Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) Q4 2019 Earnings Call Transcript

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Banco Bilbao Vizcaya Argentaria, S.A. (BBVA 3.12%)
Q4 2019 Earnings Call
Jan 31, 2020, 3:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Good morning everyone, and welcome to BBVA Fourth Quarter 2019 Results Presentation. I'm Gloria Couceiro, Head of Investor Relations. And here with me today is an Onur Genc, Chief Executive Officer of the Group and Jaime Saenz de Tejada, BBVA Group CFO. As in previous quarters, Onur will begin with a presentation of Group's results. Then Jaime will review the business areas and then, will elaborate on the strategy before moving to the live Q&A session.

So now, I'll turn it over to Onur to start with the presentation.

Onur Genc -- Chief Executive Officer

Thank you, Gloria. Good morning to everyone. Welcome, and thank you for joining our fourth quarter results audio webcast. So let's just jump into it. Starting with Slide number 3. We are once again reporting an excellent quarter in our view in terms of results, value creation and capital generation. As all of you know, we highlight three numbers on this first page. The first one, net attributable profit for the fourth quarter was EUR1.163 billion, excluding the EUR1.318 billion from BBVA USA goodwill impairment as we announced in the relevant event of December 2019. Excluding the impairment, this represents a growth of 15% versus the same quarter of 2018.

So there are two other very important messages to highlight on this slide. In the middle of the page, you can see that we continue to deliver outstanding value for our shareholders. So the year-on-year evolution of our tangible book value per share, plus dividends, is extraordinary, growing 11.5%. And on the right-hand side of the page, I need to highlight our strong capacity to generate capital. In this regard, our fully loaded CET1, it has increased 40 bps in the year to 11.74%. And as you all know, this is after absorbing 25 bps due to regulatory impacts, namely the TRIM and IFRS 16. It is also worth mentioning that the quarterly improvement was 18 bps, so one of our -- the best quarter of 2019 for sure. So we ended the year in the middle of our target range. As you all know, our range is 11.5% to 12%. So we ended the year in the middle of that range.

Moving on to Slide number 4. I would like to emphasize that we are delivering these strong results despite a very challenging and the complicated external environment. Obviously, our business is affected by these external drivers. And on the one hand, on the left-hand side of the page, you see the macro development. So the global macro growth has been highly affected by the well-known global challenges and uncertainties. So during 2019, we have revised our growth estimations downwards for all the countries of our footprint throughout the year. And on the other hand, on the right-hand side of the page, what you see is the evolution of the interest rates, the rates that we are more sensitive to. And as you all know in developed markets, namely Spain and USA, we are very sensitive to interest rates. And in these markets, we have been surprised to the downside, obviously, as compared to the expectations at the beginning of the year. So 12 months Euribor at the end of 2019 was approximately 30 bps lower than our expectations at the beginning of the year. And in the case of US, this gap was even higher. So more than 113 bps below expectations.

In this challenging context, our diversified business footprint, our diversified business model as we keep saying proved its resilience once again, and we still managed to improve our underlying financials. So going on to the key highlights to be more specific on Page number 5, we would like to underscore the evolution of some of our core performance metrics. So for comparison purposes, in this page and beyond, the year-over-year variations, we excluded BBVA Chile-related figures in 2018 and the BBVA USA goodwill impairment in 2019.

So the main highlights of the quarter. Number one, first, we would like to highlight that our core revenue year-over-year growth is very robust. Net interest income growing 5.6% in constant euros despite the aforementioned challenging macro and low rates environment in some of our core countries, and we are also showing a very strong in our view, fee income generation growing 4.2% year-over-year in constant euros. Second, the good performance at the top part of the P&L, coupled with our constant focus on efficiency helped us to post a significant improvement in the cost to income. Cost-to-income ratio improved 92 bps in the year, reaching 48.5%, and we are continuing the multi-year trend of positive operating jaws. Third, risk indicators, they continue to be very strong with a good trend in the NPL. The NPL has -- ratio has been reduced by 15 bps now, standing at 3.79%. And also our coverage ratio, we improved our coverage ratio by 349 bps, reaching 77%. And this coverage ratio is the highest in the last 10 years. Our cost of risk has remained stable, despite all the macro dynamics that we have seen in different countries. But our cost of risk is now standing -- for 2019, is now standing at 104 bps in accumulated terms, which is completely in line with our expectations.

Capital, I've already mentioned our solid capital position, one of the clear highlights of the quarter. Fully loaded CET1 stands at 11.74%, increasing 18 bps in the quarter and as I mentioned, 40 bps in the year. Next, we remain focused on creating value for our shareholders. I already mentioned that in the first stage. But in terms of profitability and return metrics, once again, BBVA continues to be at the top of the European banking industry. Return on tangible equity remains strong at 11.9%. And as mentioned in the previous page, tangible book value per share, plus dividends, grew exceptionally well at 11.5%. Finally, in terms of digital transformation, we are progressing ahead of expectations in digital transformation. Digital sales increased to 59% of the total units sold in the year. And as you remember and we keep repeating it for two years ago, just two years ago, the same number was 35%. And the digitization of our customer base, 57% of our customer base now interacts with the bank through digital channels. And similarly, 51% of our customers interact with us activity through their mobile phones through our mobile app, exceeding the 50% target that we have established for ourselves for the end of 2019.

Profit and loss. Moving to Slide number 6, summarized P&L. Again, strength at the core business drivers. The key message on this page is the fact that core business drivers all standing out to be strong. As mentioned, net interest income is up 5.6%. Fees and commissions up 4.2%. And net trading income is showing a strong performance growing 18.9%. This was partially offset by the lower other income, negatively impacted mainly by the hyperinflation adjustment in Argentina. But all of this results in gross income growing 5.4%. On costs, we also continue to show great cost control. Operating expenses growing 3.5% despite the inflation in our geography. And all of this leading to 7.4% growth in operating income in constant euros. Operating income growth is partially offset by impairments and provisions evolution, mostly due to 2018 some provision releases and capital gains we have recorded in those line items in 2018.

So looking at the bottom line, obviously affected by the goodwill impairment of BBVA USA, but in comparable terms, the net attributable profit grows 2% in constant euros and 2.7% in current euros versus the same period last year. If we exclude all the extraordinary one-off items from our P&L, I'm very happy to report that this is the highest net attributable profit we are posting in the past 10 years.

Moving to the quarter. Slide number 7. The key messages for the top line that we have highlighted for the full year, they hold for the fourth quarter results as well. But to be more specific, net interest income increasing 2.1% in constant euros. Fees and commissions 5.7% growth. And net trading income is up by 63.2%. This is partially offset by more negative other income in Argentina, as we mentioned. All this is leading to gross income increasing 5.8% and operating income increasing 6.8% in constant euros. Good news on the impairments line as we go back to more normalized levels in Turkey, due to the macro environment improvement and lower requirements from the wholesale portfolio in that specific country. But on the other hand, the provisions and other gains, they were negatively affected by higher contingency risks in Turkey. All in all, net attributable profit grew 14.9% in the quarter in current euros and 14.5% in constant euros.

Moving on to Page number 8, the revenue slide, again excellent quarter as we mentioned. Net interest income, 2.1% growth; 5.6% versus 12-month '18. So a very, very positive. It is important to note that this growth has been achieved despite the lower CPI linkers contribution in Turkey. And as compared to last year, we recorded EUR482 million less in the CPI linkers, but despite that, net interest income showing a very decent growth. On the top right chart, you see the net fees and commissions, clear growth across the board, up 5.7% versus the same quarter last year and 4.2% on an accumulated basis. Net trading income up, as I mentioned, 63.2% versus a year ago. It was a great performance of NTI in the fourth quarter even excluding some gains from some portfolio sales that we did. All in all, total revenues are up 5.8% versus the fourth quarter of 2018 and then on accumulated basis, 5.4% growth again.

Moving on to Slide number 9, efficiency. We continue to show positive operating jaws. This is a very important management discipline at BBVA. And we are showing once again year-after-year positive operating jaws creating operating leverage. So our expenses growing at 3.5%, well below the growth rate in core revenues of 5.3% and well below, obviously the blended inflation in our footprint. In the middle of the page, we show the strong evolution of operating income, 7.4% growth in operating income. And on the right-hand side of the page, the efficiency ratio keeps improving, showing a 92 bps decrease to 48.5%, a figure that you all know significantly better than the European peer group average, as you see on the page.

Moving on to Slide number 10 on risk. Asset quality continue to see sound risk indicators. I would like to highlight this quarter that the decrease on the impairments of minus 9.9%, mainly driven by Turkey, which compares to very high in fourth quarter '18 as you know, due to macro update and some provisioning that we did at the last quarter of last year, so compared to that improvement. Regarding other risk metrics, so NPLs were reduced by EUR400 million versus last year, EUR0.4 billion mainly due to portfolio sales in Spain and partially offset by some increases in Turkey. But cost of risk is now at 104 bps year to date, completely in line with previous quarters. The NPL ratio after all of these changes decreases 15 bps this quarter versus the same period last year and now stands at 3.8%. And finally, the coverage ratio -- as I mentioned before, significant improvement in coverage ratio, an increase of 349 bps and now we are standing at 77%. So overall a very -- risk has been a key highlight for 2019. We maintain a very sound and good risk profile.

Slide number 11, capital. On Slide 11, we are showing the quarterly capital evolution. And as previously mentioned, CET1 now stands at 11.74%, 18 bps increase in the quarter. I would say that these numbers underscore once again our strong organic capital generation capacity. This is well above the regulatory requirement of 9.27% and continues to progress toward the high end of our target range of 11.5% to 12%. It is important for us to also point out the high quality of our capital ratio. We keep putting this into this page every quarter, but we think it's important.

Our capacity to absorb losses is clearly showing here. We continue to lead the ranking of our European peers in terms of the leverage ratio, which stands at 6.7% on a fully loaded basis. AT1 and Tier 2 buckets, we maintain both buckets fulfilled in both fully loaded and phased-in basis. I would highlight this very recently, it's also noteworthy to mention that earlier this month, we have successfully reinforced our Tier 2 buckets through this issuance of EUR1 billion Tier 2 instrument, very good reaction from the markets.

Slide number 12, shareholder value creation. Very important page for us. We put shareholder value creation and tangible book value per share, plus dividends, as a management performance metric to everyone actually in the bank. And we are seeing the results. As you can see on the left-hand side of the page, our tangible book value per share, including dividends, an outstanding increase of 11.5% versus a year ago. And then every quarter, you see that there has been improvement. And we remain leading the European banking industry in terms of profitability. Our return on tangible equity stands very high as compared to our peers in euro.

Finally, on Page number -- Slide number 13, regarding our dividend, we will submit a proposal to the competent governing bodies to distribute a cash dividend of EUR0.16 per share to be paid in April of this year. Obviously, once approved by our Annual General Meeting, it represents a dividend yield of 5.52%. [Phonetic] And in case of approval, this would result in 36% cash payout, obviously excluding the BBVA USA goodwill impairment, in line with our shareholder remuneration policy. It is also important to remind you that going forward, there will continue to be two cash payments per year. And tentatively, we do it in October and April.

So I'm -- with this slide, I'm finishing this section and now turn it over to Jaime for an overview of the business areas. Jaime?

Jaime Saenz de Tejada -- Group Chief Financial Officer

Thank you. Thank you, Onur. And good morning everybody. Let me begin with Spain, the Spanish economy remains strong with no change in estimates. After growing by roughly 2% in 2019, GDP is expected to grow at 1.6% in 2020, maintaining a gap of nearly 1% above the Eurozone. BBVA in Spain had a very solid performance in 2019, with net attributable profit remaining almost flat versus last year. The main P&L highlights would be. First of all, a very good performance of fees growing by 5% quarter-on-quarter and above our expectations of a low-single-digit growth for the year. Thanks to higher asset management fees, higher contribution from the CIB business and a good performance of credit cards.

Operating expenses continued to decrease one more year, this time by minus 2.4%, thanks to our good transformation efforts. Cost of risk remains at low levels and in line with guidance at around 23 basis points. And that is excluding the provision release from the mortgage portfolio sale that took place in Q2. NII grew quarter-on-quarter by 1.3% and finished the year in line with our guidance, as a positive evolution of the commercial activity was more than offset by the lower contribution from the ALCO portfolio and the IFRS 16 impact. And net trading income behaved well in the quarter, but is down by almost EUR300 million in 2019, due to lower portfolio sales and global market results. All in all, a strong Q4 in Spain with both the good evolution of activity and core revenues.

Let's now turn to the US. Macro prospects for the Sunbelt continue to be solid with a GDP growth estimate of 2.8% for 2020, also outperforming the US average by 1%. Despite the rate environment, the operating income for BBVA in the US in 2019 is up by almost 6% versus last year in constant euros and over 11% in current, mainly driven by a very positive evolution of the trading income supported by both portfolio sales and high results from the global market division, but also due to positive operating jaws as expenses remain flat, while gross income keeps growing. Growth in the operating income line is more than offset by higher impairments, due to a base effect. Remember that in 2018, we had relevant provision releases, but also by higher provisioning needs in both the retail and commercial portfolios and also a negative macro adjustment. Cost of risk ended the year at 88 basis points, so that is within the range of our guidance of between 80 basis points and 90 basis points. For 2020, we expect cost of risk to be better than in 2019 at around 80 basis points.

Let's now move to Mexico. In Mexico, the macro environment has proven to be more challenging than anticipated in 2019 with no GDP growth versus the 2% initially expected. In 2020, GDP will recover to levels around 1.5%, supported by lower uncertainties and the new trade agreement with the US. But once again, BBVA in Mexico continues to deliver an outstanding performance, proving the resiliency of its business model. Net attributable profit in 2019 rose by 14% in current terms and over 8% in constant again in line with our guidance. After a strong Q4, NII was up by almost 6% year-on-year in constant terms and continues to be the main P&L driver supported by loan growth around 7%. We expect these dynamics to remain in 2020 with NII growing at high-single digits and align with activity growth.

Net trading income increased by over 30% explained by positive results from portfolio sales and also a higher contribution from Global Markets. Positive jaws are maintained despite the increased contribution to the BBVA Foundation, allowing the best in class efficiency to reach 32.9%. Impairments remain contained, growing below activity with cost of risk at 300 basis point in line with guidance, being the lowest of the last decade. For 2020, we expect cost of risk to remain around these levels. These results reflect once again BBVA's Mexico leadership position both in terms of market share and profitability, proving its resilience in low GDP growth scenarios and supports our view that BBVA in Mexico in 2020 will continue to increase its net attributable profit at a high-single digits.

Let's now focus in Turkey. GDP continues to recover from levels is slightly below 1% in 2019, should go around 4% in 2020, maybe even higher, with interest rates falling significantly as inflation continues to trend down. 2019 numbers prove once again Garanti BBVA's earnings resilience and best-in-class performance. Net attributable profit was almost flat in constant terms showing a significant acceleration quarter-on-quarter, net attributable profit being up by over 30%. This has been possible thanks to a strong core revenue growth and our focus on efficiency. NII remained flat in 2019 in constant euros, despite the lower contribution from the CPI-linkers portfolio supported by the increase in customer spreads, TL lending up by 10% year-on-year and lower wholesale funding cost.

It is worth highlighting the improvement in Q4 with NII up by 18% quarter-on-quarter, thanks to the increasing -- in TL customer spreads up 300 basis points in the quarter, an acceleration of TL loan demand, up by 6.6% in the quarter. Fees behaved well, up by over 16% year-on-year, with good performance across the board. Expenses grew by 8.6%, significantly below the 12-month average inflation that stands above 15%, bring in the efficiency ratio to 33.8%. Impairments are decreased by 16% year-on-year due to less provisioning needs in the commercial portfolio and a lower macro adjustments. 2019 cost of risk ends the year at 207 basis points, beating our year-end guidance of our cost of risk below 250 basis points.

The provisions and other results increase is explained by contingent liabilities on a base effect as 2019 included capital gains from the strain of our real estate asset. For 2020, we expect Garanti BBVA's earnings recovery to continue on the back of TL loans growing at high teens, NII growing above activity and cost of risk below 300 -- sorry, 200 basis points.

And finally, South America. In Colombia, we expect the solid GDP growth to continue in 2020. In Peru, it will improve further to reach levels above 3% in both countries. In Argentina, news on the debt restructuring and further policy measures are needed to have a better picture.

Turning to the performance of the businesses. Colombia's net attributable profit growth by over 25% in 2019 in constant terms supported by loan growth, up by 7% year-on-year, driven mainly by retail portfolios, positive jaws, with expenses growing below inflation and also lower impairments. Peru's net attributable profit increases by 1.9%, almost 6% in current terms, driven by revenue growing at high single digits thanks to NII growing above 7% supported by loan growth and net trading income, but partially offset by higher impairments due to a negative macro impact in 2019 and a base effect as we had some provision releases in 2018.

And finally, Argentina. With a net attributable profit in 2019 of EUR133 million, thanks to the partial sale of our stake in Prisma and the revaluation of the remaining position, and higher NII driven by the contribution from the securities portfolio, being able to more than offset the EBIT, inflation adjustment, the depreciation of the currency and the increase in cost of risk due to the macro and the sovereign rating downgrade.

And now, back to Onur.

Onur Genc -- Chief Executive Officer

Thank you, Jaime.

Given this is our end of the year get together with you, so I'm going to share very quickly with you a quick update on our strategy. So Page number 21. Slide 21.

As you all know, most of you are aware of these for phrases here, but we defined in 2015, a new purpose for our organization. We coupled that with six strategic priorities, and obviously with the KPIs and the metrics that go with each one of them, and then we all defined our values, which shape the new culture for our organization. And probably more than others, and but more importantly much sharper than others, our peers, we invested in our digital capabilities since then.

So today, I'm going to very clearly show -- talk to you about the changes or the numbers that we are seeing as a result of this transformation and as a result of this new strategy. So Slide number 22. We are starting here with the impact of our transformation on the way that we interact with our clients. And I am proud to share on this page that the impressive progress in the digitization of our customer base and in our value proposition. So the clients that interact digitally and through mobile devices have doubled and tripled respectively since 2015. Digital customer penetration now represents 57% and the mobile customers reached the 50% tipping point goal and now we now stand at 51%.

In addition, we are also very happy to report that our app in Spain was once again awarded as the best banking app in the world by Forrester in 2019. And this is the third year in a row that we are being recognized as the best in the world. And the second best in the world was our app in Turkey Garanti BBVA's app.

So all this digitization, the way that we interact with our customers in a digital way, how is it yielding results? On Slide number 23, the impact of transformation is very clear on the business drivers, no? To be more specific, we keep focusing on sales and growth. I strongly believe we can further foster the growth by leveraging our digital capabilities. There is much more to do, but we are on a very good journey. As a consequence of the digitization and the strong base of digital and mobile clients we have, digital sales continue growing. And as you can see on the page on the left hand side, the digital sales, they represent now 59% in number of units and 45% in value of our sales as we continue to promote the sales of our products in a do-it-yourself way through our digital channels.

Second, we are constantly aiming to improve our customer service. So digital channels and the digitization of our customer base brings additional sales, brings additional growth and brings much better customer service and customer experience to our clients. So in this context, maybe a few example. So, one good example of growth and customer experience playing together is this digital entrant on boarding for SMEs launched in Spain. So, allowing SME clients to open a fully operative account, fully operative account digital end-to-end. This is -- BBVA is the first bank in Spain to provide this digital on boarding for SMEs and there is a target space of 650,000 potential new clients. And thanks to our global capabilities, the solution could be partially leveraged for other geographies in the coming quarters as well.

Another example is Uber. We are paying off the retention to partnerships using our digital capabilities. So Uber has partnered with BBVA to launch its first financial product outside the US, in Mexico. This is important because it's also BBVA's first product created through our open banking capabilities and our API-based infrastructure. We have been edifying our infrastructure, our technology for quite a long time and partnerships like this products and offers like this are going to be coming more and more in the coming quarters.

Moving on to Slide number 24. So all this, how is this yielding in terms of customer growth and satisfaction? The impact is tangible. I mean, as you can see on the page, the client base has increased, and today, BBVA has more active customers, I underline the word active, and we have more satisfied customers and more loyal customers. So we grew our active customer base by almost 9 million since 2015 in four years. We are now in the leadership position in the customer satisfaction index, the net promoter score in most of the geographies. And finally, the group's attrition rate, it's very obvious to see it on the right hand side of the page. But the attrition rate has decreased 17% -- 17 points, since 2015.

And all of this, this is all nice, but how is it translating into financial results? So, we are also seeing our transformation yielding very good results in terms of financials. If you look into the key metrics, again on this page on Slide number 25, from the evolution of net attributable profit to other metrics, left-right, let's go left to right. 28.7%. 29% increase in net underlying profit since 2015, since we launched the strategic plan then. 25% increase in our tangible book value per share plus dividends creating value for our shareholders as we keep saying. And 143 [Phonetic] bps increase in our capital ratio, despite all the market volatility and the regulatory impacts that we have been recording since then, we improved our capital ratio by 142 bps since we launched our strategic plan in 2015.

Moving on to Slide number 26. Even more importantly, and I would say this is one of the most important pages in our discussion today. I would say that our performance has been differential. We always compare ourselves to our competitors to our peers on how they do and how we do. And what you see in this page is our performance has been differential. We have outperformed the competition in key financial metrics as you can see again on Page 26. We are leading the pack in terms of efficiency and profitability, and widening our GAAP versus our European peers. So the transformation of our operational and relationship model has led us to achieve a significant reduction in cost to income. So our cost income has reduced 352 bps since 2015, and that compares very well to our European peer group, which the reduction is 260 bps. And in terms of profitability, return on tangible equity, although we had a meaningful positive gap in 2015, we increased that gap. So our return on tangible equity is increasing 528 bps since 2015, and the same number for our competitors, for our peers in Europe was 336 bps.

This is all good, but move on to Page 27. As always, we need to keep the momentum by adjusting to the changing environment. So in 2019, we carried out a strategic review process to continue our transformation to continue pushing the boundary and respond to the major trends that are shaping the world and the financial services industry. So in this context, we are evolving our strategic priorities to accelerate and deepen the group's transformation and again serve our purpose, strengthen our purpose. So we have six new strategic priorities, six involved priorities that are framed in three main blocks as you see on Page number 27.

The first block is focused on what we stand for, in relation to our clients, how we differentiate ourselves versus competition, and includes two strategic priorities. The first one, improving clients' financial health. We want to be the trusted financial partner for our clients. In this day of commoditization of financial services, we want to make sure that in their day-to-day management and in their control of their finances, our clients take better financial decisions and we want to make that happen and we want to be their trusted financial advisor.

Second one is sustainability, helping our clients to transition toward a sustainable future. We want to have a significant contribution in the fight against climate change by obviously helping our clients in that transition in the transition toward a low carbon emissions economy, and supporting also inclusive economic development on the social side as well. On the second block of strategic priorities, it relates to how we will deliver a superior performance. And on this one, there are two again. Number one -- number three in the page actually, strategic priority number three, reaching more clients to accelerate our profitable growth by being where clients are, by having more active clients and prioritizing growth in the most profitable and attractive segments. To do that, we must evolve our client acquisition strategy, focusing both on our own channels and also proactively leveraging on third parties, the partnerships to increase our client base.

Number four is the operational excellence. We aim to provide an excellent customer experience at an efficient cost while having a strong management of all risks and optimal capital allocation obviously. The third block refers to the key accelerators to deliver this new strategy. And on this one, we put two. The best and the most engaged team. We are a purpose-driven organization. We want to keep boosting employee engagement and performance, and ensure our employees live our values and behaviors. We do realize that our business is a people business and we want to make sure that our team members are very much engaged on what we want to achieve.

And finally, data and technology, as two clear accelerators of our strategy. Main catalyzes of innovation and operational excellence. So we will be pushing even more on data and technology. So all of this and more, we will have the chance to share with you.

Moving on to Slide number 28. In Investor Day that we are announcing today, most of you have been asking for it for some time now. So please mark March 24 on your calendars, the Investor Day will take place in Madrid at our headquarters and we are expecting all of you. And obviously Gloria and the Investor Relations team will be in contact with all of you with more details around this.

So to conclude, our year-end Analyst Presentation, let me highlight the key messages around our results. I would like to reiterate a very robust performance in our core revenues. Our core revenues have been clear differentiators in this quarter and the year, and also our efficiency in a very difficult environment and resulting in a great operating income growth. Operating income growth has been the highlight for the 2019 results. Sound risk indicators in line with the expectations despite again a very tough macro environment. Capital position clear highlight again is even stronger today. We reached the target range for the CET1 ratio earlier than expected and we keep improving our position.

Number four, delivering on outstanding shareholder value creation, double-digit profitability and tangible per share plus dividends have shown an amazing performance in the year. And finally, we are evolving our transformation strategy to strengthen our purpose and to address the key trends that we are facing today.

Finally, let me finish today's presentation by giving you some color on 2020. In Spain, we will see a turnaround trend in loan growth. Hopefully, a positive growth this year. That's what we are expecting, a slight positive growth. We will continue having a strong focus on fee income, in addition to improving efficiency and maintaining sound risk metrics. In the USA, we will focus on activity growth with a clear eye on our risk profile. In Mexico, we expect solid growth to continue, similar to 2019 trends. In Turkey, we will see a significant recovery based on activity growth, margin improvement will lead us to strong results in Turkey, we believe in 2020. And finally in South America, we have very good prospects especially in the Andean countries. So overall positive for 2020.

With this, I conclude the presentation. Looking forward to seeing you all on our Investors Day on March 24. Thank you for listening. So, I give the floor back to Gloria. Gloria?

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

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

Questions and Answers:

Operator

Our first question comes from Francisco Riquel from Alantra. Please go ahead, Francisco.

Francisco Riquel -- Alantra -- Analyst

Yes, hello. Thank you very much for the presentation. Two questions for me. First of all, on capital, if you can please update on the -- your impact expected for 2020, [Indecipherable] NPL, or EBA guidelines or any other issue that you may highlight? And second question on Mexico. Cost of risk at an all-time low. So, wonder how sustainable is this level given that GDP is in negative territory. The mix is also shifting toward consumer loans. So I'm surprised that we have not seen any macro adjustment. So if you can comment on how so it is, and respective loss models, changes in the macro environment or whether you have made any change -- changed the risk taking strategies so that the cost of risk could be structurally lower through the cycle in Mexico? Thank you.

Onur Genc -- Chief Executive Officer

Thank you, Francisco. That -- very short and sweet. On the first one, the regulatory impacts expected for 2020. We are expecting an impact of 15 bps in 2020. On the TRIMs, low default portfolios around 10 bps, and the new EBA, PD, LGD new guidelines around 5 bps. So it's going to be 15 bps in total. Obviously this is -- these things might change around in the year, but that's the expectation that we have at the moment, and that compares favorably with the 25 bps that we have realized in 2019.

Regarding Mexico. As you have noted, this was the best -- it was the best year ever in the past 10 years in terms of cost of risk and we maintain our guidance for next year to be around 300 bps, the cost of risk. And in 2019, we had a macro adjustment. As you know we were expecting 2% plus growth rate in the economy at the beginning of the year. Over time, it came down and now the latest expectation for 2019 is basically no growth. So we had some implications of that in the IFRS 9 provisioning for Mexico. And despite that, we realized around 300 bps and that's our guidance for next year as well.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you. Next question please.

Operator

Next question is from Alvaro Serrano from Morgan Stanley. Please go ahead, Alvaro.

Alvaro Serrano -- Morgan Stanley -- Analyst

Hi, good morning. Two questions, one on Spain. I don't know if you can be a bit more specific on the guidance in particular on NII presumably will be down, but if you can give a bit more color of how much margin pressure you will see as a result of rates. And also maybe on outlook on provisions given. One of your competitors was suggesting provisions could actually go up in 2020 in Spain. And the second question on capital piece. Your 11.7%, it's clear you have a few levers that could be easily put you in 12% on top of your organic growth. So if we look a bit beyond what might be delivered this year or over the next few quarters, once you reach that 12%, the upper range of your guidance, what can we look forward to in terms of deploying that capital? Should we expect growth to accelerate, is your preference to deploy that capital in the regions, or should we look forward to a higher shareholder returns? What's philosophically, given the state of the world, what do you think -- the banking system -- what should we -- what would be your preference today? Thank you.

Onur Genc -- Chief Executive Officer

Very good. Thank you, Alvaro. The two sub questions regarding Spain and the guidance. On the net interest income, our guidance would be slight decrease in net interest income, a little bit lower spread, because as you know, Euribor has come down in 2019. There is a reset frequency over there, six months or a year on our mortgages, so there will be some impact of those coming in. flowing in. But still, as you have seen in this year's numbers, our customer spread was 195 bps in Spain at the beginning of the year. We improved our spread to 199 bps at the end of the year, 4 bps increase in customer spread, despite the fact that the Euribor has been coming down dramatically throughout the year.

So we are managing our mix, we are growing in areas. Again as you see in the analyst presentation, Jaime mentioned it partially, but we are growing in areas with better margins and spreads. So we think that will be compensating factor. So finally, our final guidance is to slight decrease, basically. When I said quality, a similar guidance to this year, cost of risk around mid-20s. If you exclude again in Spain, the portfolio sales that we did throughout the year, as you know, our cost of risk for 2019 was 23 bps and we expect 2020 to be again around mid-20s, around mid-20s.

Coming back to capital, 11.74%. At the end of 2020, we should be around 12% level. That's our existing current focus. We should be around 12% at the end of 2020. After that what happens? So, you're asking after that what happens. We have a very clear capital allocation strategy. We put our capital in places where we can earn our cost of equity. If not, we have a shareholder remuneration policy. We have been very consistent with that policy, 35% to 40%. And going forward we might also be on top of dividends, depending on how we evolve, consider share buybacks. But we are going to be looking into it once we get to 12%, which we again expect at the end of 2020.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Alvaro. Next question please.

Operator

The next question is from Mario Ropero from Fidentiis. Please go ahead, Mario.

Mario Ropero -- Fidentiis -- Analyst

Hi, good morning. Thank you for taking my questions. I have a follow-up on your expectations for same 2020. I mean presumably you're expecting slight decline in NII, positive fee growth and further cost cutting. So can you confirm whether you're expecting positive jaws in Spain? And then the second question is, if you could clarify what is the impact do you expect on tax rate related to the measures that the Spanish government want to implement on dividends from abroad? Thank you.

Onur Genc -- Chief Executive Officer

Very good. Thank you, Mario. On the first question, are we expecting positive jaws in Spain for 2020? Very again short and sweet. The answer is yes. On the tax, Jaime, you are the expert. Why don't you take the tax question?

Jaime Saenz de Tejada -- Group Chief Financial Officer

Yes. There are different measures currently being discussed. The one that you specifically mentioned will impact the group by roughly EUR50 million per year that will be an increase in the tax rate of 0.5%.

Mario Ropero -- Fidentiis -- Analyst

Thank you very much.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Mario. Next question please.

Operator

The next question is from Andrea Filtri from Mediobanca. Please go ahead.

Andrea Filtri -- Mediobanca -- Analyst

Yes, good morning. A follow-up question from what Alvaro asked about future capital deployment. In light of the changes with CRD 5 in approval of Article 104a, and your budget expectations. First of all, can you give us now more color as Basel has been defined this year about a range of expectation for you from Basel IV? And how do you plan to use if any Article 104a of CRD 5? Is it a buffer against Basel IV or is it a way to boost capital return once you touch the 12% mark? Also on Spanish fees, can we look forward to any repricing of fees in Spain in 2020?

And finally, if you could update us on the insurance front? It's been fairly quiet on that front, in the past few months after your indications that you were considering some potential changes in your setup on bancassurance. Thank you.

Onur Genc -- Chief Executive Officer

Okay. Thank you, Andrea. On the future capital deployment and future capital situation, and regarding Basel IV. Very quickly, I mean, as you know, the output floor, which is a clear lever are clear impact to all the banks in the European lending banking landscape. We expect the impact on BBVA would be much less than others, given that output floor -- I mean, given the fact that our RWA density is already much higher than all of our peers. We are at the top of the European banking industry in terms of RWA density as you know. So the impact from output floor, which is the key piece within Basel IV is going to be impacting us much less, if none, in the application.

So as a result of this, there was this EBA study, if you remember a few months ago, on the European banking sector. The impact that was mentioned there and the impact that we calculate for BBVA, there is a clear differentiation and we expect a much lower impact from Basel IV. And then P2R, it's not finalized yet. Let's see what comes out of it, but we welcome that development. And then the use of capital when we are there, it comes back to the answer that I gave to Alvaro. When we are there and then we have the excess capital, we will consider. We have a very consistent and stable dividend policy by the way, that dividend policy is there. Plus we might we will consider share buybacks, and we will further fuel the growth of our businesses in areas where we can create that return for our shareholders.

The repricing of fees in Spain. We are expecting a low-single-digit growth in Spain for 2020 in Spain. It does include multiple levers. And as you all know, the deposit pricing to enterprise clients, we have been charging some of our enterprise clients for the negative interest rates that are happening out in Europe for their deposits that's coming through the fee income line as well. Overall, net fees and commissions low-single-digit growth is our guidance for 2020. On the insurance front, you are saying we have been silent on that front. There is a process, we have announced in respect to relevant events throughout the years. The process is ongoing and when there is something to be announced, obviously, we will be issuing relevant event. But the process is ongoing.

Andrea Filtri -- Mediobanca -- Analyst

Thank you.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Andrea. Next question please.

Operator

The next question is from Ignacio Ulargui from Exane BNP Paribas. Please go ahead.

Ignacio Ulargui -- Exane BNP Paribas -- Analyst

Hi, good morning. Yes, thanks for taking the questions. I just have two questions. One on the outlook focused in Spain, and also on the corporate center. If you could just give us some color regarding how do you see cost evolving in the corporate center in 2020? And regarding Mexico, I mean all your strategy has been very focused on households and consumer lending. How do you see that going into 2020? It's going to be more corporate or what should we expect there? Thank you.

Onur Genc -- Chief Executive Officer

Perfecto. On the first, outlook for costs in Spain. We are expecting, we are guiding for 2020 a similar profile as in 2019. If you remember in 2019, our costs in Spain have come down by 2.4%. We are guiding a similar rate for 2020 as well. Regarding the corporate center, we are going to see an improvement in terms of the bottom line of corporate center. So our expectation for the bottom line, meaning the profit sink that we have in the corporate center will be better in 2020. Our guidance would be around 250 a quarter as compared to what you are seeing in the numbers for 2019. So a better profile there as well.

Regarding Mexico, you were asking the growth. Mexico is a growth country all across the board. We are clearly in my view the leading player in Mexico. So we are going to grow across the board. But are we expecting the trend to continue in the retail portfolios? The answer is yes. We will continue to grow in consumer, in SMEs. SMEs was the only non-growing portfolio in 2019. We are expecting to reverse that trend in 2020. And in other portfolios, we maintain a similar perspective of growth for 2020 as we have seen in 2019.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Ignacio. Next question please.

Operator

The next question is from Andrea Unzueta from Credit Suisse. Please go ahead, Andrea.

Andrea Unzueta -- Credit Suisse -- Analyst

Hi, thank you for taking my question. I'm going to go back to Mexico. I can tell, you've been able to improve the cost of deposits by 25 basis points in the quarter. And I think that a lot of this has been achieved by migrating time deposits to current accounts, please correct me if I'm wrong. And how much more is there to do on the funding costs? On the other side, your loan -- the yield on loans continues to go down 13 basis points in the quarter. So how is it that you expect your NII to grow as much as your loans next year? Thank you.

Onur Genc -- Chief Executive Officer

Well, it is -- Andrea it is that, and it is beyond. As I'm sure you are aware, that the Bank of Mexico has reduced rates three times in 2019. At the end of the year, actually 100 bps in total. Sorry, the four -- it's 100 bps. And as a result, it is both, it is mix change so time deposits moving to demand deposits. As you can see demand deposits have grown 7% and time deposits have grown 6.5%. So there is some, a little bit of a shift. But the key change was actually the money that we pay to both. Even demand deposits we pay some and that number has been coming down in the fourth quarter, because the market rates have been coming down. So, given the rate cuts or Bank of Mexico, we are basically following the market. And the yield decline is also related to that one, because some of our portfolio is variable rate and they're linked to the market rates. Given the reduction in the market rates, it's reflected into the yields. And we are managing it dynamically. When rates come down, OK, the yield on the credit comes down, but also we have to manage the cost of funding in a way that we maintain our spreads. And that's what we did in the fourth quarter.

And as you -- we published this from time to time. The net interest income sensitivity of our Mexican balance sheet is relatively well kept, relatively restricted. So the NII sensitivity is minus 1.4%. 100 bps step function decline in 12 months has an implication of 1.4% in net interest income. So we manage both sides of the balance sheet in such a way that there is not much sensitivity in the Mexican balance sheet. In Mexican pesos, obviously. The Mexican peso balance sheet, I'm talking about.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Andrea. Next question please.

Operator

The next question is from Jose Abad from Goldman Sachs. Please go ahead, Jose.

Jose Abad -- Goldman Sachs -- Analyst

Hello, good morning. Thank you very much for the presentation. One follow-up question on Spain. I know that the you're reiterating guidance for cost of risk in Spain around mid actually 20s. Will be helpful if you could actually give us what is the cost of risk in particular and your expectations for the unsecured portfolios and in particular the consumer loan portfolio. Will be helpful if you could give us what is the cost is today and what was the cost of risk in your consumer loan book in Spain back in Q4 '18. Thank you.

Onur Genc -- Chief Executive Officer

Jaime, do you want to take it?

Jaime Saenz de Tejada -- Group Chief Financial Officer

Okay. Yeah, I will. Okay. Cost of risk in the -- the NPL ratio. First of all, let me start with our NPL ratio of this portfolio. This portfolio has an NPL ratio, which is exactly the same as they overall portfolio in the group -- in Spain, sorry. It the stands at 4.4%. The NPL ratio in the last 12 months past increased by almost 50%, actually has -- 50 basis points, sorry. It's monthly related with activity growth. Activity in this consumer book has grown by 16%. Overall, the deterioration in cost of risk has been very small over the year. And we don't think that going forward this should change at all. So we are quite comfortable with the underlying trend that we're seeing.

Onur Genc -- Chief Executive Officer

And Jose, our PDs at origination is around 50 bps. And you know that our yields are much, much higher than that. So our average yield, if I'm not mistaken, I cannot mislead you, but it's around 6.3% in consumer loans. 6.3%. PD at origination 50 bps. So it's a safe...

Jose Abad -- Goldman Sachs -- Analyst

May I ask a follow-up question? Because actually when I look at Bank of Spain data, actually consumer NPLs are growing double-digit. So what's differential from BBVA versus actually the sector in that particular segment?

Jaime Saenz de Tejada -- Group Chief Financial Officer

No, they can be growing at double digits because production is growing significantly.

Onur Genc -- Chief Executive Officer

It's a maturity profile. This is a high growth book. It grew 20% last year. It is growing 15% this year, over the opportunities kicking in, because those NPLs arrive at a certain maturity of the duration. And these are -- they're normal. If you look into the growth of the balances, it's very normal.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Jose. Next question please.

Operator

The next question is from Stefan Nedialkov from Citigroup. Please go ahead.

Stefan Nedialkov -- Citigroup -- Analyst

Yeah, hi guys, good morning. It's Stefan from Citi. A couple of questions on my side as well. Just to come back on the capital allocation point that Onur elaborated on. What is the cost of equity? Obviously ROE should be higher than cost of equity, etc. But on the equity itself, do you have different cost of equity per segment or do you apply the same level for any capital allocation at the group level as well as the segments? And if you can give us your assumption for what your cost of equity is at the group level, that'll be very, very useful.

Secondly, on the US, quite a weak quarter. It's been up and down over the past few quarters as well. We obviously had the provisioning top up for credit cards. But can you just tell us what's happening in the US and what you're planning to do into 2020? Fees were down this quarter, a lot more versus my expectations at least. Provisions were higher, costs were higher. It's just -- this thing just seems to be sitting in one place or actually deteriorating. So any color, any strategy, anything interesting that you can share with us would be greatly appreciated. Thank you.

Jaime Saenz de Tejada -- Group Chief Financial Officer

Thank you, Stefan. Of course, we have different cost of equities, as you can imagine for both different subsidiaries and different segments within the different subsidiaries depending on the risk profile of the different portfolios. Not only segments, I will go through portfolios also. The overall cost of equity of the group will be slightly above 10%.

Onur Genc -- Chief Executive Officer

On the US, Stefan, I reiterate this every quarter, but BBVA in the US is present in the sweet spot of the whole country. So we are in certain states, our key presence is in Texas as you know. If you look into the growth rates of Texas versus the rest of the US, it has been the best growing state -- sizable state in the whole country over years. It's $1.8 trillion economy. And as you know, Spain is $1.2 trillion -- $1.3 trillion economy, much higher than our home country. So it's a very large country with an amazing growth profile. The growth rates, we have seen 3%, 4% in GDP growth in Texas over the years, and we are the fourth largest bank in Texas. We have 5% market share, but we are the fourth largest bank in Texas.

Given this, we want to make sure that we deliver value though. So it has to be coupled in this attractive market, we have to deliver value and that's what our focus is. So for next year, 2020, we have a clear focus of growth in activity it because in the markets that we are in the growth is there. So we want to capture that growth and we have to do that in an efficient way, creating a positive operating jaw. And if you look into this year, you mentioned the costs were higher in the quarter. Yes. But if you look into the costs of US for 2019, for the full year, the costs were flat, 0.3% growth only. The reason for that 0.3% is again we wanted to create a positive operating jaw because we -- it's a key management discipline at BBVA. If you cannot create revenues, you have to then manage our costs. So the fourth quarter, because there are some year-end let's say adjustments in Decembers and so on, but overall, you should look into the full year and 0.3% cost growth in the US for 2019 in my view was a success.

But there are many other parts that we have to do better and that's what we're working on. We are planning to grow better in 2019, in 2020 and we are planning to manage our costs. Accordingly, as well in 2020.

Stefan Nedialkov -- Citigroup -- Analyst

And Onur, if I may just follow-up. From a strategic point of view, are you happy with where your US business is in terms of customer transactionality, customer engagement, fee generation. Do you feel that your digital model can actually help you make this much more of a relationship banking enterprise, so to say? Thank you.

Onur Genc -- Chief Executive Officer

You're asking about the USA? Stefan?

Stefan Nedialkov -- Citigroup -- Analyst

Yeah, yeah.

Onur Genc -- Chief Executive Officer

See, our digital modeled, can it help us in the US? If that's the question, of course yes. Of course, yes. If you look into the active customers of the US franchise, active customers, we are one of the very few banks who are growing, again thanks to the market as well, because we are in the sweet spot of the US, but we are growing our number of active customers by segment in a very healthy way in the US. Number of active customers. Probably much better relative to our peers, much better than our peers because these numbers are not published, but we know our numbers and our number of customers are growing very decently, very nicely.

So our digital model, is it working in terms of growth? It is working in terms of NPS, US was one of the countries that we have improved our NPS, Net Promoter Score, customer satisfaction, the highest in 2019. So is it working? Yes. Is it taking time? Yes. And we will continue to focus on the key value drivers to make sure that we have a good business there as well.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Stefan. Next question please.

Operator

The next question is from Carlos Peixoto from CaixaBank. Please go ahead, Carlos.

Carlos Joaquim Peixoto -- CaixaBank BPI -- Analyst

Hello, good morning. A couple of questions from my side as well. The first one is actually on other provisions. We saw a bit of an increase excluding the goodwill impairment of course. We saw definite [Phonetic] an increase across some business areas, particularly the US -- sorry, Spain, the corporate center, Turkey as well, I believe. I was wondering if you could shed some light on the rationale behind this increases and also how we should think about it, about other provisions going forward.

Then secondly, if you could give us some color on how you see fees evolving in Spain, particularly some of your peers have given a bit of the strong guidance for this year. I was wondering if you see the same potential as well. And then finally, sorry, just a quick follow-up on capital, just to make sure that we understood correctly. You expect the regulatory impacts in 2020 to be 15 basis points or 55 basis points? Because I got a bit confused there. Thank you very much.

Onur Genc -- Chief Executive Officer

Just jumping into the last one first and then give the rest to Jaime. No, it cannot be -- not 55 basis points. It is 15 basis points, just to make it very clear.

Carlos Joaquim Peixoto -- CaixaBank BPI -- Analyst

Okay. Thank you.

Onur Genc -- Chief Executive Officer

On the fee growing in Spain, again, as we are guiding fees and commissions, we are expecting in Spain, low-single-digit growth, which is a robust growth. For the provisions, Jaime, do you want to add anything?

Jaime Saenz de Tejada -- Group Chief Financial Officer

Okay. The main overall explanations has to do with restructuring charges. Although it's a slightly different between the countries, it is true that as you've mentioned, Carlos, that Turkey explains part of the increase, mainly because of higher provisioning needs for some contingent liabilities and also some tax provisions in the country. In the case of the corporate center, it mainly has to do with some restructuring charges and the valuation adjustment of one of our equity stakes, consolidated using the equity method. In South America, it's mainly Argentina and it's mainly restructuring charges also. And in the case of Spain, the increase is a smaller, but has to do with updated appraisal values in some foreclosed assets, also higher restructuring charges, but in this case, mainly because of the closure of branches.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Carlos. Next question please.

Operator

Next question is from Benjamin Toms, RBC. Please go ahead.

Benjamin Toms -- RBC -- Analyst

Hi, there. Thank you for my question, just [Indecipherable] please. You show in your presentation that your ROTE was 11.9% compared to peer group average of 7%. Given the clear outperformance in this metric, why do you think BBVA company trades at discount to the same peers? Thank you.

Onur Genc -- Chief Executive Officer

It's a very good question, Benjamin. I could ask the same question back to you. No, I mean, 11.9%, return on tangible equity is good, but there is an overhang maybe because of Europe. We are still perceived as a European bank. We are a Spanish bank and have given the markets. And given the, I would say, maybe the regulatory uncertainty that was there, there is not there anymore, but that was there around capital maybe, we really -- we talk to a lot of people on this, but the case for BBVA investment is in our view, clearly there. I mean, our dividend yield is, as we discussed today, 5.5%. Our tangible book value per share, plus dividends, this year 11.5%. And if you look into the variability of our income over the years -- if you take the past 10 years, past 20 years, the variability of our income is very little. The standard deviation of our profits over the years is one of the best in the European banking sector, which implies that going forward the variability is also going to be lower because the history of 10 years, 20 years is a very good history.

So if we continue to deliver the profits, which is our clear intention and we have a clear conviction that we will do that, and the history is a proof of that. If we continue to distribute and we have a clear and consistent dividend policy and if we are delivering tangible book value per share plus dividends, 11.5%, I agree with you, it should be better, but it is the market. We respect the market. Our job is to keep explaining ourselves that we have been delivering this value and hope that the market also realizes it. Jaime, do you want to add something?

Jaime Saenz de Tejada -- Group Chief Financial Officer

Yes. That maybe after that answer, I mean, we can cancel the Investor Day.

Onur Genc -- Chief Executive Officer

And we are not only institutionally, but personally believers in this as well. We are all shareholders of BBVA. Perfecto?

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Ben. Thank you. Next question please.

Operator

Next question comes from Marta Sanchez Romero from Bank of America. Please go ahead, Marta.

Marta Sanchez Romero -- Bank of America Merrill Lynch -- Analyst

Thank you very much. I've got a follow-up on the profit costs in Mexico. Some of your peers in the country complaint that you're probably overpaying for deposits given your strong balance sheet position. Are you changing your commercial strategy there? How low can you go, assuming the central bank stays put at 7%?

And the second question is, I'm going to push my luck with an M&A question. Some of your peers are suggesting that in this low rate environment, there needs to be more consolidation in Spain. And in Europe in general, the supervisory is clearly trying to promote M&A by making it -- by tweaking the rules to make it easier. So, can you remind us what's your stance regarding M&A? Do you think it's essential for your strategy or you can survive and prosper with what you have at the moment with your footprint? And related to this, your decision to potentially sell the insurance business, is that a separate thing or could you -- could that be put on hold depending on what do you in terms of other M&A? Thank you.

Onur Genc -- Chief Executive Officer

Okay. On the deposit policy, I don't know what others said, to be fair, Marta. And thanks for the questions, all three of them, but we are adjusting our deposit pricing policy. And as you can see, our cost of funding in Mexico from third quarter to fourth quarter has come down from 2.54% to 2.29%, and that is mainly because of the fact that we are repricing deposits, mainly because of the fact that the market is taking down the interest rates. And the Bank of Mexico has done all these rate cuts throughout the year. So yes, we are adjusting our policy. We are there.

On the M&A, you said, do you believe you can survive and prosper as you are and with your current footprint and so on. The answer to that one is, of course, yes. And again, I'm saying this not only this year, but if you look into the history of our delivery and our return on tangible equity, our key metrics around what we have been delivering, of course, we can survive and prosper. There is so much growth. There is so much growth in our footprint. I mean, you have seen it into this presentation. In four years, we have increased our number of customers -- number of active customers close to 20%, 8 million customers in four years. So our footprint is a footprint of envy in my view. And our position within the footprint is our key investor story. If you look into different countries and where BBVA is versus where the rest of the banking industry, if you look into the ROE of the banking industry in that country and the BBVA ROE in that same -- exact country, you would see a positive meaningful gap on behalf of BBVA. So we are in good countries, and we have good banks in those respective countries, and that is proven with the growth of the franchise. So can we survive and prosper? You asked, I'm repeating your words. Of course, and we have been doing that.

But -- and as such, our focus is on organic growth. But as I said multiple times before, we always analyze opportunities. If there is value that we feel, we can get to our stakeholders. If there is value, we might be also engaged in M&A, but our focus is on organic growth, as I mentioned many times. We have 126,000 people working at BBVA, 126,000 people and our colleagues, their focus should be on serving our customers better. Our focus should be growing our franchise. There is a team of 20 people, and they're very capable team in M&A, their job and it's only 20 people. Their job and their focus should be on M&A opportunities to see whether we can create value, but our focus for the organization for the 126,000 people, it is organic growth, and we have been delivering on that one.

Then selling the insurance business you asked. I think that was the last question, I couldn't get insurance. As I said, there is an ongoing process there. It's not the sale, but it is inquiring opportunities to see whether we can create a business -- a better business. We think insurance is an important product for our customers. Our customers are telling us the insurance is part of the value that they want to get from us, but there are benefits of working with an insurance company on their expertise. So we are inquiring whether we can have a win-win proposition there for our clients.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Marta. Next question please.

Operator

Next question comes from Carlos Cobo from Societe Generale. Please go ahead, Carlos.

Carlos Cobo -- Societe Generale -- Analyst

Hello. Yes, thank you for the presentation. A couple of questions from me. First, if you could elaborate a little bit about the impact on -- I mean, the impact on -- from the calendar provisioning for the stock of NPLs overall for the group, whether you expect any impact in P&L provisions next year or capital deductions? Second, on consumer credit in Mexico, I would like to understand a little bit your strategy, why are you outperforming the sector? The sector is slowing down the risk appetite in consumer while BBVA is growing. We've seen a similar strategy in the US where you expanded into consumer. I mean, I would like to understand your rationale there.

And lastly, just a quick one on the generic provisions -- sorry, the generic top-up in Turkey. I'd like -- that is the local reporting, is that the same that you reported as an off-balance sheet risks in this quarter in other provisions and what's the rationale? If you already had a substantial generic buffer, why do you need to top it up when next year cost of risk is coming down? Thank you.

Jaime Saenz de Tejada -- Group Chief Financial Officer

I'll take the first question, Carlos. I don't think we will have a relevant impact on provisioning next year. The guidance is the guidance that -- and it includes all factors that we think that will affect as -- in each geography in 2020. It is true that we need to comply with certain recommendations. Combination of Pillar 1 and Pillar 2 impacts will be recognized in the next six, seven years, but nothing significant in 2020.

Onur Genc -- Chief Executive Officer

On Mexico -- Carlos, thanks for the question. So why are you may be growing more or you said outperforming the rest? Because we have a great bank in Mexico and we do believe that we have those capabilities as we have proven. If you look into the numbers, the 3.01% cost of risk in this context of 6.6% growth in the loans, is a very good achievement and not only the headline number. If you look into our models, if you look into our vintages, we are doing very well, so the growth is there. The Mexican situation is a very important one, I keep saying it. And we have a wonderful bank and the country, independent of the GDP growth rates, have -- it has to catch up in terms of bancarization levels in terms of taking financial services to large masses to SMEs. So if you look into the bancarization level, I mean the lending over GDP. For different segments, it is still much lower than most of the other emerging economies. So independent of the GDP growth, there is a catch-up that has to happen in banking and bancarization in Mexico, and that's why we are still growing 7% despite the fact that the GDP growth was basically zero. That 7% is there because of the catch-up.

But more importantly, we do have a wonderful bank in Mexico. I mean as I keep saying it, they're all our babies. So, maybe we are subjective a bit on this, but your colleagues who are covering BBVA, I would encourage all of you to go and visit Mexico and to see how powerful and how great of a service that we provide to our customers in Mexico. We have 23% roughly market share. The second largest is 13%, 14%. Our customer satisfaction in Mexico, which is a very important metric for us is 61. Our NPS is 61. So it is the highest that you can ever imagine. Our customers are happy with what we are providing there. Our positioning is very strong there. Our team is an amazing team there, so that's why we are outperforming, and that's why the market might be a bit falling below. But on the third question, Jaime, do you want to take it?

Jaime Saenz de Tejada -- Group Chief Financial Officer

Okay. Let me see if I understood correctly the question. The other provision impacting in Turkey is one that I mentioned, OK? Higher provisioning needs for contingent liabilities and some tax provisions. Whatever happens locally might be a little bit different and that's one particular example, the ones you mentioned. Pre-provisions had nothing to do with this. It's a market practice that takes place in Turkey in which they do certain provisions, and they do not assign them to specific risks, that's never happened under IFRS accounting, which is one that we comply with.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Carlos. Next question please.

Operator

Next question comes from Britta Schmidt from Autonomous Research. Please go ahead.

Britta Schmidt -- Autonomous Research -- Analyst

Yeah, hi. I've got three questions please. Firstly, on the expected cost decline in 2020 in Spain, can you give us a little bit more color in terms of what's driving this, how much of that is due to bond reductions, how much of that is to other potential cost savings? And then secondly on the US, I guess the key question is when do you expect it to make its cost of equity, how long is that going to take off? how far away from this? And then thirdly on your Investor Day, could you give us a little bit of an idea as to what we should expect? Will you present the three-year business plan that will also include some profitability targets for the Group? Thank you.

Onur Genc -- Chief Executive Officer

I'll take the first question. Britta, I don't think we will do in 2020 anything different in Spain from what we have been doing over the last three, four years. We've been closing branches at a decent speed. We close over 1,200 branches since the end of 2015. That's a reduction of over 30% of our physical footprint in Spain. We're now down to 2,640 more or less branches. We will expect to close, maybe 160 branches or so in 2020. And the further development of our digital experience will be the main driver of that continued expense reduction.

Jaime Saenz de Tejada -- Group Chief Financial Officer

Britta, thanks for all the questions. The second one was on the US, do you expect to earn your cost of equity? Yes, we do. And last year, we did earn our -- more than our cost of equity in the US. If you exclude, there are some digital investments that we have there as you all know, which is all consolidated under the US P&L. But if you exclude those investment businesses, we have some fintechs and so on. We did earn our cost of equity in the US last year. And we aim to have earn our cost of equity in every single market actually. It's something that is very diligent. If we have that expectation, we keep investing in our business. If we don't, we have other levers to manage that as well. So do we have the expectation? The answer is yes.

Investor Day, you are asking whether we will have numbers there? There are -- obviously, we will talk to you about the details of the strategy that we kind of highlighted today, but obviously, there will be some numbers associated with that discussion.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Britta. Next question please.

Operator

The next question is from Sofie Peterzens from JPMorgan. Please go ahead.

Sofie Peterzens -- JPMorgan -- Analyst

Yeah, hi. Here is Sofie from JPMorgan. I was wondering about the goodwill writedown that you had this quarter. You still have a quite a high book value of EUR7.7 billion [Phonetic] in the US, how should we think about any further potential goodwill writedowns in the coming quarters and years? Is that something that we could potentially see? And then my second question, I know you guided on the NII sensitivity Mexico, but could you also just remind us what your NII sensitivity is in the other markets given that we are also seeing lower rates in Turkey and also lower rates in Europe? Thank you.

Onur Genc -- Chief Executive Officer

Thank you, Sofie, for both questions. Well, we just did the writedown, as you know. And as you also know, this is independently audited and there is independent view in that process and all that. So given that we have just don't -- we don't expect anything in the short term, but as you said, and the number you said EUR7 billion, but the latest that we have in the books, as of today after the goodwill amount that we have written off in the fourth quarter is now EUR3.8 billion. So you might you mentioning before and you might be mentioning in the dollars, but EUR3.8 billion is the remaining goodwill in the US.

Then the NII sensitivity, the question that you asked on the NII sensitivity. As I said, you mentioned the Turkey, basically the NII sensitivity in Turkey is very limited. So there is no sensitivity there. The key sensitivity that we have is in the US and is in Spain. That's why I put this chart in the analyst presentation on the fact that the two markets that you are more sensitive because of the nature of the business is there, it was a negative impact in 2019 because of Euribor and LIBOR. But those are the two key markets. The latest numbers that we have is minus 6% for US and minus 5% in in Spain for -- 100 bps step function decline in the curve in a 12-month period. So those are the two key markets in terms of NII sensitivity.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Sofie. Next question please.

Operator

Next question comes from Ignacio Cerezo from UBS. Please go ahead.

Ignacio Cerezo -- UBS -- Analyst

Hi, good morning. A couple of quick ones from me on capital. If you're going to explain why the capital drag from regulation has come down in size versus the previous estimate? And the second one if I can ask why the dividend has been on the low end of the 35%, 40% payout ratio despite the capital coming better than expected? Thank you.

Onur Genc -- Chief Executive Officer

On the first one, 25 bps, we did guide around 30s and so on, but 25 bps mainly because of the TRIM mortgage impact. So the total IFRS 19 plus TRIM mortgage turned out to be 25 bps, which is better. So we should all be happy about it. On the 35%, 40% dividend policy, well, we are delivering 39%. 39% is within the range. As we keep saying, the key thing here is to stick with the policy. And our policy is 35% to 40% and it's 35.9%, 36%. So it's a bit in the policy. There is no specific reason around this. And we wanted to stick with the policy. That's why it's 39% -- yeah, 36%, sorry. Anything else?

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you. Thank you, Ignacio. Next question please.

Operator

Next question comes from Ya-Lan Liu from ACF. Please go ahead.

Ya-Lan Liu -- Ahorro Corporacion -- Analyst

Good morning, and thanks for hosting an Investor Day this year. I appreciate. Two questions, one on capital and another one on Turkey. On capital, are there potential accounting changes -- or accounting treatment changes that could deliver capital, say -- or release capital, say accounting of deferred liabilities or treatment -- accounting treatment of intangibles. And then on Turkey, some of your -- some foreign banks are reducing their exposure to Turkey or are they are -- either they are planning to sell their stake in the Turkish bank? I would like to learn your view on your strategy in Turkey in terms of your stake in Garanti Bank? Thank you.

Onur Genc -- Chief Executive Officer

On the first one, Jaime?

Jaime Saenz de Tejada -- Group Chief Financial Officer

Well and not on EBAs [Phonetic] that I expect. As you know, the EBA is working on issuing an RTS on intangibles, recognition in resolution and whether or not the full deduction in CET1 is not required. That's probably the potential upside we have there. Just to remind everybody, the current deduction in intangibles in CET1 is 43 basis points.

Onur Genc -- Chief Executive Officer

On Turkey, thank you, Ya-Lan for the question on Turkey. Reducing your exposure, selling, buying and so on, the answer to that is we are very happy with our existing share as we stand. Our original investment case for Turkey still stays as it is. Our original investment case was two things. Number one, the country. I mean, the average age of the country is 30. The demographic profile, the geopolitical risks are there for sure, but the closeness to Europe, the manufacturing hub for Europe, position of the country, the culture in the country and so on. So there are many positive things around that. And then the fiscal situation in Turkey is a very positive one as you might know. 32% of GDP is public debt, so the fiscal side is strong. And the country has shown clear resilience and clear strength last year and this year in terms of recovering from the foreign currency hiccup that the country was realizing. So the country is a strong one, has fundamentals.

But more importantly -- even more importantly, as I mentioned, our equity story is that we have wonderful banks in different countries and currently, BBVA is clearly one example of that. If you look into our pre-provision profit divided by assets, similar to ROE, it is much, much better than the rest of the banking industry, rest of the banking industry in terms of private banks and also the state banks. So we have a wonderful bank in the country. The talent base, the customer franchise that we have there, the deposit, the low cost deposit base that we have in the country, it's all a great testament to the strength of our franchise in Turkey. So to cut a long story short, the original investment case around the country, around the Bank is still there and we are comfortable with our share.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Thank you, Ya-Lan. Next question please.

Operator

Our next question is from Fernando Gil from Barclays. Please go ahead.

Fernando Gil De Santivanes -- Barclays -- Analyst

Hi, hello, good morning. Thank you for taking my question. Two questions from my side. Can you please detail the impact on Telefonica CET1 this quarter? Second would be the bond portfolios, how much you expect to make guidance for 2020? And so, then, lastly if possible, comment on Paraguay, when do you expect this to happen? Thank you very much.

Onur Genc -- Chief Executive Officer

Paraguay is expected in the first quarter. The rest, all the tough ones I give to Jaime. So Jaime, take it.

Jaime Saenz de Tejada -- Group Chief Financial Officer

They're not that tough. Telefonica drained 5 basis points of capital in the fourth quarter. We don't give guidance for bond portfolio contribution. We've never done it, but probably in the case of Spain, which is where you probably are asking the question. Up to now, we've there and then the ALCO portfolio has been draining NII on a comparative basis. We don't think that will happen in 2020. As we don't have significant maturities in 2020 in that portfolio and the once we have are mainly in the latter part of the year. So after a significantly negative contribution in 2019, remember that we had significant maturities in the last quarter of 2019, that won't be a drag any longer for Spain's NII.

Onur Genc -- Chief Executive Officer

I see that the list is ending, so Gloria, I think we are done, but one -- no question came on that. I now very briefly touched upon it, but I want to highlight one single thing about our new strategy. One of the six things that I mentioned was around sustainability and although there are -- there were no questions on that one, I would like to highlight the fact that on this topic of sustainability, which is probably the -- one of the largest trends that we are seeing, shaping the whole business environment. From an opportunity perspective, there will be new economies, new things happening out there and also from a risk perspective, both physical risks and also transition risks, I mean, industries are being reshaped with this new dynamic. We want to make sure that, just like we have played a very fundamental and strong role in digital as we started our journey many years ago, we would like to make sure that we help our clients in this new transition to combat and to take the opportunity of this new era. So the sustainable topic is an important topic that we would like to highlight and hopefully, we'll share more with you in the Investor Day in March on our thinking there. That's it, Gloria. Back to you.

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

So thank you very much, Onur. And thank you very much to all of you for participating in this call. And let me remind you that the entire IR team will remain available to answer any questions you may have. So thank you very much and have a great day.

Duration: 91 minutes

Call participants:

Gloria Couceiro Justo -- Global Head of Shareholder & Investor Relations

Onur Genc -- Chief Executive Officer

Jaime Saenz de Tejada -- Group Chief Financial Officer

Francisco Riquel -- Alantra -- Analyst

Alvaro Serrano -- Morgan Stanley -- Analyst

Mario Ropero -- Fidentiis -- Analyst

Andrea Filtri -- Mediobanca -- Analyst

Ignacio Ulargui -- Exane BNP Paribas -- Analyst

Andrea Unzueta -- Credit Suisse -- Analyst

Jose Abad -- Goldman Sachs -- Analyst

Stefan Nedialkov -- Citigroup -- Analyst

Carlos Joaquim Peixoto -- CaixaBank BPI -- Analyst

Benjamin Toms -- RBC -- Analyst

Marta Sanchez Romero -- Bank of America Merrill Lynch -- Analyst

Carlos Cobo -- Societe Generale -- Analyst

Britta Schmidt -- Autonomous Research -- Analyst

Sofie Peterzens -- JPMorgan -- Analyst

Ignacio Cerezo -- UBS -- Analyst

Ya-Lan Liu -- Ahorro Corporacion -- Analyst

Fernando Gil De Santivanes -- Barclays -- Analyst

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