Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to BBVA's Second quarter results presentation. Joining me today are our CEO, Onur Genc and the Group CFO, Luisa Gomez Bravo. As in previous quarters, Onur and Luisa will begin by reviewing the quarterly figures, after which we will open the line for the live Q&A session. With that, I turn it over to Onur.

Thank you, Patricia. Good morning to everyone. Welcome, and thank you for joining BBVA's Second Quarter 2026 Earnings Webcast. Before we begin, I would like to say a few words about Luisa as this is her last results presentation as the CFO of BBVA. And in very short few sentences, we are a 169-year old bank, 169 year bank built by generations of exceptional professionals in my view. Exceptional professionals like you, Luisa. And over the past few years, we had delivered some of the best results in our history, and I would like to recognize the fact that you have been one of the architects of that success. So I'm very pleased that you will continue to be connected to the bank as a Board member of some of our most important subsidiaries so that we can continue to benefit from your experience and judgment. So in short, Luisa, thank you for your leadership, your professionalism, everything you have done for this institution. It has been a true privilege to work with you. Now let me start with the quarterly results. In short, once again, we have demonstrated in my view, the strength of BBVA's business model. We have delivered record earnings, industry-leading profitability, strong activity growth, exceptional activity growth and capital generation, while reinforcing our competitive position across different geographies. So let me start with Slide #3. One of the most important messages for the quarter. As always, we continue to deliver outstanding value creation for our shareholders. On the left-hand side of the page, you can see the strong evolution of tangible book value per share plus dividends, which increased by 17.3% year-over-year and 5.4% in the quarter. Very strong figures, which are even better if you exclude the impact of the share buybacks, then the growth goes up to 21.8% year-over-year, an outstanding figure. This strong value creation was mainly supported by the record earnings, obviously, together with a positive contribution from the exchange rates in the quarter, particularly the appreciation of the Mexican peso. On the right-hand side of the page, our profitability ratios, they have further improved, reaching a return on tangible equity of 22.2% and return on equity of 21.1% for the first half of the year, placing BBVA as one of the most profitable large bank in Europe. On Page #4 on the left-hand side, another record quarter, as we discussed, in net attributable profit reaching EUR 3.062 billion, 14% increase year-over-year and 2.4% growth versus the previous quarter. Earnings per share at the bottom, it grew even better at 15.2% year-over-year, thanks to the share buyback programs actually executed over the period. In cumulative terms, net attributable profit in the bubble, it reached EUR 6.051 billion in the first half of the year. On the right-hand side, our CET1 capital ratio, it improved 7 basis points during the quarter to [ 12.90 ], strong results and also asserted transactions more than compensate for the impact of exceptional loan growth and shareholder distributions. Move to Slide #5. This slide illustrates what I believe is BBVA's truly unique profile that we talk about from time to time. But our ability to combine strong growth with best-in-class profitability consistently along the years. On the left-hand side, since December 2020, our loan book, it has grown by 62% in current years compared with 10% for our European peers. This reflects the strength of our leading franchises wherever we are. And also it's -- I think it points to our ability to gain new customers and growing our customer franchise. And importantly, this growth, we always pay attention to this, and we always talk about this, but this growth has not come at the expense of returns. As shown on the right-hand side of the slide, starting at more or less the same initial point with the peers. We have widened the profitability gap versus our peers over the same period. As mentioned before, today, our return on tangible equity stands at 22.2%, well above the 15.1% of the peers. Profitable growth is the best predictor of future value creation, and this is precisely what BBVA continues to deliver. Moving to Page #6. This page summarizes the key financial messages of the quarter, which I will cover in more detail in the following slides. So let me move directly to the next page, Slide #7, as usual, the summarized P&L for the quarter. If there is one thing to highlight, I would highlight the excellent performance of the core revenues in both annual and quarterly comparisons serving as the main drivers behind our net attributable profit growth. Slide #8, the summarized P&L for the first half of the year, similar to quarterly evolution. As you can see, our solid revenue and core revenue growth, once again, are the main drivers behind the outstanding EUR 6.051 billion of net attributable profit double-digit growth, both in constant and current euros. As usual, some more light into the revenue breakdown. On Slide #9, both components, as I mentioned, our core revenues continue to contribute very positively to our results. And in a very consistent manner. We call this [Foreign Language] in Spanish, the [indiscernible]. So they have been growing very nicely, again, a very consistent fashion. So as you can see, net interest income growth remains very strong, increasing by 17.8% year-over-year and 2.1% quarter-over-quarter, supported by very robust activity growth. Net fees and commissions continued their excellent trajectory, up by 16.2% versus the same quarter last year, driven by payments, asset management and the higher contribution from CIB. Net trading income increased by 13% year-over-year. Yet, as you can see in the page, declined quarter-over-quarter due to a more normalized contribution from the global markets following the exceptionally strong performance in the first quarter. And also, as you can imagine, we are benefiting in general in a major way from the currencies, but then you get a small hit out of this in the net trading income. So there were some losses from the FX hedges, especially related to the Mexican peso appreciation. All in, gross income is increasing by 15.7% year-over-year and broadly stable versus the previous quarter. Moving to Slide #10. I like these pages because they give signals about the future as well. So let me focus on activity and loan growth, which remain as the key drivers of NII. At group level, our loan portfolio grew by an impressive 17.7% year-over-year at constant euros, and around 20% in current euros, loan portfolio. On this slide, we focus only on Spain and Mexico, our two largest markets, where lending activity continues to evolve very positively. Talking about growth, it's worth mentioning once again that we -- from time to time, we highlight this, but we have deployed micro capital planning tools to all of our geographies in the past few years. Using these tools, we maintain, as we grow a strict profitability discipline around growth by measuring, I'm not sure whether there's any global bank to do it at this level of detail, but we are measuring the return on capital metric on a loan-by-loan basis in any part of the world. So when Peru originates a loan, immediately, we see what the return on capital metric on that one is. And we have clear mechanisms to manage that process. But going back to the slide, in Spain, loan growth accelerated to 7.4% year-over-year, while in Mexico, it remained close to 10%. In both markets, growth is being driven by the key profitable segments, Consumer and Credit Cards on the Retail side and Private Enterprises on the Wholesale segment. And as shown in the center of the page, the growth for these profitable segments is clearly above the total loan growth. As a result of all of this, net interest income growth in Spain is at 4.5% year-over-year and 8.9% in the case of Mexico at constant euros. Moving to Slide #11 and continuing with the deep dive in Spain and Mexico. This page shows how our growth goes beyond the overall industry growth in a consistent manner once again and gives positive signals for the future. On the left-hand side of the slide, in Spain, we have increased our total loan market share by 84 basis points since the end of 2020. And the improvement, as you can see on the page, has been even stronger in those key segments with gains of 276 basis points in Consumer, 249 basis points in Enterprises. And on the right side of the page, BBVA Mexico, an amazing franchise that we have remains the clear market leader in total loan and across, again, main lending segments. Similarly, since 2020, our total loan market share has increased by 272 basis points to now 26.17% market share. Again, this is particularly noteworthy -- let me not go through the numbers, but all the key segments we are gaining basically market share. And this is even more important in the context of fintech players in the market. Despite newcomers, despite very aggressive competition, we have continued to improve our market position. Moving to Slide #12 on efficiency. On the left side of the slide, gross income grew by 16.9% year-over-year in the first half, while expenses increased by [ 17.9% ], but it is important to note that growth rate for expenses, we have discussed about this in the previous quarter, but it is impacted by two nonrecurring impacts. The voluntary redundancies implemented in the first quarter in Spain, especially in Spain and the holding, the effect was mainly in those two areas. And then the extraordinary VAT regularization booked last year in the second quarter and a remaining amount this quarter also. Excluding these effects, you see it in the bubble, cost growth rate would have been 14.5%. Again, maintaining our positive jaws which is important to us. On the right side of the slide, our efficiency ratio, it stood at 37.8%, clearly better than our guidance for the year. And excluding the mentioned nonrecurring effects, the two of them, the VAT and the redundancies, the ratio actually would have improved by 77 basis points in the first half. In short, we continue to deliver industry-leading efficiency ratio while investing on growth and transformation. Turning to Slide #13. Asset quality. Asset quality metrics, they remain very sound during the quarter despite the context of macro uncertainties, strong activity growth, especially, as I mentioned, in the most profitable segments. Despite all that, very sound asset quality metrics. Starting with the cost of risk on the bottom left, it stood at 143 basis points for the first half of the year, improving from 154 basis points in the last quarter. This improvement, it was supported partially by a portfolio sale that we did in Spain. But overall, underlying provisioning requirements, they remain broadly stable, even better than expectations in most geographies except for retail portfolios in Turkey and in Argentina. And even in those situations, we see some elevated levels, but some contained at stable levels. Looking ahead, based on the underlying trends, we expect cost of risk to remain around current levels at the end of the year. And on the bottom right, we quickly, our NPL ratio and the coverage ratio they remained broadly stable year-to-date. Slide 14, the next page. On capital, we have generated 7 basis points of CET1 during the quarter, driving the ratio to 12.90%, increasing the room for further capital remuneration First, on the left side, following the waterfall, main impact of the quarter, strong results, 75 basis points. Dividend accrual and AT1 coupons, minus 40 basis points then minus 41 basis points due to the RWA growth. This figure also includes the result of the several best transactions SRTs, which positively contributed 6 basis points to the ratio in the quarter. Then we have a bucket of others on the page in the waterfall of 13 basis points, which comprises, among others, the market-related impacts, and the credit in OC for the hyperinflationary countries. On shareholder lumination on the right-hand side, I want to highlight that we will be completing the EUR 4 billion share buyback program approved at the end of last year in December. In the next few days. We'll be finalizing the whole program in the next few days, August 3 is the final date. And thanks to the strong results that we are presenting today and our solid capital position, we are announcing today the launch of a new extraordinary share buyback program with the first tranche amounting to EUR 1 billion, which will begin on the 5th of August. Page 15, a let me update you on the advances in the execution of our AI transformation strategy. Again, at BBVA, our DNA, it has innovation and transformation written all of it, and we are determined to lead the AI transformation in banking as we did in our view, in digital transformation. On that path, the first step was to promote the adoption of artificial intelligence tools across the organization. Today, these tools are part of our team's daily work with more than 100,000 teammates already actively using AI within the guidelines, obviously established by the bank. Then at the end of last year, you might remember, we introduced the our top-down and bank-wide strategic road map on very specific initiatives to embed artificial intelligence across the group's key areas and functions. And now we are taking the next step with the frame to create deploy and manage AI agents at scale. In our view, this is important. This is a key milestone in the industrialization of AI agents across BBVA. It will provide a common framework for governance, architecture, security and performance measurement of agents, allowing us to accelerate implementation while maintaining rigorous goal of risks over costs and outcomes. We have also reinforced our organizational setup for AI. As you might have seen in the last few weeks, we have brought together the relevant capabilities together under an AI transformation unit represented at the highest level. And we will further provide details on all of this on our AI strategy and progress at the next BBVA strategic talks, which is scheduled for October 6. Finally, moving to Page #16 regarding the evolution of our financial goals for the 2025-2028 period that we shared with you last year. I will not go through each one of them for time. But what I can say is that after 18 months of execution of the strategic plan, which we launched in January 2025, in general, we are performing ahead of our original expectations in the key metrics. And now for the business areas update, I turn it to Luisa.

Thank you, Onur, and thank you very much for your very kind words at the beginning of this presentation. Looking back at over 25 years with the BBVA, I am profoundly grateful for the continued learning opportunities and the great people I have worked with. While I didn't anticipate stepping off the train at this particular station, I find myself looking forward with optimism towards the new journeys that lie ahead, including staying connected to the bank as mentioned by your. Onur, the privilege has been mined. A word I use in its fullest sense to describe the profound respect and admiration I have for you as an exceptional leader, but more so as an amazing person, the unique combination. I also want to extend my heartful thanks to everyone on this call, sell-side and buy-side analysts, PMs, rating agencies. Your challenge has been a continuous source of self-improvement, never a dull moment. And before I get to emotional, the show must go on. So let me start with Spain on Slide 18, where we delivered another strong quarter. Net profit reached EUR 1.1 billion in the second quarter, bringing first half earnings to EUR 2.2 billion, up 2.3% year-on-year. This performance was underpinned by another solid increase in net interest income, up 4.1% year-on-year, supported by strong commercial momentum and effective pricing. Loan growth remained very robust, increasing by 7.4% year-on-year, as mentioned by Onur, and 3.3% quarter-on-quarter with broad-based growth across all customer segments. Momentum remained particularly strong in consumer lending as well as in midsized companies and corporates outpacing the overall loan growth. Customer spread improved also in the quarter by 3 basis points, reflecting effective price management in the context of higher rates while maintaining the cost of deposits contained. Turning to fees. Commissions increased by 2.2% year-on-year. The decrease you see in the quarter mainly reflected lower CIB related fees after an exceptional strong first quarter. This was partly offset by continued growth in asset management and a solid contribution from card fees this quarter. Costs remain well under control. Operating expenses increased by 10.3% in the first half of the year, mainly reflecting the one-off items already mentioned by Onur. Excluding the impact of the one-offs, underlying costs increased by 5% year-on-year and 3.8% quarter-on-quarter. Our efficiency ratio remains best in class at 33.6%. Asset quality also continued to improve. This quarter, supported by the sale of our mortgage portfolio, the NPL ratio declined further to a new historical low of 2.86%, while coverage increased to 71%. Cost of risk stood at 31 basis points in the first half of the year, fully in line with our low 30s basis points guidance. Overall, Spain delivered another very strong quarter with strong commercial momentum, continued revenue growth, disciplined cost management and very solid asset quality metrics. Turning to Mexico on Slide 19. Once again, BBVA Mexico delivered an excellent quarter. Net attributable profit reached EUR 3 billion in the first half of the year, increasing 8.2% year-on-year and 3.4% quarter-on-quarter in constant euros. Net interest income increased by 2.7% quarter-on-quarter, supported by solid growth across both retail and wholesale businesses and a higher contribution from the ALCO portfolio, which largely offset customer spread compression in the current leasing rate cycle. NIM remains broadly stable, both quarter-on-quarter and year-on-year. Fee income continued to perform well, supported by higher activity and asset management as well as solid performance in credit card and CIB related fees. Overall, strong gross revenues performance supports an outstanding efficiency ratio of 30.8%, while we continue to invest in future growth. Asset quality remained also very sound. Impairments declined during the quarter, supported by solid underlying credit trends, along with a small positive one-off impact. As a result, cost of risk improved to 326 basis points. Based on this performance, we now expect the cost of risk to the end of the year below 335 basis points ahead of our initial expectations. Overall, Mexico continues to deliver a very strong performance. Based on this performance, we are upgrading our full year guidance. We now expect loan growth of around 10%, net interest income growth at high single digit and cost of risk, as I mentioned before, to end below 335 basis points. Moving now to Turkey on Slide 20. BBVA Turkey delivered resilient results in the second quarter, supported by strong fees and lower impairments. Net profit reached EUR 269 million. First half earnings reached EUR 532 million. Looking first at revenues. Net interest income declined on a quarterly basis, mainly reflecting a significantly tighter TL customer spread as funding costs remain elevated. This was partly offset by strong growth in fees and commissions supported by continued business activity, particularly in payment systems. The other income line benefited from a stronger contribution from the Insurance business, while the hyperinflation adjustment remained broadly stable quarter-on-quarter. Turning to asset quality. Cost of risk stood at 236 basis points year-to-date, reflecting still elevated provisioning needs in the retail portfolio, as Onur mentioned, in a higher longer interest rate environment. Underlying asset quality trends remain broadly in line with our expectations. However, the normalization of the retail portfolio is taking longer than previously expected due to the current macro environment. As a result, we are updating our full year cost of risk guidance to around 220 basis points with an expected better second half of the year, but still above our previous guidance of 200 basis points. Let's turn now to South America on Slide 21. The region delivered another very strong quarter. Net attributable profit reached EUR 308 million in current euros. First half earnings totaled EUR 556 million, up 33.6% year-on-year in current euros. This performance was driven by solid revenue growth across all our main franchises. Net interest income increased by 23.7% year-on-year, supported by strong lending growth across our core markets, primarily in Peru and Colombia and higher spreads. Fee income continued to perform strongly across the region, driven by higher activity in fee-generating businesses and pricing initiatives, reflecting our strategic focus on strengthening this revenue stream. Strong revenue growth of 21.6% year-on-year continue to translate into solid positive jaws, driving the efficiency ratio down to 41.5% in the first half of the year. Turning to asset quality. Cost of risk improved to 269 basis points in the first half of the year. Looking ahead, we expect cost of risk to continue improving and converge towards full year guidance of below 250 basis points, supported by solid underlying trends in Peru and Colombia as well as a gradual improvement in asset quality metrics in Argentina, following the tightening of risk appetite since late 2025. Overall, the region is performing ahead of our expectations. As a result, we are upgrading our full year guidance for gross revenues to grow at high teens. And finally, let me turn to the Rest of Business on Slide 22. The Rest of Business delivered another strong quarter with net attributable profit reaching EUR 271 million, increasing by 14.5% quarter-over-quarter. First half earnings amounted to EUR 508 million. The key drivers of revenue growth remain unchanged from last quarter. Loan growth continued at a strong pace, mainly driven by the corporate portfolio, which accounts for around 80% of the total loan book, supporting revenue growth. Net interest income increased 17.2% quarter-on-quarter, while fees and net trading income remained at high levels, supported by the strength of our client franchise following the exceptionally strong first quarter. On costs, operating expenses continue to reflect ongoing investment to support future growth. At the same time, we continue to deliver positive jaws on a year-on-year basis. Asset quality remained very strong. The NPL ratio increased driven by some specific clients migrating to Stage 3, which had already been largely provisioned in the first quarter. Cost of risk declined to 14 basis points in the first half. Overall, Rest of Business continues to deliver strong profitable growth supported a strong commercial momentum. Taken together, our business units delivered another excellent set of results, a reflection of the strength and resilience of our franchises across all our core markets. And now back to Onur for the final remarks on the quarter.

Thank you, Luisa. And lastly, for the main takeaways on Page 23. Let me take -- is always by repeating all the key messages we are already seeing them on the page written all over it. But in short, excellent results, in my view, in the quarter, driven by the strength in activity and core revenues, which is very important to us, obviously, and further improving our industry-leading growth profitability and efficiency ratios, while executing our AI transformation plan on different fronts. Given our positive momentum at the bottom of the page, you can also see that we are upgrading our 2026 outlook for group return on tangible equity to around 21% as well as improved our guidance for key metrics in Mexico and South America. As Luisa mentioned, we have also slightly downgraded our cost of risk guidance for Turkey, again, as you can see at the bottom of the page. And now back to Patricia for the questions. And as I mentioned, this is the last presentation of Luisa, so be nice and don't ask challenging questions.

I'll just put the questions to you Onur.

Thank you very much, Onur, and Luisa. So we are ready now to move on to the Q&A session. Operator, the first question, please.

[Operator Instructions] Our first question today comes from Max Mishyn from JB Capital.

Two questions from me, please. The first one is on Spain. Cost of deposits was flat quarter-on-quarter despite a faster growth in their counts. What are you doing to manage the cost of deposits? And what should we expect? And the second question is on the Rest of the Business. Even though NPLs increased, cost of risk has been virtually 0. I was wondering if you could share some more color on this, please.

Very good. Thank you, Maks, for the questions. On Spain, what are we doing to keep the cost of deposits? Their levels as you're asking. If you also look into the Spain page, in the same page, you would see that our demand deposits in Spain has gone up by 5% in the last year, year-over-year. If you include that fact of we are growing in deposits with the notion that our loan-to-deposit ratio in Spain is still around 98%, which means we have a lot of liquidity still, we have the tools or we have the capacity to manage the cost of funding. But the key thing here is that 5.1 number in my view, the fact that we keep growing in deposits despite all what's happening? And how is that happening? That are basically, I would say, two factors. Number one, we are growing in a number of customers. You might have seen it in the last 3 years. Every year, we have added 1 million new customers to our franchise in Spain. And this half is not an exception. I think the number was 490,000 new customers joining BBVA as a customer in the first half, which is obviously helping. So this new customer, they typically come with their product and transactionality. It's an amazing figure actually. 70% of these customers, after 6 months of acquisition, they become -- obviously, we manage this, we track this very, very, very closely, but they become what we call target customers. So they become much more engaged with the bank, 70%. 1/3 of them after acquisition, they become a payroll customer for us. So the focus on new customers and making sure that those customers become target primary customers in due time is one of the reasons that I would highlight. The second topic that I would highlight is our continuously. It's not only true for Spain, for every single geography, but in Spain, for sure, also, our focus on transactionality. The fact that we are focusing a lot on all transactional products, cash management for companies, payrolls in retail, acquiring for SMEs and companies as well, we have basically higher market share in all of those products versus our base. So we have 14.2% market share in Spain in lending, as you know, 14.2%. In payroll, we have 16.6% market share in acquiring similar. In cash management, we are upgrading all of our systems in the last year to be able to provide the best cash management systems to enterprises. In short, a lot of new customers and a lot of focus on transactionality is the key reason for that 5% in demand deposits, and that 5% is helping us to manage the cost of deposits. Rest of Business cost of risk number. As you know, cost of risk number for that segment or for that business is very low in general. So one customer coming in or out is basically creating a lot of difference. But at the moment, it's a small number in any case. So it's the fluctuation or very few anecdotal things that is creating the risk. As you might remember, in the strategic plan when we announced our targets in 2020 -- last year June, basically, we said that the expected cost of risk for that business is to be around 20 basis points, okay? And we are more or less in that range in the first quarter. Second quarter was better. There was also some cost of the country risk adjustments. There was a new regulation on country risk, which allowed us to lower the provisions a bit. But overall, you would see the cost of risk in that segment to be around 20 basis points going forward, which is where we are.

The next question comes from Marta Sanchez Romero, from JPMorgan.

My first question is on the management changes. Should we infer any change in financial strategy, capital return priorities or on guidance philosophy from the CFO transition? Or is the hand over to [indiscernible] Purely organizational? And then my second question turns to the Rest of Business. and I'll take it in two parts, earnings and then risk. On earnings pace has caught us all off guard. You are now running above EUR 1 billion on an annualized basis, so expanding far faster than anyone than anyone had done it. I take the point about negative staff cost seasonality in the fourth quarter. But even allowing for that, you are close to EUR 200 million ahead of consensus. So how should we think about the run rate from here? And then on risk, look, you just keep growing like a weed, another EUR 11 billion of lending in the quarter. So help me out with two things. First, what's actually in there? And second, the market is getting twitchy about how AI capabilities are being underwritten. So give us some color on your exposures, how much of the book is AI related?

Very good questions, as always. Marta, very quickly. On the first one, should we expect any changes in our strategic thinking or financial management principles. Obviously, no. It's a natural transition. So no changes you should expect. Then on the Rest of Business, for popular demand, we have added a page you might see in the appendix of the documentation that we have for you on the broader CIB. But if you look into those 2 pages, Page 22, which is the Rest of our Business, which is basically CIB, half of CIB is that or a bit more than half in terms of lending. And then you can see the rest of the details also in the page in the appendix. On the earnings, what I can tell you is that, yes, we are growing very nicely. It's growing a bit higher than our guidance also. So year-over-year growth in loans is now -- in the Rest of Business is 52%. But it is happening at a very profitable level as well. You might see it in the [indiscernible] we are providing [indiscernible] as you can see on this page, and for CIB, the [indiscernible] the Rest of our Business is [ 2. ]1. And as you can see, in the CIB Appendix page. If you exclude Argentina and Turkey because they give too much of a positive boost to the number, it's going to be around 3%, the ROA for the overall CIB business. And then in the appendix page, Marta, you would also see that at the bottom right that the cross-border revenues of total client revenues for the CIB business is 40%, 40%. We've discussed it many times before. We are a global bank being present in many geographies in Mexico and South America in Turkey, many of the emerging economies. Being in those geographies with a full-fledged universal bank is a competitive advantage, and we want to focus on the fact that our lines in these geographies and beyond, when they go, do business outside of their home geographies, we help them out. And that is 40% of the CIB business client revenues. I'm saying client revenues because you can also deduce from this that CIB revenues that we have is practically client revenues. The nonclient revenues are like prop trading revenues and so on, they are very small compared to many other corporate and investment banks that you would see out there. What I'm saying all of this, why I'm saying all of this is very simple. Our CIB business is cross-border focused, mainly corporate banking focused business. focusing on our existing lines and taking their relationship to other geographies. Given that the growth rates that you see because you are pointing out to the fact that the growth rates are quite healthy and there are some jitters in the market and so on, our focus is on our existing clients, mainly, and the growth rates that you see are sustainable and the profits associated with that business is also quite sustainable. As you have seen, with the [indiscernible]. Maybe I tell you the RORC number, excluding Argentina and Turkey, the RORC of the CIB business is 24%, clearly above cost of equity. So we are very happy with the returns that we are generating there and with the growth that's coming with it. On cost of risk, you asked about a specific dimension called AI, on that one, we have basically identified every single sub chapter of the portfolio on how they might be affected. You might remember this for sustainability also. We had something called transition risk indicators. In the bank, we have developed this metric or the framework now on AI transition indicators. So we are looking into every single client of BBVA and identifying the vulnerability that they might have with the transition that's happening with the disruption that is happening with AI. And we don't see a major risk profile for BBVA in these sub chapters. For example, software. Software and IT services, the direct lending that we have with them is less than -- it's like around EUR 700 million, EUR 800 million, and they are all top quality names and so on. So we do already have the tools to manage that risk. And we, in general, as you know, we do have a quite conservative risk profile. Do you want to add anything, Luisa?

I would just like to add that perhaps you may recall from our strategic talks when we had Javier explained in the CIB area. And also when we presented midterm goals that to highlight a little bit the outlook, Marta, when we were thinking that the CIB business could grow as a whole, we did say that we were aiming for a EUR 10 billion revenue at the end of our strategic period, priorities. And it is an area where, strategically, we want to continue to grow together with our Commercial Banking business. So in that sense, we do have expectations of revenue growth ahead. And also just to give a little bit more color, remember some of the numbers that we have done in the past in terms of exposures. Their exposure that we have to data centers remains very solid, 0.7% of EAD. As Onur mentioned, the technology side is 0.5%. And direct exposures to financial sponsors remains also very subdued below 0.8. So I think everything is, as Onur mentioned, growing in a diversified manner in an adequate manner, supporting our corporate client relationships as well.

Maybe one final point on this one. I mean this is a general trend in the industry, but the technology industry is triggering not only in the core industry itself, but all the adjacent industries, demand for lending demand for loans. And players like us who have a lot of liquidity, and you might seen it in the different documentation that we publish, but our leverage ratio is one of the best in Europe and people who have clear liquidity, we do have some advantage to benefit from this way with very decent margins, we can create some good loans, and that is the reflection that you see in the CIB pages.

The next question comes from Francisco Riquel from Alantra.

Luisa, I will start with a final question for you, which is you can update on the ALCO strategy. In Mexico, I see that you are increasing the size and duration of the ALCO portfolio. So I wonder if you are positioning the balance sheet to lower interest rates there? Or if you are just trying to support short-term NII because you are striving to reduce the cost of deposits in that country. And in Spain, is the other way around, you are reducing the bond portfolio. And you were guiding for low to mid-single-digit NII growth. So I wonder if we should be more on the lower in the mid-single digit because of these changes in the ALCO portfolio. And my second question is for -- Onur, on capital allocation. So you see one falls to 12.4% after the new share buyback, which I appreciate, but I wonder if the commitment to distribute any excess above 12% is still [indiscernible] if we should expect more buybacks by the end of the year or the 12% is a target for '28? And if we should be done with the EUR 6 billion for '26?

Maybe I'll take the second question and Luisa, if you want to talk about ALCO and so on. So -- and we said it many times, multiple times before, some of you were not expecting the share buyback announcement that we have done today, but it was very clear, and we have been very consistent in our communication all along. We don't like to work with excess capital. Our target is our target, 11.5% to 12%. We take the upper end of that range as the key target 12%. So we have excess capital when we have excess capital above 12%, we will distribute it back to our shareholders. So as you say, it's going to be [indiscernible] pro forma after the EUR 2 billion that we are announcing today. And we have started it right after because we are running as fast as we can, but we are also generating capital in the process. Despite the fact that we are growing very nicely, we are generating excess capital. And as a result, it's taking time. So the one that we started, the EUR 2 billion that we are going to be starting on August 5, our expectation is it's going to take us to the end of the year. So we have been running full speed, more or less full speed since December last year. We are announcing today right after, and it's going to take us to the end of the year. So we are going to continue on this process and our commitment to distribute the excess capital back to our shareholders is a clear and firm commitment. On the ALCO strategies?

Yes. So on the ALCO strategies, I think both in Mexico and Spain, the strategy has been defined already for quite a while, specifically in ensuring that we can anticipate upcoming maturities advantage of the rates at the point in time. Particularly in Mexico, the growth in the portfolio book the Mexican ALCO book stepped at EUR 19.1 billion. It's grown EUR 4.1 billion year-on-year. Part of this is obviously due to the Mexican euro, the peso appreciation that you have to take into account. But I would say that most of the acquisitions that we've done reflect continuous purchases and anticipated upcoming maturities and trying to lock in our rate sensitivity. Also to remind, your rate sensitivity is at 2.4%, 1.6% to the Mexican peso. And in this regard, I think this is a strategy that we have been trying to pursue that unlocking that rate sensitivity. Just to also finally give you some details on the book. The duration is now [ 3.2 ]. We have been extending durations as well. Remember that this, a year ago, it was [ 2.6 ]. So that has also been part of the strategy that extension and the yield that is at 8.8%. So I think a good positive ALCO strategy definitely will support our NII going forward. With regards to Spain, Here, we have a book that stands at roughly EUR 55 billion. It has decreased in the quarter, primarily because of maturities. We have also been doing some acquisitions as again, as we try to anticipate maturities in the year and also in the following year. So I think it's been also a strategy of trying to manage our interest rate sensitivity adequately. In this regard, maybe giving you a little bit more color on the sensitivity. We have around a 4% NII sensitivity. And I think I also want to add here that even though we state sensitivities in parallel movements to 100 basis points, move of the yield curve. Really, in Spain, what we've seen is that we have an asymmetrical sensitivity with a more open position to the short end. And this is important because as you see in the short end with the interest rates going up, we have an exposure that actually now, aside from the 12-month Euribor rate is also more exposed to the 1-month and 3-month part of the curve as we are growing, as Onur said, on the commercial side of the business. So we have a sensitivity, that is more exposed or more open in the short term, but we have those longer-term bonds that allow us to hedge overall sensitivity to that circa 4% number. And to finalize with the details on the ALCO book in Spain, you have the details, I think, also on the annex. But currently, we've also been extending durations. Our duration stands at 3.5 with a yield of 3%.

Maybe I'll add a few quick things on top of this. So PARCO, we don't use ALCO as the alternative to what we do. We take our business as serving clients, okay? ALCO is not like an alternative, okay. So I now reduce my lending and I do that, no. We do as much as possible with clients. And then if you have additional excess liquidity for different reasons of managing NII sensitivity, we use ALCO. But ALCO is not like a competing client for the thing. As we look into ALCO today, we like the slope that we see of the curve. You like the slope. But it's also a policy. And you might remember, we have been in this for so long. You might remember certain banks that have thought that slope was an amazing slope, and they have bought so much paper with very long duration, which then hurt those businesses. You have seen examples of this in the U.S., in Europe, in many geographies. So although we like the slope, as Luisa mentioned, our effective duration is around 3 years -- 3.5 years because we want to maintain that risk perspective even on the ALCO book. But in short, I want to give you two messages. Number one, we are focused on the client business. ALCO business is a separate business or a separate thing that we do for other purposes, but not as an alternative to our client business. Number two, we can increase the ALCO very quickly now because we like to slope, but we have to be also careful on the risk profile of those decisions. which might come and hurt us. You never know what happens in the world in 3 years, the inflation and the interest rate profile might be a very different one. So you have to be careful with those kind of decisions. And finally, on the topic of Mexico because you said your cost of deposits is not coming down. And as a result, you are doing ALCO -- again, they are not related at all. As much as possible, we want to do the client business. And we are -- as you have seen in the guidance upgrade also, we are quite positive for Mexico going forward for two reasons. Number one, the activity levels. In our view, going forward, will be much better, even better, and we are at close to 10% in any case, 9.9%. It might be even better going forward for a reason of -- for the first time in Mexico, we are seeing signals of investments triggered by the public sector, but you might have seen this, there was -- there were 38 [indiscernible] the tenders for renewable energy that were done in the second quarter, 38. The lending needs of these projects is basically going to come towards the end of this year or more likely 2027. But these projects, they are projects worth of EUR 9.3 billion. It's a huge set of investments coming into the country finally. Again, triggered by the public dimension, the Plan Mexico, as the government calls it, has a lot of investment dimensions underneath which gives us hope and we are already seeing these 38 projects for each one of them, we are engaging with the winners to help them in the financing because they are good projects powered by the PPAs, power purchase agreements of the state utility. So you will see better activity in the short to midterm even, which is making us relatively positive, but more importantly, as we said before, the spread situation is, in our view, is now going to be -- we have reached the bottom in the sense of the interest rates, [ 6.5% ]. We do think it's not going to go down any further, maybe some more, but we are at the bottom of the curve because inflation in Mexico is 4%. As a result, we are very rate sensitive. As you know, in Mexico, if rates do not come down, you would also see spreads picking up, which was the key driver of our strategic plan numbers in any case. So that's also positive. Activity positive, spread positive, we are quite positive on Mexico in general. ALCO, when we have more liquidity to manage the NII sensitivity as well, we use as an alternative mechanism, not as a replacement of the client business.

The next question comes from Ignacio Ulargui from BNP Pariba.

I just have two questions on my side. One is on capital. If you could help us see a bit what should we expect in terms of organic capital generation in the second half? And how SRT usage will will perform in the second half to support that lending growth and activity growth that you were talking Onur, during the call? And the second one is on Turkey just trying to get a bit of a sense on how should we think about the Turkish lira spread and the evolution of NII in the coming quarters, after a bit of a bumpy first half?

Capital, do you want to talk?

Yes. Well, as Onur mentioned, we are generating capital and continue to generate capital. We do so over the second half as well in our capital planning. With regards to the SRT topic, we have delivered 6 basis points of SRT capital CET1 in the quarter, a total of 18 basis points in the first half over EUR 6 billion of RWAs that have been released. For the year, as you know, our guidance in the midterm plan is to do between 30 and 40 basis points a year. I think, with the planning that we have, we're going to be at the higher end of that range and above what we did last year, which was 35 basis points. So I think on track to deliver on that side as well.

And on the organic level after the growth, after everything else after SRTs, we guided or we told that we are aiming 30 to 40 basis points a year, creation of capital on top quarterly changes because the growth profile changes and so on, but that 30 to 40 basis point is a very fair assumption to have going forward as well. If we maintain the very large, very nice growth profile that we have. If growth comes down, you will have more capital basically. One final topic on this SRT issue is -- Again, that SRT topic, I did raise it to you some quarters ago saying that it's an opportunity for the European banking system to leverage that for a reason. Basically, the market thinks that the losses to be incurred from those portfolios would be much lower than what the supervisors is basically guiding us to book as a capital charge in our books. It's a bit of a supervisory arbitrage in short that the market has and the market says it's going to be lower than what you are putting capital for. One of the things that we have been working and this third quarter in July, actually, we executed one of them is that, that arbitrage that I talked to you about is even larger the geographies of Mexico and Turkey and so on. The RWA densities that we have for geographies beyond Spain, beyond the Rest of our Business, it is basically that arbitrage is a much larger opportunity. And in July, we finally executed the first Mexican transaction on the SME portfolio, which is going to help us even more because the RWA densities for those portfolios versus the amount -- the value that we create from those transactions is going to be better. Then the Turkish lira spread naturally depends on how the situation evolves. At the moment, as you can see, very low, the spread because the rates are very high. Why rates are very high because of the war, the Iran situation, inflation numbers are not coming very nice. And given inflation being very high, the tight stance of the Turkish Central Bank continues. Our spreads margins are completely dependent on the macro interest rates. If interest rates come down, you would see a better number. If interest rates do not come down, you would see more or less very meager numbers as you see today. We are seeing -- we have seen the bottom of the spreads in June. So we are now slightly improving. But as you have seen in July, the Central Bank of Turkey has kept the interest rates the same 37%, but the effective interest rate is actually 40%. So they kept the 40 number. We are expecting as of September that the effective interest rate, which is 40% will come down to the official interest rate, which is 37% with time maybe September, October. And by the end of the year, we expect the official interest rate and the real effective interest rate to come down to 36% or so. So not much of a decrease. But even that increase will help us on the spreads and on the margins. But in the very short term, it's going to be very scarce the number.

The next question comes from Sophie Peterzens from Goldman Sachs.

It's Sofie from Goldman Sachs. So my first question is on your medium-term target, the EUR 48 billion. I got to take your [ EUR 25 billion ] net income on the first half net income and then just assume the second quarter run rate going forward, I get slightly below EUR 48 billion, so not far from your target. Could you maybe just discuss how we should think about the upside risk, the year EUR 48 billion target because that seems very, very easy for you to reach? So that would be my first question. My second question would be on M&A. You announced the [indiscernible] share buyback, which was very good news today. But how do you think about kind of M&A opportunities? Or is the focus purely on organic growth here?

Thank you, Sofie. I'm being told that I'm being too slow or talking to much, so I'm going to speed up. So on the first one, the upside risk or the EUR 48 billion. The only thing I can tell you because we are not revising that plan at the moment. The only thing I can tell you is for the first two years that we had in the plan versus what we have already realized in the 18 months, we are doing better than in the 48 number, we are doing better than what we originally planned. And on the second question, M&A topic, we are completely organic focused. You have followed the history. And so we are organic -- we are focused on organic growth in short.

Next question comes from Cecilia Romero from Barclays.

My first one is on Spain. And my second one is in Mexico. Spain continued to grow both the market in SMEs or midsize corporates. What's driving those share gains? And are those within any particular region in Spain? Is it primarily customer acquisition, the per penetration of existing relationships or change in the competitive landscape? If this level of commercial momentum persists through the second half, do you see any upside risk to your loan growth and expand NII guidance of low single-digit growth this year? And also a follow-up to what was said before in regards to rate sensitivity. Obviously, customer spread was up quarter-on-quarter. Should we continue to see an improvement throughout the rest of the year on customer spread in Spain? And my second question on Mexico, Novan has recently received authorization to operate as a full bank in Mexico. Does that change anything on your assessment of the competitive landscape?