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Banco Bilbao Vizcaya Argentaria (NYSE:BBVA)
Q4 2020 Earnings Call
Jan 29, 2021, 3:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Gloria Couceiro

[Audio gap] 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 results and 2020 achievements, and then Jaime will review the business areas. We will move straight to the live Q&A session after that. And 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 call. I will now be saying it for the four quarters in a row now, but I really hope that everyone is safe and sound, you and your families are all healthy and safe.

I'll start by highlighting some of the key achievements of the year. So I'm on Page No. 3. We have successfully, in our view, navigated through the crisis by focusing on the right things.

For example, by extending EUR 63 billion of support to our clients through various means. Second, I think it was a year that has reaffirmed our strategy. Our leadership in digital, we have been putting so much focus on to this for so many years. In our view, it has given us an edge in this environment.

For example, again, as noted in the page, 56% digital client acquisition increase in one year. Third, in terms of financials, we have been able to deliver excellent financial results in our view, in these extraordinary times, 11.7% increase in our operating income in constant euros versus 2019. And lastly, in this page, it is important, very important to note our ample strategic optionality after the sale of BBVA USA. After the deal, EUR 8.5 billion of capital generation that will be in our books when we complete the deal.

So all of this, in our view, will allow us to offer sizable distributions to our shareholders in 2021 and beyond, which I will elaborate further in my presentation. Slide No. 4. In terms of management of the COVID crisis.

Very quickly, I mean, we had three main priorities from the first day. First and foremost, to protect the health and the safety of our employees, our clients, and the community in general. Second priority, we are an essential service so we have to continue providing that. In December for example, 97% of our branches were opened with dynamic staffing to serve our clients and the number of visits to our global apps have increased by 43% post-COVID.

And that high engagement we are seeing that is here to stay. So there is some clear stickiness in that changed behavior. And the third priority, as I mentioned, has been to provide financial support to our clients all around the world, as I mentioned, again, with EUR 63 billion in total, EUR 63 billion to our clients all around the world. Slide No.

5. If you go to Slide No. 5, our leadership in digital. I did talk about it a second ago, it has proven to be essential and differential in this context in our view.

Again, we talked to you too much about this in these calls, but we do think it is important to talk about. We do think that our industry is going through a disruptive change and we have been embracing this change much earlier than others, which -- with much more investment than others, and we believe this strategy is paying off. So in this page, our mobile customers. We have reached a record high, 59% of penetration rate in mobile.

And also, given our focus to go beyond servicing and execute sales, so go beyond servicing and execute sales through remote channels, through digital channels. Our digital sales have reached 64% in terms of units and 49% on in terms of value. Moving on to Slide No. 6.

We have also been saying that one of the core benefits of placing so much emphasis on digital is to grow with digital, by also acquiring new customers through digital. And this is not an easy thing as it seems, it's not an easy thing to do. So we have been focusing a lot on this. We have been building end-to-end digital products and processes and in our view, it also has proven to be differential in reaching more customers and acquiring new customers in 2021.

If you see on this page, the growing trend of the new customers acquired digitally, which already represents 33% in 2020, a 56% increase year over year versus 2019. So we are also extending our digital capabilities into acquiring new customers into growing our franchise. Slide No. 7.

Another strategic priority for BBVA, some highlights on sustainability. First, helping our clients transition toward a more sustainable future. On this one, advancing better and faster than our pledge, we had this pledge 2025. We have already mobilized EUR 50 billion out of the EUR 100 billion that we have committed by 2025.

So moving faster -- faster than the curve. The second, the volume of household sustainable -- wholesale sustainable bonds and corporate green loans. In 2020, it's almost tripled, as compared to three -- two years ago and we continue to develop our portfolio of solutions on the topic. Second, aligning our portfolio beyond sustainable finance, how do we align our portfolio with the Paris Agreement in line with the Katowice.

We follow obviously the PACTA methodology on this and focusing on specific activities with sensitive sectors to manage and to measure the transition risk. In this sense, we have included the climate risk in our loan admission frameworks in the most relevant portfolios in 2020 and we have also developed an internal taxonomy and methodology of transition risk. Third, increasing transparency on the management of our climate-related activity. As an example, we are one of the very few banks to publish the task force on climate-related financial disclosures report in November of this year of 2020.

And finally, it's worth to note that BBVA has ranked first among the European banks and third worldwide in the Dow Jones Sustainability Index. One final thing to note here, our sustainability focus is client-driven to help our clients manage this disruptive transition and it's also, not only climate related, but also encompasses the drive to improve social sustainability, given our footprint, given our geographies around inclusive growth and inclusive development as well. Slide No. 8.

Moving on to financials of the year. On the left-hand side of the slide, you can see our net attributable profit. It's a clear upward trend quarter after quarter, reaching EUR 1.320 billion in the fourth quarter, including the positive result from the JV with the Allianz deal. This is a 16% increase versus the third quarter and a 13% increase versus the same quarter of last year.

If we exclude corporate operations, namely the Allianz JV and also the noncash BBVA USA goodwill impairment in the last quarter of 2019, if you remember last quarter 2019 and the first quarter 2020. There were these goodwill adjustments for BBVA USA. If you exclude these one-offs, the fourth quarter 2020 result shows a 4.9% increase versus the same period last year in constant euros. In our view, very good numbers even when compared to normal times.

The second graph in the middle, it shows how our capital continues its growing trend. Since the first quarter, as you see, there has been an improvement, almost reaching December 2019 levels at the end of the year. If we include the impact of the BBVA USA sale, the pro forma, the CET1 stands at 14.58%, one of the best numbers you can find out there. And lastly, it is also important to note in this page, the recovery of our tangible book value per share plus dividends, increasing versus last quarter to 6.21.

Again, ending this very complex year with slight decrease, but a very good level at the end of the fourth quarter of 6.21. All in all, considering the minus 7.2% decrease in our footprint GDP in the year, in this context of macro environment, BBVA, in our view, once again, has proven its resilience. Thanks to its leading franchises wherever we operate. Our equity story is around this leading franchises that we have all around the world.

And I think we have shown that resilience in our figures. Slide No. 9. The top financial messages.

I'll go very quickly on this one. The first one, our solid core revenues growing 2.7% versus 2019. Second, very strong cost control and efficiency. In our view, one of the best things of 2020 for us, excellent management of our operating expenses, decreasing 2.6% in constant euro versus 2019, despite some very significant inflation in some of our geographies.

Around 4% inflation in our geographies, we are delivering minus 2.6% in costs. Our resilient pre-provision profit, I talked about it, growing 11.7%. Pre-provision profit growing 11.7%. Improvement of our risk indicators throughout the year, the first quarter, if you remember, we have done this massive upfront provisioning.

Since then, we have been improving and achieving better than the initial expectations that we have had. Fifth on the page, as mentioned, outstanding capital position after the sale of BBVA USA, pro forma CET1 of 14.58%. Sixth on the page, in terms of return on tangible equity, we remain at the forefront of the European banking industry. Even in this year, in terms of profitability, we are far ahead of others in terms of return on tangible equity.

And lastly, one of the good things that you would be announcing today in terms of shareholder remuneration, we expect to resume the shareholder distribution in 2021. We contemplate the distribution of a cash amount of EUR 0.059 per share payable in April 2021, of course, subject to shareholders' and supervisory approval in the coming weeks. Moving to Slide No. 10, summarized P&L.

Very quickly, I would like to highlight the positive evolution of net interest income, increasing 3.6% in constant euros. Together with the very strong evolution of the net trading income, it leads to a strong increase in gross income of plus 4.5% in constant euros. This evolution, coupled with the very good performance of expenses that I talked to you about explains this 11.7% increase in operating income. At the bottom line, affected by the COVID-related upfront provisioning, we have undertaken, especially in the first quarter and then in the second quarter, net attributable profit in 2020, EUR 3.84 billion, a 27.2% decrease year over year, excluding the noncash BBVA USA impairment of EUR 2.1 billion, if you remember.

And also the EUR 304 million of the capital gain from the joint venture agreement with Allianz that we have recorded in the fourth quarter 2020. If we include all of these impacts, the final reported net attributable profit is EUR 1.305 billion. Moving to Slide No. 11.

The quarterly evolution of our numbers. Both net interest income and fees and commissions increased by 1.4% and 2.2%, respectively, in constant euros in the quarter. In expenses, again, continue to exercise strict discipline, decreasing our costs even in constant terms. This quarter, there was this negative evolution of net trading income, partially driven by some one-offs, global markets in Spain, and the evolution of FX, which has led to a 3.7% decrease in the operating income in the fourth quarter, again, mainly driven by the net trading income.

Very positive evolution in the quarter, though, on the impairment side. Following the third quarter, it continues minus 12% decrease in the impairments. We continue to see more normalized level of impairments compared to the first half of the year. And I will talk to you about it in a second, the underlying fundamentals continue to be very positive.

So finally, in the quarter, the net attributable profit is EUR 1.15 billion, 4.9% year-over-year increase in constant euros. If you include Allianz, the impact from Allianz deal, EUR 1.320 billion. Moving to Slide No. 12.

This is the quarterly evolution so you can see the full quarters in the past five quarters. Once again, 1.4% growth in net interest income year-on-year. I think this is very notable. Despite the very low interest rate environment in some of our core markets, despite the mortgage heavy portfolio that we have in Spain, we do think that this growth of 1.4% growth is very robust.

Good evolution in net fees and commissions, which has increased 2.2% year-on-year and 4.1% in the quarter. So the positive quarterly evolution is mainly explained by the CIB activity and recovering credit card and payment systems billings in Mexico. And also in Spain, quarterly -- quarter-over-quarter growth in net fees and commissions, thanks to higher contribution from asset management and insurance. Let me also here highlight that both net interest income and net fees and commissions, you see it on the quarterly numbers, the five bars that you have on the page.

The NII and net fee income, they were the highest quarterly figures reported, obviously, in this period. Weak performance of net trading income, as I mentioned, again, explained by some one-offs, negative global markets results in Spain, FX-related impact. Finally, gross income decreased by 5% in the quarter due to this net trading income and also higher contribution to deposit guarantee fund in Spain in the quarter. Moving to Slide No.

13. I talked about it, so I'll go very quickly on this one, very good performance in expenses. You see the numbers here, 2.7% drop in the figures, positive operating jaws. Our core revenues growing 2.7% while the expenses are decreasing.

And again, our blended inflation rate in our footprint is 4.2%, so very positive. As a result, our efficiency ratio has come down to 46.8%. Slide No. 14.

If you have a bit of a broader perspective on the cost topic, we should also note the acceleration of digital trends. Again, due to COVID, which is obviously leading to adjustments in our cost structure, reinforcing our focus on seeking further efficiency improvements. So we will continue to do more on this topic. As you can see on the left-hand side of the slide, digital servicing transactions.

In the past two years only, in the past two years, it's practically doubling. So it is giving us room to do further on the topic, especially in low-growth geographies and I also would like to put here the record with a longer timeframe. Our cost-to-income ratio, we have consistently improved on this since 2015. And obviously, our footprint has a say in the level of this figure.

But if you compare it to peers in terms of the evolution, in terms of the change in the last five years, our efficiency ratio, it has improved by 521 basis points versus 249 basis points in our peers in the European banking system, despite the fact that, again, our number is very low to start with in comparison. If you go to Slide No. 15, let's talk about risk a bit. Again, total loan loss provisions for the quarter are EUR 903 million in constant terms, significantly lower as compared to the first half of the year.

Twelve percent decrease in the quarter is mainly driven by, I would say, the continued resilience of the portfolio in short because there's so many factors, but the continued resilience of the portfolio. As a result, year-to-date, cost of risk continues improving as expected, closing in 151 bps. The lower end of our latest forecast, the latest guidance that we have given you in the third quarter was 150 bps to 160 bps. We ended up at the bottom end of that range.

And regarding 2021, given all the indications that we have, again, there's a lot of uncertainty around this. But given the latest numbers and the latest forecast that we have in every single geography, we are expecting a better cost of risk in 2021 versus 2020. Regarding the rest of the indicators on the page, a slight increase in the NPL ratio in the quarter to 4%, mainly due to higher NPL and fees in retail segments. Completely in line with our expectations due to this 90 days passage.

Most of our deferrals, they expired in August. So there is a process there after 90 days, they are transferred into NPLs. They have already been provisioned. There is nothing unexpected here but some increase in NPLs because of the process after the 90 days of the expiring deferrals in August and our coverage ratio remains at very high levels, stands at 81%.

Again, much higher -- in every single geography, actually, much higher than competition. On Page No. 16. You see the deferrals page, which is one of the drivers of the good cost of figures that we have been realizing.

A quick update on the evolution of deferrals. On the left-hand side of the page, what you see is that the total deferrals granted represent 8.5% of total loans. And as you can see also in the graph at the bottom on the left-hand side, most of the deferrals granted, they expired, 90% has expired. In the middle of the page, you see the positive payment performance of the deferral portfolio, 77% have already resumed payments, 8% is second deferrals.

When you look into that 8% second deferral, more than half are related to mortgages, where we feel obviously more comfortable and it's mostly in Spain. It's represented at the top right-hand side of the slide. So we feel comfortable on the second deferrals. And for the rest -- for the rest of the portfolio, you should see the evolution of that portfolio because when you do the second deferral, you pause the clock, but for everything else, the clock continues.

So whatever else is happening in the rest of the portfolio, you should be seeing it in the delinquency, in the days passed, too. So at the right bottom part of the page, you also see the resiliency of those delinquency buckets. With the past use as a percentage of portfolio, it's aligned or in most cases, even better than last year. So the quality of the portfolio is clearly showing its resilience.

Slide No. 17. Capital in this page, we are discussing about the evolution in the last quarter. So 21 bps improvement in the last quarter.

If I break it down into different buckets, first, results generation contributes 30 bps to the ratio; second, the dividend and the AT1 coupons detracting 14 bps. Regarding the former, I mean, we talked about it very quickly. The proposal is obviously subject to shareholders' and supervisory approval. But it contemplates the distribution of a cash dividend of, again, EUR 0.059 per share, payable in April 2021, representing the maximum amount allowed to be distributed according to the latest ECB decision.

So this deducts 11 bps, out of the 14, 11 bps is coming from this dividend accrual. Third, the positive market-related impacts in this quarter, adding 15 bps, the healthy collect and sale portfolio, together with the FX evolution, it was positive. Then there is the others bucket of minus 10 bps, mainly explained by the RWAs increase in constant euros, part of which -- part of this RWA increase is due to the prudential front-loading of around 19 bps. Again, part of the 2021 expected regulatory impact.

So we have front-loaded as we have some transparency on what those impacts would be. We have put 19 bps into the others bucket here is a prudential buffer for next year. In this bucket also, in the others bucket, you also have the software prudential treatment impact and also the JV agreement with Allianz impact. All in all, our CET1 ratio stands at 11.73% as of December, 14.58%, again, with the CET1 pro forma, including the sales of the BBVA USA shares, 600 basis points above the minimum requirements in a pro forma basis.

Slide No. 18. We have made the decision to increase our capital targets. I mean we discussed it many times in the past in these calls, even though we don't -- we do not like to operate with structurally high capital buffers that penalized profitability and the shareholder returns.

At the same time, it is also important for us to demonstrate that we have the right capital level, so it's a balance. And in order to find that right balance, we have decided to increase our capital target to a range between 11.50% to 12%, and as you remember, coming from a previous 10.84% to 11.34%. And to contextualize with the upper part of our new target, the 12%, now embeds a management buffer on top of this [Inaudible] requirements, 341 bps and that buffer places BBVA well above the peers average, as you can see on the right-hand side of the page. It is also important to note that with -- if you take the upper end, 11.5% to 12%, if you take the upper end and if you look into where we will be ending up after the sale of BBVA USA, and the upper end of the requirement, we have EUR 8 billion of excess capital over the upper end of our new target range.

Going to Slide No. 19. So that EUR 8 billion. Let me elaborate a bit more on the use of this excess capital.

We will use the excess capital, as you see on the page, through two means here: first, deploying capital in our markets in an efficient way through profitable growth and through costs reduction. As I said, we are very focused on costs. We will also see whether we can do more on that one, strengthening the leadership positions that we have in most of our markets. Again, I -- you know it's very important.

I remind you that the equity story of BBVA is that wherever we are, in most of the markets that we are present, we have clearly a leadership position in terms of return on equity, in terms of market shares, in terms of customer franchise, people franchise and so on. So we'll continue to invest in our franchises in terms of growth and in terms of further restructuring our cost base. And second, as you see on this page, we will use this excess capital to increase distributions to our shareholders. And whatever we do, it's clear that any combination of these uses of the excess capital, generated by this transaction by the BBVA USA transaction, will imply very significant, whatever numbers that you look into, whatever levers that you put in, high EPS and tangible book value per share accretion to the benefit of our shareholders.

On Slide No. 20. Very quickly, I mentioned that, I mean, in terms of our core markets, regarding the deployment of our capital in our markets, I would like to highlight how focused we are on profitable growth and on value creation. At BBVA, we have this micro capital planning process.

We deploy capital to every client, every wholesale client, and every portfolio at a very granular level using different return on capital metrics. And as a result of that process at that micro level, at that client level, the graphs on the slide, they bring out how we are biasing our growth, how we are biasing our capital consumption toward the most attractive geographies and portfolios. Finally, turning now to Slide No. 21.

About the shareholder distributions. There are multiple mechanisms here, obviously, subject to certain approvals and timelines. But our commitment to value creation for our shareholders, I think, is reflected very clearly on this page. First, on the left-hand side, regarding 2020 distribution, we talked about it already.

Our proposal contemplates the distribution of a cash amount of EUR 0.059 per share, payable in April 2021, as I said. Obviously, this decision follows the supervisory recommendation. It is the maximum allowed by the regulatory guidance, which, as you know, is 15% payout over 2020 results, excluding goodwill impairments, excluding the one-offs, and also excluding the AT1 coupons. Second, in the middle of the page, very important, regarding 2021 ordinary dividend.

Once the ECB restrictions on distributions to shareholders are lifted, at the moment, expected in September 2021, our plan is to recover our clear predictable and sustainable dividend policy. As you know, we have been saying for years now that 35% to 40% payout, you will go back to our regular policy, fully paid in cash, two payments per year, tentatively in October and April. And on the right-hand side of the page, on top of the dividend policy, in terms of the distribution -- additional distribution, the extraordinary distribution to shareholders. Obviously, the excess capital that we have, it allows for additional distributions and we are going to do buybacks and extraordinary dividends as potential vehicles here.

We will start targeting a buyback program of around 10% of the ordinary shares, obviously, after the closing of the U.S. transaction. And again, obviously, subject to certain shareholders resolution requirements, supervisory approvals, lifting of the CV recommendation on distribution to shareholders, as you know, is expected in September '21. And then once we close the U.S.

deal, this program -- this initial program will start, subject to share price evolution, but our current plan is targeting a buyback of around 10%. Now on business areas. I turn to Jaime. Jaime?

Jaime Saenz de Tejada -- Chief Financial Officer

And good morning, everybody. Let me begin with Spain. GDP growth expectations for 2020 improved to minus 11% and for 2021, BBVA research now expects GDP to grow by 5.5% and by 7% in 2022, supported mainly by the next-generation European recovery fund. Loans have increased by almost 1% year-on-year in 2020, above expectations, driven by the strong growth across commercial segments and very small businesses, supported by the State guarantee program.

For 2021, we expect the loan growth to be broadly flat. In 2020, as you can see in the slide, operating income increased by 4.7% versus a year ago, a solid performance in the current environment. The increase is mainly explained by both core revenue growing almost 1%, leveraged by fees, thanks to the good performance of asset management, account maintenance fees, and also by a remarkable decrease in operating expenses, down over 6%, above expectations, which allows the cost-to-income ratio to improve by a further 2.8% versus 2019. The operating income growth in 2020 has been more than offset by higher impairments, mainly explained by the significant frontloading of COVID-related provisions in the first half of the year and also base effect, as 2019 included the provision release from a mortgage portfolio sale.

Having said this, cost of risk continues. It's improving triangle year to 67 basis points and in line with our guidance. For 2020, for 2020 we expect core revenues to continue growing, supported by fees that will increase by high single-digit. NII might decrease slightly versus 2020 between 1% and 2%, due to the EURIBOR repricing and the lower contribution from the ALCO portfolio.

Our cost control will continue, as we expect the expenses to decrease again in 2021. Finally, on cost of risk, we expect to improve to levels around 50 basis points in a still uncertain environment. Let's now turn to the U.S. Loans have been flat in the year as growth in commercial loans, supported by the Paycheck Protection Program and the use of credit lines by corporates is more than offset by lower demand from retail segments.

Regarding the P&L, the U.S. showed an outstanding performance this quarter with net attributable profit above EUR 300 million. Pre-provision profit in Q4 increased by 30% versus last year, supported by both core revenue growth and expenses decreasing. On core revenues.

NII was up 6.8% year on year, boosted by the significant improvement in the cost of deposits explained by a better deposit mix. This is more or less true all across the footprint. Demand deposits now represent 88% of total deposit balances in the U.S., but also on the excellent price management in the U.S. Fees are up by over 13% year on year due to higher CIB and mortgage origination activity.

Additionally in Q4, we had provision releases due to the positive impact from the IFRS 9 model calibration, but also by provision releases in retail portfolios. Cost of risk ended the year at 118 basis points, clearly better than the 135 basis points guidance. Let's now move to Mexico. We have slightly improved our GDP expectation for 2020 to minus 9.1%, after the positive evolution of the economy in Q3.

For 2021, we now expect growth to reach 3.2% and 3.8% for 2022. During 2020, the loan portfolio decreased slightly, but we saw increased activity in retail in the fourth quarter, especially mortgages and credit cards. Having said this, in 2020, we continued gaining market share over 68 basis points to reach 23.6%. So an excellent year in terms of activity in Mexico.

For 2021, we expect loans to grow by mid single-digit. Moving now to the P&L. In 2020, our pre-provision income has shown a strong resiliency in the current environment, down only 1%, supported by both expenses and NTI. NTI growth by over 50% year on year, thanks to the good performance of both the global markets and the -- some ALCO portfolio sales.

With expenses growing only 0.7%, better-than-expected and significantly below the inflation rate in the country. Our resilient pre-provision profit has allowed us to absorb the increase in impairments. Cost of risk ends the year at 402 basis points, fully in line with our revised guideline -- guidance, sorry, thanks to the good client payment behavior once deferrals expire. The NPL ratio increased in Q4, mainly explained by entries in retail portfolios, very much in line with our expectations.

Most of them are retail deferred loans that became NPLs when the deferral expired. On average, the coverage ratio of these NPL retail portfolios stand at 80%, 85%. So they are already very well covered. For 2021 and according to our current tech scenario, we expect that the following trends, first, NII to grow by mid single-digit, growing slightly above activity due to the expected improvement of customer spread, as we will continue to focus on price management.

Cost of risk in 2021 should improve versus 2020 levels to around 380 basis points. And then regarding the NPL ratio, we expect to end the year below 2020 levels, as all retail deferrals have already expired and retail NPLs will be written off fairly quickly and with limited additional provisioning needs. Let's now focus on Turkey, on the macro. We've improved also in Turkey, our GDP growth expectation for 2021 to plus 1% and we now expect a 5% growth rate for 2021 -- sorry, it was '20, the first 1% and '21, 5%.

The TL loan portfolio grew by over 30% year on year due to the high loan demand, especially in the first half of the year while foreign currency loan continued decreasing year on year. Turkey delivered a robust pre-provision profit growth in 2020, over 30% year on year in constant euros and up 7% in current, supported by the strong revenue generation and the focus on efficiency. NII was up by 25% year on year, thanks to both TL loan growth and a significant improvement in TL customer spreads. In the fourth quarter, though, TL spreads contracted significantly due to the increase in the cost of deposits on the back of rising interest rates in the country.

For 2021, we expect NII to grow at high single-digit. Very good performance of NTI, thanks to FX results, but also gains from some security sales and a higher contribution from the global markets area. While expenses grew only 7.3%, significantly better than the 12-month inflation that stood at over 12% that allowed the efficiency ratio to reach the historic level of 28.8%. This strong pre-provision profit enabled us to absorb the increase in provisions, with strength in our coverage ratio by over 4% year on year and cost of risk ended the year at 213 basis points and in line with our guidance.

All in all, excellent results with a net attributable profit increasing by 41% in constant euros over 11% in current. The main trends expected for 2021 are: first, we expect TL loan growth at mid-teens and shrinkage in the foreign currency loan portfolio to continue. NII to grow at high single-digit supported by loan growth and despite the contraction of TL spreads and on cost of risk, we expect an improvement versus 2020 to levels around 180 basis points. And finally, South America, BBVA Research has slightly improved its macro prospects for the region for 2020, followed by a significant recovery in 2021 of 10% in Peru, 6% in Argentina, and 4.8% in Colombia.

Now some color on the main countries. Colombia increased its operating income by 6.2% year on year, thanks to gross income growing by almost 5% and controlled expenses, with the loan portfolio up 4% year on year. In Peru, loan growth was up over 20% year on year. In this case, supported by the state guarantee program, which affected clearly customer spreads.

In Argentina, a very positive contribution, EUR 89 million in 2020, even after the inflation adjustment. And now back to Onur for some final remarks.

Onur Genc -- Chief Executive Officer

Thank you, Jaime. So it's the annual discussion and presentation, so maybe we have taken more time than justified. So I'm just going to quickly go through the rest. Basically on 29, I'm just going to highlight the 11.7% growth in operating income.

I'm going to highlight the ample strategic optionality that we have after the sale of BBVA USA, EUR 8.5 billion of capital generation in the year in 2020. Thanks to this sale, it's a treasure, in our view, in this environment and we are going to make the best use of it. If you look into Page No. 30, you see the macroeconomic outlook.

Again, let's not spend time. Our footprint is expected to grow 4.7% in 2021, which is going to be a huge growth, as compared to what we have seen in 2020. So 4.7% growth in footprint, weighted average is a very good figure. So maybe final pages, 2021 outlook.

Jaime has already shared the country-by-country details, but for the broader full group on core revenues, we expect to continue to grow with improving mix, price management, fee income as the key levers. So you would see us delivering again growth in core income, core revenues. On costs, we expect to grow less than inflation, so real negative growth in the costs, as always. And as a result of this, we keep saying it every quarter, but operating income, pre-provision profit growth is a key management discipline at BBVA.

So we will continue to deliver on this promise using these two levers. Cost of risk we partially talked about it. Obviously, there are uncertainties, but we expect 2021 to be below 2020 levels in every single country that we operate. And finally, our strong capital position will allow us to offer higher and sizable distributions to our shareholders in 2021.

With this, I conclude the presentation. Back to you, Gloria, for the Q&A.

Gloria Couceiro

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

Questions & Answers:


[Operator instructions] Our first question comes from Francisco Riquel of Alantra. Francisco, please go ahead.

Francisco Riquel -- Alantra Equities -- Analyst

Yes, hello, so thank you for the presentation. I will start with the capital allocation. So first, if you can update please on the capital impact that we should expect for 2021? Regulatory you have front-loaded, what hotels, immigration, staging, also the corporate transactions, an update on the capital gains from the U.S. And second, if you can elaborate a bit more, you have already mentioned in the presentation your views about the potential uses of -- for the excess capital beyond the share buyback, if you're still open to the M&A with Sabadell? What about buying minorities in guarantee? What about the cost-cutting plans? And lastly, just a clarification, if I may.

If you can please clarify on the time horizon over which you plan to execute the share buyback? Thank you.

Onur Genc -- Chief Executive Officer

OK. So Francisco, thank you for the questions on the capital. For 2021, you are asking for our expectations, especially on the regulatory and supervisory side. A few things on this one.

The TRIM on low default portfolios, we have not received the final letter yet, but the preliminary impact that we are expecting is now around 30 bps. As you might have seen in the results or in the explanations of other banks in Europe in general, the impact on this one has slightly -- has increased from what we have shared with you previously. So the best estimate at the moment that we have is around 30 bps on the TRIM on low default portfolios. The EBA guidelines on PDS, LGDs, and also the new definition of default.

New definition of default is very little in terms of impact. The EBA guidelines on PDs, LGDs, our expectation is going to be around 10 bps. And there is this standardized approach to counterparty credit risk, as you know, regarding derivatives, soccer implementation. It is expected to be implemented by June.

The timeline was June, if I'm not mistaken, June '21. But on this one, as you know, the European Commission, they will review the framework again before entering into force. So there is some uncertainty or question mark around this, but the impact, when it's realized, if it's realized, is around 10 bps to 15 bps. So when you sum them up, we are talking about 50 bps, 55 bps, relatively large impact on -- from the regulatory and supervisory side.

But as I said, this is not BBVA specific at all. I mean, especially on the low-default portfolios, there is this tendency from the regulatory side to as -- to preload some of the basel impact into this exercise. This 50 bps to 55 bps expected for 2021, we are front-loading basically 19 bps in the third quarter. We have also done the front-loading of 6 bps in the third quarter of 2020.

So we have front-loaded in total 25 bps of the expected impact. You asked a specific question. I'm giving you a very specific answer. So the remaining of the 50 bps to 55 bps, minus the 25 bps that we have already front-loaded, is going to be the impact that you would be expecting in 2021.

Again, with the question mark around soccer, which might not be fully coming in 2021, we'll see. Regarding the second question on the potential uses of the excess capital and whether we are open to more M&A and so on. On that one, let me be very clear. I mean the availability of capital, the availability of excess capital should not be forcing us to do M&A.

M&A, it's a project. If the project is good, whether you have excess capital or not, the project is good or not, you would always go to -- you can always go to the market to ask for capital. If the project is so convincing that you can explain it very nicely to the whole market. So we are not conditioning ourselves that we have to do M&A just because we have excess capital, OK? I hope that is clear.

We look into the fundamentals of the underlying deal. We look into the fundamentals of the value creation opportunity and if it's good, then it's a good project that we execute. Obviously, we are not naive about this. There are practicalities in life and then you have the excess capital, the smoothness of undertaking the process might be better and so on.

But what matters to us is not we have excess capital, so let's spend it. What matters to us is do we have a project to invest on? Do we have value creation opportunity in the deal that we might be executing? That's how we look into things. So when we didn't say for the excess capital M&A because, no, I mean, the project has to be good first before we can -- we can claim anything on that one. But you also asked some of these specific things about guarantee, minority shares in Turkey.

We have said it many times before, we are comfortable with our 49.85% share in Turkey. So we are not planning to change that position. You asked about cost restructuring plan, we kind of alluded to it in the presentation. What I can say on this one is, given the trends, given the accelerating trends that we are seeing, especially on the servicing side, we are going to look into -- we are very committed to exploring different options on this one.

We are evaluating all the alternatives, especially in low-growth geographies and on this one, especially in Spain and corporate center. And on this one, as we are exploring alternatives, we will be coming up with a plan, but more importantly, because you asked about timing, we will be taking action in the first half of 2021. So we are very committed to review our cost structure and to explore alternatives to restructure our cost base in the first half of this year.

Gloria Couceiro

Thank you, Paco. Next question.

Jaime Saenz de Tejada -- Chief Financial Officer

You asked about the updated impact of the U.S. sale. The current capital gain from the sale of the U.S. business to P&C stands at EUR 280 million.

That will mean a CET1 impact of 285 basis points. The main reason for the difference versus the previously announced impact comes from the changes in the book value from the announcement to the closing as they belong to the buyer. So the net attributable profit generated in the U.S. this quarter reduces the expected capital gain of the transaction.

Gloria Couceiro


Onur Genc -- Chief Executive Officer

But the beauty of that deal, as you all know, is -- the capital generated EUR 8.5 billion, capital generated through that deal. With 19 PE, it was -- the key fundamental point to me was the capital generation. Gloria?

Gloria Couceiro

Thank you. Thank you, Paco, for your questions. Next question, please?


Our next question comes from Benjamin Toms from RBC. Benjamin, the line is yours.

Benjamin Toms -- RBC Capital Markets -- Analyst

Good morning. Thank you for taking my questions. Just firstly, on the CET1 ratio. Can you just talk through why you've increased your target to the regulatory requirement? Do you think you need a 341 bps buffer? And then secondly on the group level, can you give some more color on the guidance, cost of risk in 2021? I know it is expected to be below 2020 levels, but what's the kind of net effect of all the guidance you've given in each of the geographies? Thank you.

Onur Genc -- Chief Executive Officer

Thank you, Benjamin on both questions. On the first one, do you need 341 bps? Why are we increasing the capital target? As I mentioned during the presentation, it's a balance. We don't like structurally high buffers because it does have an implication, obviously, on profitability, on the returns. So we don't like structurally high buffers.

But we have also heard a lot from the market, from all of you, from many stakeholders on the fact that some additional buffer, especially in these time periods, might be helpful. So it's a balance of different objectives in the context that we are in. We thought it's wise to improve the target. On this one, given you asked the question, I have to share my frustration.

I mean, we are seeing all these charts from many stakeholders out there, ranking the banks from top to bottom on capital, saying that BBVA is at the end of the curve with the old gold that we have and so on. Nobody looks into the requirement. We have a different business model than many other banks that we are being compared against. And in our business model, it's not us, an independent authority, which is the most official and formal authority that you can ever imagine, comes and says, this is your requirement, and based on that requirement, we were not the last in the league table.

But everyone was showing these tables of capital position. The absolute one, not compared to the requirement, but the absolute level of requirement -- of capital position that we have. And in those tables, we were at the end and everyone was saying that, well, BBVA is at the end of the curve, so maybe you need more capital. OK.

We are listening. We are appreciating that feedback. And in the context that we are in, we actually think that it might be well worth that we should have increased our target. Hence, the 340 bps GAAP requirement that is the new target, the upper end of the range.

On the cost of risk, you are asking for a very specific number. We have it by country and so on and we also have it by the blended ratio, but what we can tell you, again, is what we have said. In every single country, we have given you the numbers. In every single country, we are seeing like 20 bps decrease in Mexico as compared to what we have realized this year.

We are seeing in Spain, 67 bps versus 50 bps, we quoted. When you look into different countries, you are seeing that decline in every geography of around 20 bps for the cost of risk. So the blended is going to be around that range, but again, we have to see it. My expectation is, it depends very much, obviously, on the environment, but it's going to be clearly better than this year if nothing extraordinary comes out from the health situation.

Gloria Couceiro

Thank you, Ben. Next question, please?


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

Alvaro Serrano -- Morgan Stanley -- Analyst

Good morning. It's actually two follow-ups really. First of all, on provisions that you've just touched on. I mean if I look at the second half of 2020, it does feel like it's -- I mean, there's, obviously, a difference by regions, in Turkey.

It might be an outlier but the provision look pretty much normalized to me. And your guidance seems to build in some degree of buffer that they might pick up versus the second half. Is that appreciation correct? And maybe can you speak to the visibility you have today? Are you building that buffer because we're not out of the woods yet? Or would you expect naturally -- was Q4 and Q3 too low? Maybe a bit of color and a bit of -- on that and visibility? And second, on the deployment of capital. Again, you mentioned that you're going to now say something in the first half around costs in Spain, but just wondering the scale of that.

When we think about that EUR 8 billion excess capital that you have over your target. Obviously, EUR 2.5 billion or so will go to share buybacks you've indicated. Is the cost-cutting of the magnitude and the investment in the cost-cutting of the magnitude, maybe can you give a bit of color on that? And if that's not going to be enough to deploy the full EUR 8 billion, presumably not and given the difficulties of making things happen in your footprint, you've ruled out a few options. Would you consider something buying outside your footprint -- your existing footprint? Thank you.

Onur Genc -- Chief Executive Officer

Thank you, Alvaro. On the provisions as compared to third quarter and the fourth quarter, we are sharing numbers a bit higher than the third and fourth quarter. So are we having a buffer in the number, if that's the question. On that one, what I would say is we do feel positive, given the numbers that we are seeing.

I shared with you the deferral portfolio to the finance detail on what we are seeing there. The days past due and so on. We are seeing very positive picture at the moment, but we are still not out of the woods, as you say. So there is obviously some buffer in the numbers that we are giving to you, in my view, but you have to see it.

It's still -- there's so much uncertainty still out there and we are, as you all know, a conservative bank in looking into these type of things. We are seeing very good signals. Again, I shared with you the numbers, but we want to be seeing better clarity, at least on the health situation and on the macro situation before we can update you more on the topic. But again, I feel very confident to tell you that as it stands now, unless something really extraordinary negative doesn't happen in every single geography that we are in, we will see better cost of risk in 2021 versus 2020.

Regarding the deployment of capital and the size of the restructuring that you are asking in Spain, at the moment, we are in the study phase. What I committed to you is we are exploring, well I'm telling everyone what I'm committing to everyone is we are exploring all the alternatives and we will define, which is in the definition phase. We are working on it. We're exploring all the alternatives, but the definition and the communication, it's later.

There is nothing tangible or concrete at the moment on the table. Again, the commitment is to define and start the process in the first half of 2021. Regarding the last question, are we, given the difficulties of finding things in our existing markets? Would we be open to do something outside the footprint and so on? First of all, again, our perspective on this is, the underlying project has to make sense. Our M&A criteria is very simple and very clear.

Obviously, the strategic fit in terms of the market, there has to be certain maturity in terms of regulation, in terms of market, in terms of macro in the country, but the strategic fit, and the attractiveness of the market. They are very, very important. Then scale and diversification, the input to the portfolio and especially scale because we believe in cost competitiveness. In our business, you have to be cost competitive.

You either get that through scale or you get that through new business models. So we have to be finding that part of the puzzle in the deal that we would be looking into, and obviously, the financial benefit. There has to be a clear financial benefit in whatever we do. And for that financial benefit to appear, there has to be a value creation by BBVA.

We have to be bringing something to the table. Otherwise, nobody is going to be selling their assets at cheap prices. We have to be bringing something to the table. So what is the financial value out there? What is the sharing of that value between counterparties and so on? So it has to make sense from an IRR perspective, EPS perspective, tangible book value perspective and so on.

So strategic and market fit, scale and diversification, and financial benefits. That's what we have to evaluate. So do we rule out anything -- we don't rule out anything based on this principle. The only thing, I'm again highlighting is the fact that, if we cannot find projects along these lines, which is value creating.

And I hope that whatever we have done in the past three months, past six months in the U.S. deal and the developments afterwards, it's a clear signal to everyone that we will only do things if they add value. Considering all of this, we don't feel pressured. If we cannot find something in the existing markets, we have to go find something in the outside market.

No, that's not how we look into it. If we find projects, whatever they are, which adds value, we will do them. If not, our share hold -- share buyback of 10% -- around 10% communication that we are doing today, it can be extended to some larger sizes later on. As long as we have the capital, then if we don't find other projects, we will then deploy more.

We will give back more to our shareholders. That's how we look into it.

Gloria Couceiro

Thank you, Alvaro. Next question, please?


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

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

Thank you very much. My first question is, could you remind us what's the rationale of having a 50% stake in Turkey? Could you sell if the right offers comes along? My second question is related to costs in Spain. Would buying back your branches from Merlin help cut costs faster? And if I may, one last question, can you elaborate a bit more on how you get to the minus 1%, minus 2% NII in Spain for 2021? What's your risk appetite for loan growth and in what segments? What's your appetite to increase your bond portfolio? Thank you.

Onur Genc -- Chief Executive Officer

I'll take the first and the third, you take the Merlin one, OK? So on the rationale of having a 50% of a bank in Turkey, it goes back to the criteria that I listed before. It's a great market. It's a great market in terms of fundamentals for the long-term. The average age is 31, the leverage in the country, in general, is lower than many other countries.

It is right next to Europe. It is the manufacturing hub for Europe. So macrowise, despite the fluctuations in the short-term implications, we are long-term investors. We do think the country has the potential to grow and to grow, especially in banking because in certain areas of the industry, there is clear room for more leverage.

In that context, it's a good market to be in. And then, we have the best bank in the country as we keep saying, any metric that you take, pre-provision profit divided by assets, it's 6% for guaranteed BBVA versus 4.7% of all the other big private banks, and it's much lower for the rest of the industry. So we are the best profitable -- the most profitable bank, highly capitalized, great market, great bank. What is the value of BBVA to this bank? I was there, as you know, between 2012 to 2015, there is a lot of value that BBVA has added and is adding.

I can tell you that the foreign currency loans that we have in the book of guarantee for example. In those days, when I was there, 2012, 2013, we had this clear drive because the spreads were so nice and we wanted to clearly push for growth in FX and BBVA has put the clear methodology perspective, push to make sure that we put things into context. So risk management, liquidity, capital management. And all of that, there is so much value from BBVA coming to -- guarantee BBVA.

So there are -- I can give you many examples on that one, but being part of the group has a lot of benefits. And if you have a market and the bank that you can leverage the growth in that market, I think that was the investment case and that still holds today. The 1% to 2%, what is your risk appetite in Spain? And what is the -- what are the drivers around 1% to 2% -- minus 1% to minus 2% in NII in Spain, the guidance that we have given? As you know, we will get better benefit from TLTRO in 2021 versus 2020. That's one of the key differences as compared to 2020.

And then, I would say that one of the key variables here is, again, the growth in terms of high-margin products. We could have done even better on NII in Spain in 2020. But if you look into our production in the high-margin consumer book, high-margin consumer loans, we have, in terms of new production, our new production has come down by 23%. The reason that we have partially decided on a deliberate way to not grow in consumer lending in Spain in 2020 is because we wanted to see, and we are not here for short-term or for one quarter or for a year.

We have to optimize for value and we have to optimize for long-term. And I really mean this. It's 70% of our consumer loans in Spain is digital through mobile, through web, through Internet and those loans happen if you put them into the dashboard of the customers. We have decided not to put it in the dashboard of the customers for certain segments because we wanted to see how the situation evolves.

How the -- it's also not good for the customer to load risk when the certainty is there. So we were purposefully optimizing for return for value. For 2021, we will see. If you look into the last quarter, fourth quarter 2020, you would see that in certain products, like mortgages, our new production quarter over quarter has gone up by 70%.

So we started opening up in products that we feel more comfortable like mortgages. In others, we are testing and seeing and we will have that cautious look. And depending on how the market evolves, we can do more and with that mix improvement, the numbers can be better than minus 2%. But as it stands, given the EURIBOR situation, given the margin situation, given our current stance on loan growth, this minus 1% to minus 2% is our current guidance.

On Merlin and maybe also on this question also, jump in, Jaime, as you see fit.

Jaime Saenz de Tejada -- Chief Financial Officer

OK. On the second question, as you know, Marta, we never talk about specific transactions. But as always, this could be a lever to reduce expenses depending on the price of the potential transaction.

Gloria Couceiro

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


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

Adrian Cighi -- Credit Suisse

Hi, there. Thank you very much for your presentation and for taking my questions. I have a few follow-up questions, please. A question on the timeline for reaching your new capital target.

Is this a two, 3-year target for management? Or is it sort of a theoretical target? I'm just trying to square the amount of capital that BBVA generates on a normalized basis with the 35%, 40% that you have and sort of the capital that you're going to continue to build even after accommodating for a health -- healthy level of growth. What sort of drives this level of caution? Is it sort of further, sort of capital headwinds down the line, Basel you mentioned is being largely front-loaded. Anything that you can maybe help us on that would be helpful. And then in terms of geographic mix, obviously, after the sale of the U.S.

business, you are now even more emerging markets focused. And given that growth differential going forward, it will only increase. How do you see the balance between emerging and developed markets sort of down the line? We've mentioned about sort of M&A and organic growth and new or existing footprints, but what do you see the right balance being for the group going forward? And maybe just one follow-up, if I may, on NII, Spain. Is your guidance assuming the current level of TLTRO or with a 10% increase according to the new terms, give incremental upside to the guidance? Thank you.

Onur Genc -- Chief Executive Officer

Great. Jaime, you can take the last one, if you like. On the timeline for reaching the capital target, we are already within the target. I mean, 11.50% to 12%, and as you know, December number is 11.73%.

So we are already there and we are basically saying that we are not going to aim to lower our position. Our range is now 11.5% to 12%. So there is no timeline. We are already there and we will stay within that range.

And again, after the completion of the BBVA USA sale, pro forma is 14.58% plus our return on tangible equity. If you remember, last year, we were the highest in the European banking industry. So we also create organic capital every year, every quarter. So there's also that additional organic capital generation that will come on top.

So we are already in the range and I think capital is becoming less of a topic for us, as a constraint for growth and anything. I mean, so there is nothing around it. We are there and we will stick with it. On the emerging markets and developed markets breakdown, on this one, what I would say is, the USA sale, if you look into most of the metrics.

I mean, gross income, operating income and net attributable profit, the mix of developed markets or emerging markets, it only has increased 6% to 7% on behalf of emerging markets in terms of share. The USA business was big in terms of capital consumption, but it wasn't big and that's one of the reasons why we are doing the deal as it is. The capital consumption is big, but the impact on the results were not so big. So in terms of the mix change, I can tell you very clearly that it's not fundamentally changing on who we are.

And who we are is, again, we have the best banks or one of the best banks in every single country that we operate. And that, whether it's a developed market or an emerging market, what I have seen in my career is, if you look into a long enough time frame, independent of the market, obviously, there has to be some balance. But independent of the market, if you have the best bank or one of the best banks in that single market, in the long-term, you will always deliver very good returns above your cost of capital. So that would be how we will be looking into it.

But obviously, if we can develop markets a bit more to align the mix a bit more with the past it would be nice. But what matters is, again, value creation than anything else. On TLTROs, Jaime?

Jaime Saenz de Tejada -- Chief Financial Officer

Yeah, the guidance, Adrian, is based on the fact that we will be taking full advantage of the TLTRO III on 55% on the eligible portfolio. So we will be drawing an additional EUR 3.5 billion of funds in March '21 to reach the full allotment of EUR 38.5 billion.

Adrian Cighi -- Credit Suisse

Thank you very much, very clear.

Gloria Couceiro

Thank you. Next question, please?


Our next question comes from Sofie Peterzens of J.P. Morgan. Sofie, please go ahead.

Unknown speaker

Yeah. Hi, [Inaudible] from J.P. Morgan. I have a question on disposals.

You have done quite a few. We have seen Chile, Paraguay, U.S. How should we think about more disposals coming from BBVA? Are you done? Or would you consider potentially selling other assets as well going forward? And then my second question would be on the mobile customer penetration and digital sales. You have mobile customer penetration almost at 60% and digital sales above 64%.

It is basically more than threefold in the past three years. I was just thinking kind of when do you expect that to go closer to 100%? And once it goes closer to 100%, do you really need any branches? What's the kind of value-added from having branches if you reach close to 100% mobile customer and digital sales penetration? And then just a final question on -- just a follow-up on the TLTRO. Just to clarify, you're accruing 100 basis points against this funding or less? Thank you.

Onur Genc -- Chief Executive Officer

Thank you, Sofie. On the sales, Chile, Paraguay, USA, are we done? Again, our perspective on this one is clear. We do believe on cost competitiveness in our business. So we have to be cost competitive in wherever we are.

That cost competitiveness can be gained, either through scale, because our business is becoming more and more of a technology business. But when you look into cost structure of banks, what you see is the technology spending is going up and up. And within technology, it's mostly development costs. That development cost is a fixed cost.

So when you distribute that fixed cost to a larger customer base, it helps because you developed the app, the same app, for 100 customers or 100,000 customers, it doesn't matter. You developed the same app. So scale helps, cost competitiveness is critical. So you either should be cost competitive through scale, you either should be cost competitive through business model or you have to be cost competitive.

In the examples that you have given, we felt there might be a better natural owner of the asset than us because of those benefits. I mean, in the case of USA, our national market share in the USA was 0.6%. In the states that we are in our market share was 2.2%. Our core market is Texas, 4.5%.

We like the market a lot and we had a great team and a great franchise. But if you have 2.2% in the states that you are in, given the regulatory costs, given these development costs, the fixed costs of our business, you struggle. So a larger-scale player can make a better use of the franchise for our clients, for our people and so on. Same for Chile.

We have been there for long and we were struggling with the scale. Paraguay, similar, again, the M&A criteria that I kind of outlined in the beginning of this call. Given that that were the decisions and we are a net seller. If you look into the past 10 years, we are a net seller in terms of the capital deployment that has been out there.

Because of these reasons, when we find the project, when we find someone else who can add better value to the asset, we execute. As it stands, we don't see any other situation like this where we would not be competitive in the market, cost competitive in the markets that we are in. So as it stands, I don't see any immediate any other thing out there. Then the digital sales, the threefold, is it going to be 100%? And won't we need branches in the future? That 69% will continue to go up, obviously, some marginality is kicking in.

That marginality, meaning the curve cannot go as it has been going in the past three years forever because there are certain boundaries there. But it will continue to increase, but I don't think it will get to 100% in the near-term. And I do think that the role of different distribution channels will change but those distribution channels will remain. Our business at the end of the day, in my view, is a people business.

It's a people business. You still need the advice, the help of a person. You need to get financial consulting from someone or when you have a problem, you want to reach someone to be able to talk to him and to get the problem resolved. That need is there to stay.

I mean, you might have seen this, there is the survey. You ask people, what is your source of stress in life? What is your source of stress in life? Sixty five percent, a huge majority, says my source of stress in life and they can say anything, but they say it's money. So people don't know our products. They don't have this conception of an APR for a mortgage, fixed amortization period of five years and so on, they don't know.

So you would still need people sitting somewhere. It can be branches, it can be somewhere else, but you still need the people. But for everything else, for servicing, for simple sales, for buying an unsecured consumer loan, for having more installments in your credit card. For everything else, you can do it through digital and that was our vision from the first day.

So to cut long story short, you pushed one of my buttons. Digital will continue to be very prevalent. That percentage is going to go up, not to 100%, but it will continue to go up, but the people side of our business will remain. On the third question, Jaime?

Jaime Saenz de Tejada -- Chief Financial Officer

Sofie, yes, we are accruing the 100 basis points as we expect to reach the volume requirement to benefit from it.

Gloria Couceiro

Thank you, Sofie. Next question, please?

Onur Genc -- Chief Executive Officer

Gloria, pick up some speed, so I will be a bit faster, going forward. OK. Carlos?


Our next question comes from Carlos Cobo of Societe General. Carlos, please go ahead.

Carlos Cobo -- Societe Generale -- Analyst

Hi, yes, Carlos here. Thank you very much for the time and for the presentation. A couple of questions. First one, it's about your Stage 2 loans.

The bucket, when compared with other banks, looks substantially larger. I mean, clearly understand that there is a degree of more cautiousness in the way you recognize the Stage 2, but it's slightly higher than 10% when the second-highest Spanish peer is at 6.5-ish and the rest -- the domestics are between 2.2% and 5.5% of gross loans, OK. All these numbers are some proportion of gross loans. I don't need you to check the numbers or discuss the right level.

But I want to understand why is it so high at BBVA when compared with peers? Is it something about the way you recognize restructured loans in Turkey? Sorry, not restructured loans, with the state guarantee or something like that? I just wanted to understand that a little bit better because sometimes the comparison looks detrimental to BBVA even when you also see that your coverage is higher than average. And secondly, on the exposure to Spanish mortgages, where the arrival plus the spread is likely to fall below 0%, what's your policy there? Are you planning to reimburse that negative spread to customers? If not, why shouldn't we think that is a litigation risk mounting from here? Because we arrive at minus 50, you know, there's going to be a sizable amount of Spanish mortgages that will be in that situation. Wanted to understand what's your strategy or your position here? And what could be the potential, well, if you could quantify? Sorry for the long question. What could be the annual net interest income that you could be accruing in excess of 0%, if you could quantify? Thank you.

Onur Genc -- Chief Executive Officer

OK. Again, based on guidance, I'm going to go to the point and fast on these questions. On Stage 2, why are we higher than others? Because we are prudent. I really think we are more prudent than others.

In the comparisons that you have given, obviously, I'm not going to talk about the industry and this and that. But what I would tell you is our mix of businesses because we are in high cost-of-risk areas of the world. Might be a bit influencing those figures. But more importantly, it's more prudence than anything else.

We have done this regression analysis of how much additional COVID provisioning, not realized, but expected to realize COVID provisioning that we have done versus, as much as we identify, from all the other banks. Considering all these mix changes, mix differences and so on. That regression analysis is telling us that we are more prudent than others. I do think that that might be the key reason.

If you look into the real figures, I gave you the deferral numbers. You can look into the delinquency portfolio there and so on. We don't see any negative trend at all in the risk profile as we have also been showing it in the third quarter, fourth quarter provisioning. But overall, our core numbers are very positive, but we have been more prudent.

On the second, negative interest rates on mortgages, legally, what you are saying is not possible. This is governed by the new mortgage law since June 2019, which basically says that the interest is due to the creditors. So only the bank can get the interest. Before 2019, it's governed by the commerce code.

There's a specific clause there, on this one as well, which again says that the interest benefit of the whole thing belongs to the creditors, not to the other counterparty. So we do think that there's no legal risk there.

Carlos Cobo -- Societe Generale -- Analyst

But then in some deposits with the client for example, you're applying negative rates to customers when they are the creditor in this space. So that would contradict that theory, right, which is not your own. Other banks are saying the same but --

Onur Genc -- Chief Executive Officer

Carlos, it's a legal interpretation. Legal interpretation says that the contracts on both sides of this balance sheet are very different from each other, very different from each other.

Carlos Cobo -- Societe Generale -- Analyst

Hmm, OK. OK, understood. OK. Thank you very much.

Jaime Saenz de Tejada -- Chief Financial Officer

And then on the potential risk about the mortgage repricing. Carlos, the current deal or the mortgage portfolio in Spain is almost 100 basis points. Only 12.5% of that portfolio is in -- is at fixed rate. So the risk of potentially having to pay clients is currently irrelevant.

Carlos Cobo -- Societe Generale -- Analyst

OK. Thank you, Jaime.

Gloria Couceiro

Thank you, Carlos. Next question, please?


Our next question comes from Mario Ropero of Bestinver. Mario, please go ahead.

Mario Ropero -- Head of Research -- Analyst

Hi, good morning. A couple of questions. The first one is on the noncredit charges in Spain, you booked another EUR 100 million in the quarter, over EUR 500 million in the year. What is this related to? And what you think we could expect in this line in 2021? And then also, you gave some guidance in quarter for most geographies in 2021.

Unless I missed it, I think you didn't do so for South America. I understand that there is a bit of a mix of different countries. But perhaps if you could give some guidance on top line and cost of risk, that would be very useful. Thank you.

Onur Genc -- Chief Executive Officer

Mario, if I got your first question about noncredit charges, you mean the other provisions, provisions and other gains? On this one, the key thing --

Mario Ropero -- Head of Research -- Analyst

Yes. I mean, this line in Spain -- sorry, Onur. Yeah, that one in Spain.

Onur Genc -- Chief Executive Officer

Yeah. On this one, as you know, that line doesn't include the potential impairments that we might be realizing in unfunded lines. So the credit lines, not the funded ones, not the real euros funded in the balance sheet, but the commitments that we have clients. The provisioning for that credit product, for CIB, for wholesale clients, as you know, which has increased a lot in the year, the provisioning for the lines go into that line.

So the key increase or the key change is coming from that. Again, credit related, but nonfunded credit line-related provisioning that we would be doing, plus the cost restructuring, the closure of branches and so on, all -- it all goes into that line. So those were the two key differences year over year. On the second, Jaime, South America?

Jaime Saenz de Tejada -- Chief Financial Officer

What was the question? I didn't catch it.

Mario Ropero -- Head of Research -- Analyst

Yeah, Jaime. I meant that -- I think you gave guidance for 2021 for most geographies, but I don't think you mentioned about South America. So I wonder if you can give some color on top line and cost of risk into 2021.

Jaime Saenz de Tejada -- Chief Financial Officer

This year, we're only going to give guidance in South America on two things. First on activity, we are going to -- we expect to grow the loan portfolio in the mid single-digit range. And then second, on cost of risk, we expect cost of risk to be around 215 basis points, which is better than the 236 that we had in 2020.

Gloria Couceiro

Thank you, Mario, for your questions. Next question, please?


Our next question comes from Jeremy Omahen of Goldman Sachs. Jeremy, the line is yours.

Jernej Omahen -- Goldman Sachs -- Analyst

OK. Good morning from my side as well. I'd like to ask two questions, please. So just taking a step back, BBVA had a great year considering everything.

You reported a strong Q4 with strong guidance on capital return and on credit losses, yet the stock is down and I suspect the stock is down for two reasons. One, there's questions around the level of confidence that BBVA has on credit loss guidance and two; on the process for buybacks that you've announced for this year. So I'd like to ask a question on each. So the first one on credit losses, what gives you this level of confidence that the worst is behind us and that across geographies, you're going to see a decline? And the reason why I ask this because I'm just looking at the long-term time series of loan loss -- loan losses for BBVA.

In 2012, it was 220 basis points followed by 170. This year, loan losses were around 160-basis point mark, which is 50 basis points higher than last year and 50 basis points higher than the year before. So we're looking here at an unprecedented GDP shock. The country being -- most countries being locked down for half the year.

And yet the message from you is, all of these lockdowns are going to cost 50 basis points of our loan book and that's it. I mean what gives you the confidence that this, indeed, is it. That there is no, there's no deterioration in your loan book on the horizon? And the second question I wanted to ask is on capital return. So can you just confirm? I think that the ECB said that before banks communicate dividends, they have to get permission from the national supervisor and the ECB, so from the joint teams.

Have you -- I'm assuming that you received that permission. So that's question one. On question two, on the announced buyback, what is the process from announcing your buyback to actually executing it? What type of permissions or supervisory sign-offs do you still have to obtain? And how confident are you that over the course of this year, BBVA will be allowed to execute on the announced buyback? Thank you very much.

Onur Genc -- Chief Executive Officer

Thank you, Jeremy. Thank you for both questions. On the first one, you kind of rephrased what I was saying as you have so much confidence and so on. I -- I was very clear and I watch my language in these calls.

I'm not saying that 50 bps this year and that's it, the crisis is over, not at all. What I said was 2021, based on what we see so far with the numbers that we have, it's going to be better than 2020 in terms of figures. Why? Again, go back to that deferral page. That's the core portfolio that we have to be watching.

Based on the numbers that we are seeing, those numbers are positive. Given that, we are more optimistic for the next year as compared to 2020. But I never said that, OK, it's -- you see the uncertainty in the environment, so we can never -- we can never be precise or to the point on this topic. We have to see, but the numbers so far are signaling good things.

Why? I think the root cause is very, very important. This is one of the very few crises that at least I have seen or observed or studied, where the balance sheet of the customers on average, certain sectors, certain environments are affected more. But on average, the balance sheet of the customers are actually strengthening. How do we see that? Looking to the deposits in the system for retail customers, SME customers, commercial, so large-scale enterprises and big enterprises.

For every segment, deposits have gone up. So on average, customers are stronger. Typically, in a crisis, you see deposits come down, not the other way around because people are in trouble. They spend the money that they have.

Here, mostly because of the government support programs that has been executed everywhere, you are seeing the strengthening in the balance sheet and this is the money flowing. Mexico did the least of these programs but the remittances from the U.S. to the Mexico has been breaking records every single month. So the U.S.

program is helping the Mexican economy. So the government support programs have led to the strengthening of the balance sheet. And as a result, the numbers that we are seeing is much better than what we were expecting in terms of delinquency, which is the basis for cost of risk this year and going forward. That's the point that we have been making, OK? And in terms of next --

Jernej Omahen -- Goldman Sachs -- Analyst

Yeah, so I get that and I agree with you. But I would just like to ask a very short question on this. So just intuitively, you know, what -- your communication is this crisis will have less of an impact on BBVA from a credit loss perspective than either '08, '09, let alone the '11, '12, '13. Is this accurate in your mind?

Onur Genc -- Chief Executive Officer

Please remember that in September 2012, we had to provision the Guindos decrees, OK?

Jernej Omahen -- Goldman Sachs -- Analyst


Onur Genc -- Chief Executive Officer

Provision EUR 3.8 billion, that particular month. Jeremy, it was clearly set up from the impact from the crisis. The baseline is very different, huh? If you look into for example, Spain, one of our core markets, the household debt over GDP and corporate debt over GDP was 30-percentage points higher on average in 2008 versus Europe than today. Today, Spain is less leveraged than Europe.

In 2008, Spain was significantly more leveraged than Europe. That's a very different profile. In 2008, the government support programs that we are seeing was not there in this sense. And I'm not saying that BBVA, by the way, if that's what you were also asking in between the lines, I'm not saying that BBVA would be less affected.

That 160 bps -- that 60-basis points gap that you were talking about, 151 bps that we are cost of risk doing this year, as compared to peers, as compared to other European banks, if you do a simple regression on the amount -- additional amount on the percentage increase in the provisioning is much higher. So we are not saying that we are going to be less affected. We are putting it in our numbers. What I'm saying is, it's a bit different than other crisis and the numbers that we have so far is showing some good signals, but we have to see.

We have to see. I'm not saying that next year is going to be 100 bps, I'm not. What I'm saying is next year is going to be better than 150 bps. In the second one, about the process of the shareholder remuneration.

Jernej Omahen -- Goldman Sachs -- Analyst

Yeah. Yeah.

Onur Genc -- Chief Executive Officer

On the dividend, obviously, there has been dialogue, but we haven't received the final approval. That's why in that page, all over the place, you are seeing subject to final approval. But the dialogue saying that given the guidance, especially on the dividend, I guess you were asking for the dividend. There is this 15% of a certain number and that 15% of a certain number is 5.9.

Regarding the process, the rest of the process, it depends on [Inaudible]. There is a clear framework in Europe. Once the restrictions are lifted, if the framework comes back into play, which was the current intention that they announced, our capital position would be 14.58%. If you do all that buyback that we are putting on the table, you are going to 13.50%, 13.40%, in that range, depending on also the organic capital generation.

So we have so much capital in our balance sheet that we will put it to the approval. Given the framework, we do hope, of course, it requires a dialogue and the discussion. But we do hope that the buffers that we have is so large that, again, subject to approval, but it will go through. In terms of process, the restriction is expected to be lifted in September.

The restrictions that were put in place around the framework.

Jernej Omahen -- Goldman Sachs -- Analyst


Onur Genc -- Chief Executive Officer

After September, hopefully, we will close the deal in June, July time frame in the U.S. The timelines match. We will put the proposal to our supervisor and to the respective authorization bodies. Our expectation is to start the process in the fourth quarter of this year.

Jernej Omahen -- Goldman Sachs -- Analyst

Perfect. Thank you very much and congratulations again on navigating this year. Thank you.

Gloria Couceiro

Thank you. Thank you, Jernej, for your questions. Next question, please?


Our next question comes from Benjie Creelan-Sandford of Jefferies. Benjie, please go ahead.

Benjie Creelan-Sandford -- Jefferies -- Analyst

Yeah, good morning, everyone. A couple of reasonably straightforward questions for myself. First of all, in terms of lending in Mexico, the mid single-digit guidance for 2021. Can you give us any more color around the mix within that? What are you seeing in terms of demand levels across consumer, mortgage, and corporate and how are you trying to position the book in Mexico in 2021? And the second question is just to return to capital.

You've been very clear about the headwinds pending for 2021. Is there any guidance on headwinds beyond 2021? And in particular, is there any updates around the eventual impact from Basel IV expected? Thank you.

Onur Genc -- Chief Executive Officer

OK. I'll take the first question. On NII guidance, as I said during the call, we expect NII to grow at mid single-digit, growing slightly above activity. So we expect activity to continue the trend that we've seen in the latter part of 2020.

We've had strong retail production in the fourth quarter in Mexico, particularly in mortgages, but also in credit cards, also in the public sector portfolio. So we've been having a strong volumes dynamics that have only been offset by a significant amount of prepayments in the corporate segment, which is something that has happened in pretty much every country in the footprint. So we will continue to accelerate that inertia as conditions normalize. As I said during my presentation, we also expect GDP to improve significantly.

And then on the customer spread side, although we continue to expect maybe two, three additional interest rate reductions in the country that could end the year at a level around 350 basis points, the worst of the impact from different -- from the different rate reductions that we saw in 2020, have already gone through the P&L. And the very strong management of the cost of the deposits together with a significant improvement in the demand deposit mix also in Mexico, will allow together with -- as you've been able to see in the annex of the presentation, the slight increase that we've done. In the ALCO portfolio, buying some fixed rate bonds in the latter part of -- or 2020 will allow us to deliver on this. What I think is a very positive guidance.

And Benjie, on the Capital One. On the second one, we don't expect much in 2022, 2023 is Basel IV. As you know, we have said it before, our impact expectation is much lower, as compared to the rest of the European banking industry because the key change is the output floor in the Basel IV, given our risk weightings. Our risk weightings is 48%.

The risk in density is 48% versus 28% of the European banking industry. So we will not be affected from the main impact of Basel IV. So our expectation is that in 2023, the only major impact with the Basel IV and our impact would be much less than the rest of the European banking industry, OK?

Benjie Creelan-Sandford -- Jefferies -- Analyst

OK. Thank you.

Gloria Couceiro

Thank you. Next question, please?


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

Andrea Filtri -- Mediobanca -- Analyst

Yes, most of my questions have already been answered. I'll just be quick. You said that post buyback you are considering around -- being around 13.4% fully loaded CET1, with just Basel IV at the horizon as hurdle and BBVA actually building capital from there. So over what time frame are you considering to converge down to the newly guided 11.5% to 12% CET1, so that we can adjust our expectations on eventual further growth or capital repayment or if you do M&A? Thank you.

Onur Genc -- Chief Executive Officer

So Andrea, 13-point-whatever to 12%, if the question is, when are we going to be going back to the upper end of that target range that we have. We're talking about two to three years. If we -- and we will start with this initial share buyback program. We can continue with more share buyback or extraordinary distributions, but we will use multiple levers to be able to get back to our target range in two to 3-year time frame.

And as you said, you also have to factor in the organic capital generation that we are doing every single year.

Andrea Filtri -- Mediobanca -- Analyst

Thank you.

Onur Genc -- Chief Executive Officer

Maybe we take one final question and then we wrap up?

Gloria Couceiro

OK. Next question, please?


Our final question comes from Daragh Quinn of KBW.

Daragh Quinn -- KBW -- Analyst

Hi, good morning. It's Daragh from KBW. Just one -- a question on loan growth. Just going back to Mexico and I just want to be clear about the drivers that you're expecting for recovery in 2021.

And then in Spain, I guess, the question really is, you know, have you been losing market share on purpose? And then what is your risk appetite for 2021 and do you expect that situation to change? And then the second question on just the potential cost restructuring in Spain. If we look at your -- the size of the -- or the number of employees in Spain has been kind of relatively stable at around 30,000 employees over the last few years versus kind of high single-digit reduction in the rest of the sector. Just given the pretty impressive digital numbers that you sent, it would seem that there's huge scope for a reduction in employees in the Spanish business. I mean, is that the magnitude of the change we should be considering in Spain? Or should it -- would we think it will be a more kind of gradual progression? Thanks.

Onur Genc -- Chief Executive Officer

OK. Thank you, Daragh. On the first one, on -- in Mexico, you see it in the page regarding Mexico as well. If you look into the loan growth, why is it basically minus 0.6%, relatively flat this year versus many other years? It goes back through the three products, especially the three products that you see there.

Consumer, credit cards, and SMEs. It's minus 6.2%, minus 5.3% reduction in the stock. Why? Goes back to what I said, we wanted to be -- we are not here for a very short-term, we are here for creating value and we cut back our -- for example, in unsecured consumer lending. In Mexico, it's 15% less new production as compared to 2020 -- 2019, 2020 versus 2019.

The reason is, we wanted to be careful. We wanted to be careful. So the key thing is profile, especially unsecured products in SME. In consumer, we wanted to be a bit on the cautious side.

Regarding Spain, are we losing market share on purpose? I don't like losing market share on purpose terminology for some reason, but we were very cautious. In general, again, 23% reduction in new production of unsecured consumer lending. We wanted to be a bit on the cautious side. Regarding cost structuring, is this going to be gradual and so on? What we meant today is, we are exploring all the alternatives, including a restructuring -- fast restructuring program.

So everything is on the table. Whatever we will come up with, we will be announcing and starting executing in the first half of 2021. Gloria?

Gloria Couceiro

So, um --

Jaime Saenz de Tejada -- Chief Financial Officer

In 2009, which was the last year in which we also saw a significant increase in GDP in Mexico, loan growth was also flat, only to recover the following year in a significant fashion. So that's more or less what we are also expecting for this '21.

Onur Genc -- Chief Executive Officer

But overall, in Mexico, by the way, in 2020, we did gain market share. Why? Because mortgages, you see here the growth. And so on overall lending, we gained market share, but on the products that we thought more safe.

Gloria Couceiro

OK. So thank you. Thank you, Daragh, for your questions. I'm afraid we are running out of time because we have the press conference.

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

Duration: 100 minutes

Call participants:

Gloria Couceiro

Onur Genc -- Chief Executive Officer

Jaime Saenz de Tejada -- Chief Financial Officer

Francisco Riquel -- Alantra Equities -- Analyst

Benjamin Toms -- RBC Capital Markets -- Analyst

Alvaro Serrano -- Morgan Stanley -- Analyst

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

Adrian Cighi -- Credit Suisse

Unknown speaker

Carlos Cobo -- Societe Generale -- Analyst

Mario Ropero -- Head of Research -- Analyst

Jernej Omahen -- Goldman Sachs -- Analyst

Benjie Creelan-Sandford -- Jefferies -- Analyst

Andrea Filtri -- Mediobanca -- Analyst

Daragh Quinn -- KBW -- Analyst

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