now open.

Andrea Filtri, Analyst

Thank you. Two questions I have, one concerns asset quality and the second is on capital. Having observed no signs of deterioration, I wanted clarification regarding the constraints on the use of overlay provisions, in both the macro and management segments. At what point would you expect auditors to either allocate or release those reserves? I believe you indicated 2022; however, a better understanding of the mechanics would be appreciated. On capital, the current price reaction suggests the market predicted what you were sharing today; what are your next steps post-buyback to assure shareholders there’s more value coming, such as organic or inorganic growth opportunities? In terms of Spanish NII guidance, could you confirm whether you'd adhere to a negative 1% to 2% range for the current year?

Onur Genc, CEO

Andrea, yes, we are confirming the negative 1% to 2% regarding NII guidance. On asset quality, we spend a good deal of time with regulators and auditors reviewing every aspect to ensure each component remains appropriate. The conditions necessitating macro provisions are subject to ongoing management and control by auditors. If and when the situation improves sufficiently, we will consider releasing those provisions, hence looking for clearer signals in 2022. On capital, the decision-making process is driven by value assessments; if any project looks compelling, we’ll jump on the opportunities without waiting for buyback conclusions.

Patricia Bueno, Head of Investor Relations

Thank you, Andrea. I'm afraid we are running out of time, so only one last question, please.

Operator, Operator

Our final question comes from Britta Schmidt from Autonomous Research. Britta, your line is now open.

Britta Schmidt, Analyst

Hi there. I make it easy for you. My questions have been answered.

Onur Genc, CEO

We have heard this from you. Thank you. Would you like to take another question?

Jaime Saenz de Tejada, CFO

This has been a pleasure. Just a reminder, I briefly want to go over guidance concerning Turkey, after what seems like some audio issues earlier. We expect PL loan growth for 2021 at mid-teens, but now with an upward bias. Foreign currency portfolios should continue decreasing, and regarding cost of results, we now expect to end the year below 150 basis points.

Onur Genc, CEO

Lastly, I want to express our sincere gratitude to everyone. The guidance provided today highlights improvements across all areas, including our asset quality guidance improving from 130 to 110. NII numbers for Mexico are confirming positive trends. Our ongoing operational efficiency is reflected across numerous indicators and leaves a favorable outlook for the remaining months of the year.

Patricia Bueno, Head of Investor Relations

Thank you, everyone, for joining us today. Stay safe, and thank you for your participation.