CaixaBank (CIXPF) Q2 2026 Earnings Call Transcript

Good morning and welcome to the Cashabank Results presentation for the second quarter of 2026. As usual, we are joined today by our CEO, Gonzalo Bortazar, and our CFO, Javier Pano. In terms of logistics, a brief reminder, we plan to spend about 30 minutes with the presentation, followed by a Q&A, and you should have received instructions by email on how to participate. We have the press conference immediately afterwards, so we will need to be mindful of the time today and wrap up promptly. My team and I will be at your full disposal after the call for follow-up questions. And without further ado, Gonzalo, the floor is yours.

Thank you, Marta, and felicidades. Santa Marta today, on top of the World Cup. Anyhow, second quarter, I'd say the highlights are very clear. It's how successful we've been in the market in terms of our commercial traction. You have a few figures here, customer funds and performing loans, both growing 8% level well above what we were expecting, and we're very pleased to have seen this kind of growth. We're also growing in net new clients over 400,000, over 1.1 million in terms of gross new client acquisition. Insurance is doing very well, and you can see that on market shares, where we are gaining market share as we like, as it's gradual. We're too big to be growing too fast in this market, but it's just a gradual trend, 15 basis points in payroll. It's very relevant. You look at the insurance side, where we have a very clear, strong position in life savings and life risk. We see very strong growth. Also in non-life insurance, we're increasingly becoming a leading player in the market. So, very satisfied to see that our commercial machine is working at full speed. Revenues are growing as guided in terms of NII and, in fact, accelerating. And revenues from services, 7.4%. NII was up 2%. Asset quality, a big improvement coming down from 2% to 1.8% in non-performing loans and coverage ratio, having looked at our competitors so far, way ahead of all others, above 80%, while everybody else is below 70. Generating capital, despite the very strong growth in this quarter, which is obviously also seasonally very high, and that's combined with profitability in line with what we have guided, just already at 18%, consistent with our guidance of being above 18%, by year-end and net income up 8.5 in the total of the two quarters of the year, and 10 percent of the second quarter. So very strong second quarter. The economy is doing well. We are actually upgrading back our estimates for growth in Spain from 2.1 percent to 2.4 percent. But as you know, we had some softening of our expectations once the Iran war started. And in the current, obviously, there's a lot of volatility. We cannot have a point estimate with certainty of what GDP is going to look like at the end of the year. But taking into consideration what we're seeing within that volatility, we feel that the economy We may end up growing at 2.4%, which is obviously very significant when you look at a comparison with the eurozone at 0.5. Portugal is slightly below that level, but close to 2%. And within some slowdown in Spain, still hovering about 2% for the next year. So good trends likely to be sustained. And volatility in rates, I'm sure we'll discuss a lot on rate curve and expectations during today's, but you can see obviously a steepening, very significant steepening of the yield curve, particularly again not just during the second quarter but also in July. And then, as you know, we keep having in Spain some structural reasons for this strong growth, which we expect to last for the foreseeable future. The detail of commercial momentum, as you can see, business volume up 7.8% is actually accelerating from last year, and this is kind of the trend we see almost at every indicator we look at. It's a strong growth, and even if last year it was pretty good, we're seeing it even better now. customer acquisition, payroll, and you see that gain in payroll deposits, 36%. We keep, obviously, improving our position in the market. And as I said, very significant increase other than deposits and private sector loans, also in insurance where the numbers are actually very high. I wouldn't say surprisingly high because we have been delivering those very often in the past, but they still are quite shocking. Imagine, I would say, in our news, continues to do very well, 20 percent year-on-year growth. I just wanted to make sure that everybody understands that despite the very strong competition that we have from established and new entrants in the market, Imagine continues to do very well. And as you can see in some comparison with neobanks, is clearly in terms of business volume the leading neobank in Spain and we're planning to keep it that way. Transformation is critical, less easy to observe, but obviously a driver of long-term competitiveness for us. We continue to maintain our app as the number one ranked according to Google Play in Spain, which is no small feat, given how many. I'm talking about financial apps, obviously, how many there are. And what you can see is very significant growth. I'd say digital continues to grow, whether it's sales, leads, users in our app is now combined. Imagine and now Kasia Bank, it's up to 13 million users. And some of the benefits of AI, which we have introduced already, 40% of our product inquiries are now being solved automatically by AI, and on occasions, obviously, they are diverted to a human in the loop. But this has gone ramped up very, very fast, and we are in the process of deploying through the network the AI agent that basically helped us in preparation of commercial interviews, which is going to A, reduce, as you can see, commercial preparation time, but also increase the effectiveness of our teams, of our people. Again, looking at AI as a facilitator, as an enabler to allow us to do more and to obviously keep growing our market share, our revenues. On the lending side, very strong growth, residential up 6.7% year-to-year, consumer, residential mortgages, consumer more than double-digit, 11.5%, and business lending also in double-digit territory. Obviously, in business lending, there's a contribution around half of that growth is coming from outside Spain and Portugal. Our international branches continue to grow nicely, even though they will gradually keep, I'm sure, bringing some growth to the overall loan book, but at an exhilarating speed, slowing down in terms of how much more we grow vis-à-vis what we grow in Spain and Portugal. Very relevant gaining market share in SME loans. That has been very significant now for the last couple of years. And, again, we'll look at granularity in our franchise ability to get to sort of the small part of the market, which is more profitable, is being proved quarter after quarter. Consumer lending also has another interesting sector in terms of risk reward is also growing in terms of market share. The customer funds, we had an extraordinary quarter, particularly the market impact after a week first quarter with the Iran war has made these figures even better, and that's how you see wealth management numbers 13.9% growing year-on-year and almost 7% in the quarter. Look at deposits and balance it. Performance is also very good, has also been very good, But particularly if you exclude the public sector, more volatile and less sort of margin-relevant deposits, you see growth of 5% gaining market shares, a light gain. But that is what is kind of natural, given that we are already at 26%. And honestly, the market has also been very solid in terms of net inflows into wealth management. And you will see that in some detail in this slide, $4.3 billion. It's an increase of 31% over the last quarter of, over the equivalent quarter, the second quarter of last year. Again, pretty balanced between savings insurance and mutual funds. And overall, we're now with AUMs that are above $300 billion. and, again, growing, whether it's mutual pension or savings insurance at very high rates and maintaining those leading market shares that we have in wealth management in Spain. Protection insurance has been having a great first six months of the year. Look at premiums up 11.8%, and actually that is pretty balanced between life risk and non-life, 12.8, 11.2. Health, auto, home, and obviously life risk are doing very well, and the market shares that you have on the bottom of this slide speak by themselves, really. A long-term track record of growth in life risk is staggering when looking at what the market has done over the last ten years. So that's really it. We continue to look at the future with confidence. We have a great, certainly in terms and relative terms, great economies in which we operate. Our clients are very well positioned in terms of the leverage they have relative to the EU average, and that makes a difference because they are, A, more resilient, and B, we have more potential to grow. The rate outlook is certainly positive, even if it generates, obviously, volatility. But we have the franchise, the momentum, and the balance sheet to keep delivering, and that's what we plan to do.

Okay, then. From my side, as always, and good morning, sorry. As always, the usual comments on the P&L and the balance sheet. On the first slide of my part of the presentation, here you have the consolidated income statement. net income of 1 billion, 631 million. This is up by slightly over 10% year-on-year, also up by close to 4% quarter-on-quarter, 18% ROTE, as Othal already commented. And moving upwards to revenues, NII, with its growth is gathering pace, up by 3.5% year-on-year, 2.5% quarter-on-quarter, details in a couple of slides. Revenues from services exceeding our initial expectations, honestly, here, with strong momentum from wealth management and protection, and as you may see, revenues from services up by more than 7% year-on-year and also up quarter-on-quarter. On other revenues, everything is pretty much in line with a strong contribution from equity accounted, basically from Segur Kasha Deslas, and slightly weaker trading this quarter. Then on expenses, everything also is evolving according to our plans, up by 4.3 percent year-on-year. Then on loan and loss charges, we have a slight increase in euro terms, but as you may see, in terms of cost of risk, we are pretty much in line at 24 basis points. and this is due to the recalibration of the macro scenarios for IFRS 9 models. That is something that we can discuss in a few slides. Other provisions, slightly better also than initial expectations. And then on gains and losses, we have a strong profit here from the disposal of other real estate assets, repossessed assets basically, taking advantage of very good market conditions in Spain. and this is something that may continue for some more quarters as we continue to dispose at a very good pace and with wood margins. On taxes, my final comment on this slide is going to be that we have a write-up of 135 million DTAs as in a previous quarter. We go to Portugal now with a net income for the first half of 218 million. Business volume is also doing very well in Portugal as you may see up by 7% year on year with a clear out performance since we took control versus the industry. We are gaining market share in Portugal across key products from mortgages to business lending and wealth management as you may see and also with high profitability with an ROT at 16.7% pretty close to the average for the group. Strong balance sheet also. NPS just 1.5% strong coverage 81%, and rating upgrades also at Portugal level, so Fitch A plus from single A, and also an upgrade from Moody's to A1 for seniors. We have some KPIs of the AI and IT transformation that is also taking place in Portugal as in group level. Let's move to the core of the presentation, the usual NII slide, focusing first on the central quarterly bridge. You may see here on a quarter-on-quarter basis, NII up by 2.5 percent. We have a slight negative from client yields. There is some impact from some non-recurrence we can discuss, but, well, this is set to clearly improve in coming quarters adding to NII progression. On the right hand side you may see a comment on front book long yields already being accretive and moving upwards so this is going to support also that part of the NII bridge. Then a strong support from volumes and also ALCO and if we move to the upper left chart here to take a broader or longer term view you You have the comparison of the same bridge for the first half this year, first half last year, where you may see that the negative from client yields due to the repricing of floating rate loan books is much more than compensated by volumes and ALCO. Talking about ALCO, I commented last quarter that we had to some extent front-loaded plenty of our hedging activities to the first quarter, taking advantage in March of a strong increase in market rates. So this quarter the activity has been more subdued. We have added 2.7 billion to hedges, current stock 77 billion and a slight increase on the fixed income portfolio to slightly over 79 billion euros. Below you have the spreads and yields. The customer spread down by four basis points. There are some technicals here. You see this better on the right-hand side of that chart, you may see the back book long yield is coming down by two basis points. There is here on top of those non-recurrents on technical aspects. Without those, it could have been like positive by one basis point. And then on client funds, we have an increase of two basis points already. Client fund costs taking into account the increase in market rates. Precisely, talking about deposits, and let's zoom in on precisely our deposit balances. Here, remember, we have the quarterly average evolution. You may see that is up by 4.7 percent year-on-year, but the most interesting part, as always, is the mix, where you may see that non-interest bearing are progressing pretty well, up by 5.5 percent year on year while we keep non-interest sorry interest bearing pretty much stable circa 26 percent you may see stability since already some quarters on the right hand side you may see precisely that know that higher market rates are already being passed on to certain extent to the cost of our interest-bearing deposits up by five basis points to 161 percent and you see below the 12-month arrival this quarter up by 44 basis points, an upward trend that already started some quarters ago. Moving to another key P&L line, revenues from services that are doing pretty well, also taking, let's say, a longer-term view on the left part of this slide. This is first half versus first half. You may see clearly that wealth management and protection are well into a double-digit progression and a slight negative from the rest of banking fees. But if you combine with management protection and CIV, this is up by more than 12 percent year on year. So first half this year, first half last year, quite a good performance. You see the quarterly evolution and what is behind the strong performance in world management is what Gonzalo already commented, strong inflows, very positive momentum on that front with inflows, I would say, in line with the pace of last year and also with a strong contribution from market effects, which is also quite a positive. And then protection insurance, also strong growth. You saw the increase of insurance premium, that is also clearly above double digit. And we are having quite a strong commercial momentum on that front, both on life risk and non-life. And, well, this also, you know, it's a key cross-selling product on our front and it's doing pretty well. On banking fees, I would like to remark that, sorry, on this line we have the, excuse me, We have the, also we are including on fees the impact of the SRTs. You have all the details on the full note below, and take note that we are being more and more active on that front. So this is also having some small impact into, let's say, recurrent banking fees evolution. Costs, not much to say. If you look first half versus first half by 4.5% in line with our guidance, you may see that general expenses and depreciation are growing at a faster pace as a result of the execution of our intense plan on AI and IT transformation. And we have cost to income slightly below 40%, which compares extremely well with the peer average that is still over 50 percent. We move to MPLs and cost of risk. On MPLs you may see that we have a strong reduction of the stock, circa 500 million. There are some portfolio disposals but on top of that there is a very positive let's say MPL organic evolution. The ratio comes down to 178 percent coverage 81 percent you may see that the evolution of NPLs across the different segments is is very benign very favorable so we are not observing any sign of the duration at all and then on IFRS 9 models updates back to my initial comment we have included a problem recalibration of the macro scenario weightings, including an additional scenario that is weighting 10 percent of supply shock, that's a downside risk scenario as a result of a supply shock. As a result of that, we are assigning 40 million of the overlays, and we are having an extra impact on loan loss charges approximately of circa 30 million, which is basically what explains the increase in second quarter versus first quarter. But as I was saying before, cost of risk, 24 basis points, we are really comfortable about future evolution. Liquidity, as always, very ample, 225 million of liquidity sources, liquidity coverage ratio 184 percent, NSFR 143%, and the loan-to-deposit ratio that although is growing as we are growing faster on lending than on deposits, but very comfortable levels, and all that compares extremely well with peers, as you may see below, and this is as a result of a strong and stable deposit base with two-thirds the weight of stable retail deposits and operational corporate deposits being almost two-thirds of our deposit base. MREL, a few words on that, an MREL ratio at 27-26 percent, that's an M-MDA buffer of 286 basis points. The MDA buffer is also in this slide, very comfortable, 339 basis points. And on the right-hand side, you have the performance of our issuance plan that we are executing successfully, more than 60 percent already executed, and slightly over 40 percent issued in foreign currency, hence strongly diversifying our investor base. I would remark 1 billion Australian dollar senior preferred in May and 2 billion US dollars senior non-preferred in April. Also rating upgrades at group level, we already disclosed about Moody's last quarter but here you have also Fitch with an upgrade also at group level to A plus from single A. And finally capital, we have capital accretion this quarter of 69 basis points, we are investing into organic growth 23 of those. Then we have for dividends and 81, 42 basis points, no other impacts. So we are ending the quarter with CT1 ratio at 12.54 percent. And finally on the right hand side of the slide you have the evolution of the book value per share up by 14.5% once adjusted for the DPS. My final comment is going to be that the Board is planning to approve an interim dividend of between 30% and 40% of the first half net income to be paid in November. So thank you very much, and I'm sure that we have a few questions. Thank you.

Operator, we are ready for Q&A, please.

Thank you. The first question is from Max Mishin, JB Capital.

Hello. Good morning. Thank you very much for the presentation and taking our questions. Two questions from my side. So the first one is on loan growth. It seems that the growth in corporate loan book keeps on being driven by international business, as you mentioned. Looking forward, how large can this portfolio become? And could you share additional color on geographical and sector exposure there? And the second question, on NII in 2027, given the strong loan growth and the higher interest rate curve, what prevents you from becoming more positive on the NII guidance for 2027? Thank you.

Thank you, Max. I'll take the first question on international growth. Our loan book is currently around just about 40 billion euros. This is mostly concentrated in the four large branches that we have in London, Frankfurt, Paris, and Milan. And I would say Italy is a bit smaller, it's more recent, but the other three have similar weights. It's basically investment-grade lending, where obviously we have good returns. We have risk-adjusted returns around 20% in overall the branches, the international branches. And we've obviously been very selective, but we started there with basically nothing 12 years ago. We have grown our presence gradually over these 12 years to make sure that we make no mistakes. We obviously also have an attractive presence in both Poland and Morocco. But in terms of balance sheet, it has a lower weight than the larger European economies. And we're very satisfied with it. But clearly, the speed of growth is going to come down. We will keep building profitability of these branches, which I say already is quite attractive. In terms of giving exact numbers and percentage, I think it's something that I wouldn't do at this stage. We need to do a bit of planning, and then we're very soon going to come into what's going to be the next three years after 2027. But clearly, you would expect some growth faster than in Spain, but not as fast as we've seen in the past, and gradually converging. That's really the plan. And again, it's good use of capital, obviously, otherwise we would not have undertaken that route. is an attractive RISI award, no question, because it's very complementary, very connected to our existing business.

Okay. Hi, Max. Well, on 2027, we are today reconfirming our targets for 2027 that were revised upwards in January. And that precisely on NIA, more specifically, that target already accommodates quite a wide range of potential outcomes in terms of rates, not only levels, but also the shape of the yield curve that is also having some influence and volumes. So, well, you know, we have a chart on the initial slides with the evolution of the yield curve at different moments in time, so it's very volatile, and actually it's difficult to guess which is going to be the final level for rates. So if you look at implicit rates for 27 by the end of June were approximately 30 basis points higher than by the end of December 25, so 30 basis points, okay, higher rates is always a net positive, but in March it was higher than that, and now as we speak it's also higher again, but who knows how it's going to be in a few days or weeks or after the summer, so well, we are reconfirming our guidance, and we'll see, and this is also on the back of certain volumes that are, by the way, for the time being, and doing better than the initial expectations, mainly on the lending side. But, well, we are talking about NII for 27, that we have to, let's say, plan what is going to happen a year from today. So I think that, as I say, by reconfirming our guidance, we are very comfortable and happy with that and we need to be reconfirming evolution of the yield curve, the flattening or steepening, volumes, etc. And while we are operating in an environment that is not exempt of certain volatility from a geopolitical point of view. So I would say that this is basically the rationale for keeping it unchanged. Thank you, Max.

Thank you, Mark. So, create our next question, please.

Next question is from Marta Sanchez Romero, J.P. Morgan.

Thank you very much. My first question is a follow-up on net interest income. So, I understand that the scenario is complex, volatile, but if you gave us the tools to have a certain level of conviction or making sure that we are running the math well. With rates landing at three for your average 12 months and the curve under the current shape, do you feel comfortable with the consensus number of almost $12.8 billion for 2027 and beyond the 13.6 from 2028? My second question is on revenues from services. You're running way ahead of your plan, 8% almost in the first half of the year. Your guidance is 5%. Why haven't you updated or upgraded your guidance? And related to this, I wanted to hear your thoughts on daily banking fees or your recurrent fees, what you call it, stripping out SRTs. You're down 1% year on year. You're running volumes at 8 on the loan side, at 4 on the deposit side. When you've been cleaning for years that line, I understand the environment is very competitive. When do you expect to close that gap between volumes and that income line, if ever?

Thank you, Marta, and felicidades as well for Santa Marta. Yes, felicidades. Anyhow, lots of guidance and consensus-related questions for you, Javier, and I would first make just a couple of comments on fees and revenues from services. Obviously, the speed at which we are operating now suggests there is a very clear upside. It has no question in revenues from services. And in terms of banking fees, the reality is, as you will say, Marta, that this line has own weakness because we've been just sensitive to making sure that we do not lose clients as a consequence of fees when clients are overall profitable in a more positive interest rate environment as we have had for the last three or four years. I think we're still going to see some weakness in this line, but we're probably going to stabilize that line going forward, maybe not this year, but later on. And there's, as Javier said, some impact of SRT transactions there. So I would say growing in line with the business volume growth is going to take longer, but at least not seen false in this line is something that hopefully we're going to be able to deliver in over the year 2027. But in any case, we're always going to prioritize. If we at some point see that fees are sort of negative NPV because the client is sensitive to fee and overall is producing profits, we will obviously reverse the strategy. But we've been, as you said, dealing with that for a while now, and I think it's relatively safe to say that this is going to gradually sort of stabilize.

Okay. If I may add, Gonzalo, a follow-up on that one. If you look at the evolution for the first half of this year on, let's say, the recurring banking fees that, if I am right, are down by 2.4 percent. More than half of that slowdown is coming from SRTs. So just to give you an idea of the impact, which is not that material but is there. Well, in terms of, let's say, consensus and guidance, honestly, I think that we are providing a lot of information and so detailed information about sensitivity hedges maturities, yields, etc. So honestly I am not going to comment on the consensus today because I did that last quarter about 2028 because it was the first time we were for disclosing our internally compiled consensus, and if so, it could be helpful. And basically what I wanted to emphasize back then is that NII is not flattening in 2027, and the evolution, positive evolution, is continuing beyond that. I wanted to emphasize that, but I think commenting on consensus is unhelpful at a moment in time when we are not, let's say, revisiting our guidance. And because implicitly I would be, let's say, giving you guidance. So I think that we have plenty of information in place. Higher rates is always a net positive. So you have this 100% clear. The pace of the impact of higher rates is true that it depends a little bit on the steepness or flattening of the yield curve. But at the end of the day, after some time, it has the impact it has to have. So that's my comment, Martha. So our guidance already accommodates an ample range of scenarios, and I think that when we are closer to that, and for sure by when we are presenting year-end results, we are going to be able to fine-tune. Thank you.

Thank you, Marta. Next question, please.

Question is from Cecilia Romero Barclays.

Thank you very much for taking my questions. I have two. The first one on deposits and the second one on capital allocation. On deposit, ECB data shows that the Spanish annual deposit growth remains healthy, but has moderated somewhat in recent months, particularly in households. What do you think is driving down moderation on growth, And are you seeing signs of greater competition for deposits across the sector? What is driving the increasing cost of deposit quarter-on-quarter? Is that rates alone? And then on capital allocation, with organic capital generation remaining quite strong, how do you think about the tradeoff between pursuing Bolton acquisitions and returning excess capital to shareholders? And what hurdles would an acquisition need to meet to be preferred over additional distribution? Thank you.

Thank you, Cecilia. On deposits, obviously we have had a very good three months and a year. When you look at the overall sort of quarterly changes, my experience is that sometimes we need to take sort of the numbers with a pinch of salt because you need to look at longer periods to see trends. But I would say in the second quarter, you have had higher inflation in most countries, certainly in Spain. And I think from a macro point of view, it makes sense to see that the generation of excess deposits is lower in that environment because I think people tend to obviously save less in that environment. Given that they pick up in inflation, hopefully they will look at the futures is going to be temporary. I think this sort of macro impact may disappear and be less relevant on a full-year perspective. But I would say other than that, in terms of competition, this is a competitive market. We know it's very visible what various banks are pursuing different strategies, and I think that is not substantially different from what we've seen last year or what we have seen last quarter. So I wouldn't say there are structural or any other relevant changes from that point of view. Again, obviously on the basis of a very competitive market. With respect to your second question and capital allocation we have said very clearly that we want to make sure that we grow organically always subject to appropriate returns and that that is our first priority organic growth and this is clearly the case this quarter where I would say growth is probably even higher than normal because of some seasonality and actually a very good quarter. But this is our priority. Then second priority and completely compatible with the first one is to maintain attractive remuneration policy in terms of dividend payment without 50% to 60% payout. And the reality, because we are fairly profitable at this point, is that we generate capital on top. and as we generate that capital, we have obviously been implementing share-by-bugs and we will continue to do so. M&A is different. M&A, we said, is not our priority. We're based in our strategy and organic growth. We're doing very well. I think that's what makes sense. We've been active in M&A from time to time. Last time it was, I guess, over five years ago when we did a bank transaction and then almost 10 years ago now when we did BPI. So it's very rare for us, and obviously it only makes sense if and when we see an opportunity to deploy capital that is, I'd say, well above and comfortably above our cost of capital, which means that we have really no room for mistake. If we ever do something, it's because it's a clear value-enhancing move. But, again, it's another base case.

Thank you, Fifi Lian.

Next question, please. Next question is from Francisco Rico Alantra.

Thank you. My first question is about the long yield in Portugal, which fell nine basic points Q&Q in Q2. Spain fell just one basic point in the long yield. So you mentioned non-recovering impacts, probably still to Portugal, if you can please elaborate. You also mentioned positive front-book dynamics in Spain in Q2, but I wonder if you can also share with us front-book pricing in Portugal so that we can reassure that this is only non-recovering technical impacts here. Yeah. And also as a follow-up on deposits, I see demand deposits slowed down 6.1 in Q1 to 3.9 in Q2. I think the sector is growing over 5%. You are still printing market share gains in household deposits, but five basic points in Q2, but less than in Q1, 16 basic points. So you can comment on the increased competitive landscape in payroll deposits and how you are fending off your deposit franchise. And then, if you can update on the cost of deposits going forward, how do you see that? And also, you see the customer spread exceeding 300 basic points in the second half of the year after these one-offs in Q2.

Thank you, Paco. I'll leave Javier to answer on the third one. Javier may elaborate because I haven't been convincing enough, which is something perfectly reasonable. But, again, I would not make a lot of sort of quarterly sort of point data on deposits because there are deposits that are very granular and recurrent and others that have a different nature. And, again, when we look at very often sort of gradual month on month and how the trends evolve, how the variation, the changes are, as we track it, we continue to see pretty good trends. But Javier, please, go for it.

Yes, hi, Paco. Well, continuing precisely with that topic of deposits, you could see, Paco, that we are disclosing the evolution of our deposit base ex-the public sector, and this is quite significant. In the public sector, we are holding circa, on average, 25 billion of deposits, but with a lot of volatility, so I think that it's good to disclose you the evolution excluding those effects. And if you look at that, it's circa 5%, so I think that it's good. And gaining market share in households, so I think it's a positive development. And if you look at the evolution of non-interest bearing up by 5.5% year on year, I think also it's a positive development. I have to say, because you had questions about Portugal, that this is a trend that is also happening there. Portugal is, BPI, is doing really a good management of the deposit franchise recently. Actually, the percentage of interest-bearing deposits is pretty much stable, circa 46%. You know that it has been structurally higher than in Spain. but it's completely stable, and the cost of those interest-bearing deposits is now circa 1.5%. So really good management of that part, despite that it's a market with a stronger competition. Continuing with Portugal, you had a question about non-recurrence. Yes, you are right. The major part of the non-recurrence we are mentioning, that is overall a little bit less than $10 million on a quarter-on-quarter basis, but the major part of that impact is coming from Portugal. as the accrual period for certain mortgage expenses has been shortened. So as a consequence, there is like some catch-up effect of this situation on a quarter-and-quarter basis. And that obviously, as the amounts involved are clearly higher versus, or in relative terms, versus portwell, is what explains the evolution of the loan yield that you could see. Looking at the front book yield is also accretive in Portugal. So I would say that the situation in Portugal is pretty calm. So competitive as always with additional touch of competitiveness versus Spain. but BPI is defending the situation honestly pretty well so far this year. On the customer spread, what we saw this quarter is really a drop because it's impacted by all those, let's say, non-recurrent and technical factors that are also impacting the bad book yield of the long book, some kind of seasonality depending on the day count that is impacting the yield and well from here it's going to be gradually recovering so I think that the 300 basis points area is the place to be soon maybe by the end of the year so I think that

we are safe on that front Thank you, Paco Thank you Next question please Next question is from Ignacio Ulargui, BNP Paribas. in the future as you accelerate the disposal of assets from real estate for closed assets at positive and with capital gains. There has been a very big acceleration of decline in the assets. You have sold 400 million of gross assets this quarter versus an average. I think it should be around 200 million in the previous five quarters. How should we think about this? is a bit of a granular strategy, or it's more that there was a big asset disposal in the quarter. Just to be mindful of how should we think about this line going forward. And the second question is, John deposits customer funds and the implication that I also have into the fee guidance. So if I just look to your customer funds, they are growing in line with performing loans. While I understand that there is a bit of a shift of the process into customer finances wanting to get a bit of how should we think about that trend and what impact should we have that on inflows in wealth management. And linked to that, I don't know if you have replied to that, but I have lost the answer on it. But you are running fees, sorry, revenues from services growing 7.4 with a guidance of 5% what prevents you to be not upgrading the guidance here. Thank you.

Thank you, Nat, on real estate. Yes, we had significant gains in this quarter and we had more activity in the quarter than you would typically expect for any given quarter. So, as we said, I think this is relevant because it's this was consistently negative and it's going to be consistently positive no so I wouldn't just look at it as a as a one-off the question as you correctly say is what's the level of the consistently positive and unfortunately I'm not in a position to to say clearly it's not going to be at the same level in principle and these than this quarter there will be some volatility, ups and downs, but again, we're not expecting this line to be negative, and certainly there will be a contribution. What we're doing in terms of granular sales, and from time to time we do a block here and there where we see it makes sense, but granular sales, what we're seeing is close to 50% profit on what we sell, so it's fairly significant, a current book value of what we have in terms of foreclosed assets, if we exclude the rental assets, it's 900 million, and then we have close to, and these are round numbers, but close to another 600 in rental assets, which obviously are also coming down, even if they may not come down at the same speed. So I think we're going to have some quarters to come with a positive contribution in this Clearly above zero, not as high as this quarter, most likely. Somewhere in between. It won't be just zero or plus one, but something more significant, but not as much as now. And on the other points, I honestly didn't understand the second question, but I think you did. I take it.

I take it. Hi, Nacho. So, well, on wealth management, my comments would be that the pace of inflows is really good. Moreover, inflows are increasing into, let's say, longer-term, long-duration products. I mean by duration not only fixed income, but also equities and global equities, which results into, let's say, products with a slightly wider margin. So it's a positive. And you know that we have this kind of skills to manage adequately the flows between off-balance sheet, long-term solutions, time deposits, obviously site deposits, et cetera. And I would say that everything is doing so far according to our initial expectations. And let's say assuming that there are no major changes. I would say politically speaking, that always may result into markets correcting or volatility, etc. that can affect that pace of inflows into long-term saving solutions. we are pretty confident that we are going to be delivering volumes in line, let's say, with last year, which was already like a record high year. As a result of that, and that connects to your last question, as a result of that, the evolution on wealth management and also protection, I would include protection in my comment, although it's not strictly related to your question, is expected to perform in terms of P&L if not at double digit, very close to double digit for the year. And it's true that we have not updated the guidance, but basically because we thought that we had the major part of our KPIs open-ended, basically the most important one, which is ROTE, and hence would be able to accommodate any outperformance coming from revenue from services, which I think that is going to be the case. So I think that the base case is that we can do better than this circa 5%, or at least we are going to be clearly at the upper bound of that guidance.

Thank you.

Nacho.

Thank you, Nacho. Next question, please. Next question is from Álvaro Serrano, Morgan Stanley.

Good morning. Thanks for taking my questions. Sorry, I've got another one on NII. And thanks very much for the disclosure. I do think your disclosure is probably one of the best in the sector. But you've spoiled us. So, on the guidance in previous quarters, you've talked about 150 basis points loan spread is kind of where the loan should settle. Obviously, you've already discussed the moving parts in this quarter, but should we still think with the current curve that 150 basis points loan spread once the loan book reprices is kind of where things should settle? That's the first question. And the second question is on capital generation. Obviously, you've had very strong loan growth this quarter. Part of it is seasonal, which means the capital generation hasn't been as strong for good reasons. But I'm just thinking in subsequent quarters, how should we think about it? Do you have room and appetite to do more SRTs? And what I'm thinking is sort of, is there going to be room to do more buybacks?

Or if loan growth continues at this at this point at this pace you would caution to expect more guy buybacks for the future just want to get your thoughts on that thank you hi alvaro good morning yeah well on loan margins when i i mentioned this kind of 50 50 between loan spreads and deposit spreads it was like a broad message but then if you if you want me to be more specific if it's gonna be 160 and 140 or 160 and 150 so now it's probably too early to say no but the general dynamics in terms of lending are are good ones in terms of margin so I would say that on consumer lending on SMEs on corporates also on all the new lending that is coming from our CAB international branches is lending that is meeting all our criteria in terms of profitability, of yield accretion, etc. So you have not to worry about that. On the other hand, there is a segment that is different, which is the mortgage segment, which I don't want to elaborate, but you know that it has its own dynamics and to some extent that is also impacting the overall end result. But yes, broadly speaking, I think that 150 should be the place to be around that level. But difficult to be more specific considering the dynamics of certain segments. And on capital, yes, we are more active on SRTs. I can already tell you that this second quarter we closed at 2.5 billion SME SRT. That resulted in a risk-weighted asset release of slightly less than 1 billion. And you know that we are planning to be active on that front. So we have plenty of, let's say, projects on the table on that front. and we're on that. So the idea here is to deliver a risk-weighted asset growth that is growing at a slower pace than the pace where the long growth is growing. So we are targeting, let's say, circa 150 basis points less than the long book. On the other hand, it's true that you have some kind of reaction function here because the long book is growing faster than our initial expectations. So then we need to catch up to some extent on SRT strategies. And we'll see. But the market is there, it's liquid. There are more and more market participants. Costs are fine. So we think that there is room to keep doing. So yes, thank you, Álvaro.

Thank you. Thank you very much.

Thank you.

Next question, please. Next question is from Sophie Pettersen, Goldman Sachs.

Yeah, thanks a lot for taking my question. Here is Sophie from Goldman Sachs. So my first question would just go back to the loan growth. It was very helpful, the comments you made around the international CIB loan growth. But how should we think about, like, loan growth in other segments? Mortgages look very strong, 6% year-on-year. consumer loans plus 11%, corporate loans plus 10% year in year. How should we think about the upside risk, the year previous loan growth guidance? And yeah, so if you could comment on this. And then my second question would be around wage inflation. How should we think about the wage inflation in 2027 and 2028, given higher inflation expectations and, I guess, also upcoming salary negotiations. Thank you.

Thank you, Sophie. Maybe I'll comment on the second question. Obviously, when we talk about wage inflation, the second part of the expression inflation is going to be very relevant. What we have is some uncertainty on that front, but basically we're seeing the ECB credible enough to contain inflation, and that's why sort of long-term inflation expectations are still just above 2%, and I think that is very, very relevant. In the shorter term, obviously, it depends on energy prices and whether there is some contamination of other related sectors, And we're having in Spain, actually, last figure for inflation is 3.2%, 2.9% is the underlying inflation. It's higher than the 2.8% inflation rate in Europe. And this is going to be relevant, and obviously you can estimate, depending on which macro scenario you want to run, where the number is going to be. What we've seen so far in Spain is salaries growing around 3%, which is in line with what the ECB is actually forecasting for the eurozone, like it was last year. But, again, I guess this is going to be data-dependent, as the ECB said. Inflation may pick up or not, and there's some clear uncertainty, and that's the uncertainty around rate environment that we also commented, or Javier also commented on. I don't want to be more specific than that, because there will be next year again a new negotiation of collective bargaining agreement both for former saving banks and former commercial banks. And obviously that will have a typical negotiation dynamics. We are confirming our guidance in terms of the overall cost evolution for this year and next year. And that doesn't mean that there are no pressures here and there. and we'll need to see how we deal with them, but we also have our own programs to contain cost growth in other parts of the business. But both inflation environment and, obviously, technological expense are putting pressure. We're still confident that we can keep our guidance where we want it to be, which is what we have obviously guided you for growth, which is coming down next year significantly from the 4.5% that we have guided for this year.

Hi, Sophie. Good morning. Well, on lending, you are right. We are doing better than our initial expectations. Year-on-year up by, let's say, circa 8%. Our initial expectation was more like 5-6. I think that considering the momentum, and always with the disclaimer about external circumstances, but considering the momentum and the pipeline that we have, I think that probably we are going to be ending the year closer to 7%. By segments, I think that mortgages may be for consumer lending, if not double digit close to double digit and then businesses with to some extent a little bit more volatility here from CIV, larger tickets, etc., but very probably if not at 8, very close to 8%. So I think that that's a little bit the picture and as I was saying to a previous question in terms of margins, in terms of yield accretion, in line with expectation on that front. Thank you, Sophie.

Next question, please. Next question is from Miruna Kyreya Jeffries.

Good morning. Thank you very much for taking my questions. I just had two quick ones, please. Firstly, more of a clarification on the cost of deposits in the quarter. Will you help us understand if the increase in the cost of deposits in the quarter was driven entirely mechanically by the index deposits, or did you also choose to pass something on the non-index term deposits as well? And how do you see the dynamics from here for the rest of the year? Do you expect to have to pass on the non-index portion given any potential rate hikes from the ACB in the second half? And then just a question on your strategy in consumer credit. We remember that in your investor day a couple of years ago, you were targeting to increase your market share in consumer credit. We're seeing that is on track, but it still remains pretty low compared to a natural market share of 25%. So, just curious, what are the active actions or campaigns that you're undertaking to organically grow in consumer loans? Thank you.

Thank you. Thank you, Miruna. On the point of consumer credit, we have obviously a number of channels and initiatives. We have been very successful given the information we have on our clients and the fact that we have the payrolls. And payrolls, we have 6.4 million, but then all their income that comes periodically, whether it's from sort of self-employed or unemployment subsidy, et cetera, it's really over 10. and it's 10.4 million clients where we have their income periodically with us. That allows us to have pre-authorized lending to a very large universe of people which is very consistent with a low cost of risk but very convenient ease of disposal of consumer lending. That has worked very well for us and it continues to do. And here, a lot of the improvements we're doing in terms of facilitating digital and even AI-assisted contracting of consumer lending is very relevant. We have plenty of upside, for instance, in Imagine. And again, the trends are quite positive. Together with that, we have made substantial improvements in terms of volumes in all what has to do with auto financing. The Facilitea Coaches, we call it the Facilitea Cars platform that we launched over a year ago, has been very successful. We currently have 18,000, speaking from memory, but it's around 18,000 used cars. Average price close to just below €20,000, so it's meaningful ticket certainly for consumer lending, and obviously a lot of automation around it. And that has allowed us not only to grow car lending in this platform, but also because auto dealers are very happy to be able to sell the second car, kind of the used car that they get when they sell a new one, and sell it through our platform, what we are is obviously increasing the scope also of the direct lending we do for first-hand cars that they sell. So that has meant that mobility generally has grown at a very significant rate, and those are trends that we think are fairly well established and are likely to continue. So that's what I would highlight in particular. On cost of deposits, indexed and non-indexed, I guess there's a bit of both.

Okay, yes, it's a bit of both. So, well, you know very well that approximately 50%, a little bit less than that, of our interest-bearing deposits are indexed. so I'll reprice it automatically as rates move. A big part of those are indexed to the overnight rate, so actually it's not until the overnight rate goes up or down that you have a change, but there is also another part that is indexed to three months or even six months or even 12 months arrival, but I say the bulk is the overnight. so as the market is already pricing was already pricing rate hikes before those happening part of that is already being filtered on the indexed deposit part and on term deposits is the same so with with market rates approaching 12 month arrival here is like the benchmark for time deposits. So as this yield is getting closer to 3%, if not at 3% at some moments, so obviously the new production of time deposits has to adjust. So you will allow me not to give you all the details about our strategy or commercial strategy on that front, but is clear that there is a pull upwards of higher market rates into the year of the new production. So this is going to happen. But having said that, to give you the broad picture, we expect a deposit beta, back to the deposit betas and back testing how this is going. But we are expecting a deposit beta in the low 20s. So that's the plan. and we expect that the cost of our deposits ex-hedges to be slightly below 50 basis points as an average for the year. So that means that, obviously, we'll gradually be increasing according to higher market rates. Thank you, Miruna.

Next question, please. Next question is from Andrea Fildri, Mediobanca.

Thank you for taking my questions. The first is on the digital euro. You've been a pioneer in the project so far. Why are you not in the digital euro pilot? The second question is on the Danish compromise. Can you explain how the process works with the ECB in case of an acquisition of an insurance business? As a financial conglomerate with Danish compromise already approved, Do you have to ask for Danish compromise usage on a case-by-case for each deal, or is it an automatic adoption after DBA clarification on a Danish compromise squared? Thank you.

Thank you, Andrea. On the second question, the most honest response is I don't know because we're not dealing with anything that is on the table. but clearly look at what we've done in the past. We've maintained the Danish compromise without any special process around that. It is true that all the transactions that we've done didn't put into question the fact that we are inside the financial conglomerate sort of rules, no? So I think that's generally the guidance. But again, with all due respect, it's not something I am particularly at least now familiar with because we're far away from that sort of topic because it doesn't really affect us. On the digital euro, we have obviously supported the various efforts with the digital euro. We continue to be of the view that the digital euro, A, is going to take place, and B, it's not a bad thing, provided that it has the guide rails, appropriate sort of protection in terms of limits and non-remuneration and all that, which is something that I'm confident that will be the case, even though it could have made it clear soon. but it's fairly obvious at this point that we will have a digital euro and it will not be a threat for our deposits but it will obviously generate a new sort of new services that people will base on the digital euro and we're certainly planning to be on that league. At the same time, digital euro is one of the new means of payment We have stable coins, we have tokenized deposits, we're working with Agora, we're working with Pontes in Europe. We are obviously looking at our own initiatives, Kivalis on stable coins. And this means that we have limited resources and we have directed those towards the areas where we think is most needed and most pressing compared to the timing of the introduction of the digital euro and the relative preparedness that we think we have and the fact that actually a lot of the work we're doing on other projects is going to be usable for digital euro. So there's nothing different from that. I wouldn't say the digital euro is the game changer. I think the digital euro, the tokenized deposits, maybe stable coins, the obviously direct P2P that we have with the integration of Bizoom and Vero and others in Europa and Vips, etc. The combination of all this is very much, I think, a very significant game changer for the industry. And this is going to happen over the next years with the digital euro being obviously one relevant milestone, but not the only one. and we are, to be honest, very well prepared to deal with all these various projects that are going to be a reality in the rest of this decade. So nothing else.

Thank you, Andrea. Next question, please.

The question is from Brita Schmidt, Autonomous Research.

Yeah, good morning. Thank you for taking my questions. I have a question on your funding structure. But this quarter, if I look at your average loans and bonds, they outgrow the average deposits in terms of Q&Q increase. And the marketable debt was actually down Q&Q with higher interbank usage. How should we think about your issuance plan in the second half? You've executed 60%. What is still due to come? And how should we think about the funding cost, given that the maturities have got a very low spread, those coming up in the second half? My second question would just be a clarification. What would be the underlying customer spread X1 or some technicalities that we should use for making our forecast versus the 2.89% reported? And then lastly, there was some media reporting about interest in a potential consumer finance book in Spain. Can you perhaps comment on that, whether there is any interest or confirm or deny any interest?

Thank you, Britt. I made some comments on some indirect questions about the third topic and on sort of specific rumors that come to the market. We have a policy not to comment. I only want to reinforce the messages I gave before of what is a very clear preference in our case for organic growth, which we have consistently done and delivered and created value through that, and the fact that when we have engaged into any M&A activity in the last two transactions were Bankia and BPI, we saw very meaningful value creation, well above our cost of capital. And, in fact, I think with the benefit of hindsight, these were two very value-enhancing transactions. But we are not changing our strategy. We continue to have a strong preference for organic growth, and we will not comment on market rumors as a matter of policy.

Hi, Brita. Well, on funding, well, we are executing our plan. What is pending for this year is maybe an additional senior prefer. And, well, you have all the details, what has been issued, what is pending. So, for next year, we are going to be almost across all asset classes, because it's a question about rolling over maturities and eventually calling tier twos and 81s, as you know, that we have not a predefined policy on the topic, so we'll decide depending on circumstances. And well, I would like to mention two things here. First thing is that we are issuing in foreign currency. We usually do not convert that funding in foreign currency into euros, as at the same time we have to fund foreign currency loan books, basically coming from CAB, and mainly in U.S. dollars. And my second remark on funding is that remember that we usually swap into floating all new issuances. So when you look at the cost of the funding, it's not only the spread, but it's also how, let's say, short-term market rates move because it's having an impact. So usually it's swapped to the three-month or the six-month arrival. So there are constantly new fixings because it's already quite a large position that is being hedged into floating. So we are constantly having new fixings now with higher, shorter market rates. So that part is also the cost is moving upwards because it's swapped into floating. The clarification for the customer spread is the following one. The back book yield of the loan book X non-recurrence and X, this technicality for the day count, should be higher by three basis points. Hence, the customer spread, instead of coming down by four, should be by one. Moreover, if you exclude Portugal and you look only at Spain, the customer spread should be flat, quarter on quarter, excluding, let's say, ex-Portual, ex-non-recurrence, and the non-recurrence are basically in Portugal. And the technicality of the day count in Spain is flat in the quarter. Thank you.

Thank you, Brita. Next question, please. Next question is from Ignacio Cerezo, UBS.

Yeah, hi, good morning. Thank you for taking my questions. The first one is on the commercial gap, obviously being widening the last two to three quarters, long growth accelerating, while deposit growth is decelerating. So just trying to understand actually how you're planning to deal with that. If it's use of excess liquidity, if you're planning to re-accelerate the growth of remunerated deposits, just having a feel basically on that. The second one is on the deposit hedges, basically asking whether it would make sense as a base case to be rolling over those hedges given the current yield curve. I mean, so obviously like 40, 50 basis points higher than necessary if we need to work under the assumption basically that those hedges are going to be rolled over. And then on the international lending book, if you can give us a kind of a feel basically around the lending yield. It doesn't need to be a precise number, but kind of what is the loan yield in relationship with a blended loan yield of the group higher or lower. Thank you.

MR. Thank you, Nacho. On the commercial gap, while you mentioned that deposits are growing at a slower pace, again, I would like to try to emphasize that excluding the public sector, that is always more volatile, are growing at 5 percent. It's true that it's a slower pace than the loan book, but not by that much, okay? So considering the liquidity reserves we have, which we think is clearly a competitive strength versus competitors, we think that we are far from a situation where we need to change our, let's say, commercial strategy because of that situation. So we are not planning to do something different because of this situation versus what we are already planning to do. in terms of our client funding, retail funding or even corporate funding. On deposit hedges about rolling over, I would say that yes, that this is the base case. That is like the Alco portfolio. It's true that this will depend also over time on how finally or actually evolve the different parts of the balance sheet you know that we are growing on mortgages that which is a fixed rate we are growing also non-interest bearing which is like a fixed rate also on the other side and this is we are we have a forecast about the evolution of all that but then reality may be slightly different than that and we'll have to to accommodate the hedging activity to to the reality. But the base case is that the rollover of those hedges to a large extent is going to be needed, maybe not 100%, but to a large extent, yes. And so, yes, you can assume that. But having said that, note that as of today, the yield curve is going to be really flat very soon because short-term rates are going to be, let's say, two and a half, two, three quarters, long-term rates on swaps are going to be pretty much at the same level. So the extra yield may be there, but obviously in case of that eventually we have lower rates, definitely yes. And this is why we follow quite, let's say, a strict hedging policy because you never know what may happen. In terms of the yield at international branches, I would say that is pretty much in line with the average, so it's not far from that. And we are comfortable, so it's a business that is gaining traction. I think that Gonzalo has already made plenty of comments about the topic. But in terms of yield accretion, it's perfectly in line with the average. So it's not having a material impact, nor positive or negative. Thank you. Thank you very much.

Thank you, Nacho. Next question, please. The question is from Borja Ramiret, CT.

Hello. Good morning. Thank you very much for taking my questions. I have two, please. Firstly, on the NII one-offs, I understand that the impact from the tax effect and also from Portugal, one-off, are three BIPs in the loan yield. That, based on my calculation, it's around 28 million euros. So if you could kindly indicate how much is linked to Portugal, one-off, please. And then my second question would be, according to press reports, the stake in the Spanish government has been, so the holding company of the stake in Kaiserland from the Spanish government has been moved to the Ministry of Finance directly, the Ministry of Economy So I would like to ask if that could have any potential implications. And I understand the deadline for a cell, for a disposal is December 2027. Is that still correct? Thank you.

Thank you, Borja. On the second question, yes, what we see is based on the public information and our understanding of the situation is absolutely no impact on the sort of a state stake. It's just being within the same ministry, the Ministry of Economy, rather than being hauled through the FROB, it's going to be hauled directly, the BFA stake, and the statements that are being made is that there's absolutely no change in the stance in which what we see is no interference in the management, no attempt to interfere in the strategy, and a very high degree of satisfaction with the way things have evolved at CaixaBank. To give you an idea, the total shareholder return for the state since the conversations with Bankia started is basically in round numbers times ten. It multiplied, including obviously the share by backs and the dividends and the share price increase ten times their investment, and as you can imagine, that makes them very happy. With respect to the official deadline, there is no change either. We know that it can be changed at some point in time through a decree the government can pass, which is what happened in the past, and I'm not here to speculate whether they will happen or not but my expectation is that there will be no certainly disorderly sale in the market hi about the the technicalities just to to reconfirm so we have two different things here.

We have some non-recurrence that are having an impact in Euro terms, and the major part of that is coming from that accrual, a different timeframe on the accrual of certain mortgage expenses. And overall, the non-recurrence are slightly below 10 million, of which 6 million on a quarter-on-quarter basis is what I mentioned from Portugal, that different accrual period on mortgage expenses. And then, beyond that, it's more a technical effect on the way the yield of the loan book is calculated, that has some, a few basis points that are moving up and down depending on the day count, but this is not actually an economical impact okay so it's more like the way the yield is calculated so are two different things thank you thank you that's all we have time for today so have all of you a wonderful summer and thank you for joining us another quarter thank you thank you thank you thank you everybody have a good summer