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Banco Bilbao Vizcaya Argentaria (NYSE:BBVA)
Q2 2021 Earnings Call
Jul 30, 2021, 3:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Patricia Bueno

Good morning, everyone, and welcome to BBVA's second-quarter '21 results presentation. I am Patricia Bueno, head of investor relations. And here with me today is Onur Genc, chief executive officer of the group; and Jaime Saenz de Tejada, the BBVA group's CFO. As in previous quarters, Onur will begin with the presentation of the group results, and then Jaime will review the business areas.

We will move straight to the live Q&A session after that. And now I will turn it over to Onur to start with the presentation.

Onur Genc -- Chief Executive Officer

Thank you, Patricia. Good morning, everyone. Welcome, and thank you for joining our second-quarter results audio webcast. As always, I hope everyone is safe and sound.

Let me just jump into it starting with Slide No. 3. So on Slide No. 3, on the left-hand side of the slide, you can see our net attributable profit, excluding nonrecurring impacts, which continues its upward trend, very good nice trend you see on these numbers.

And now the number is up to EUR 1.294 billion in the second quarter. It implies obviously doubling the results in the same period last year when we had some, obviously, extraordinary provisions due to COVID. And as compared to the first quarter of 2021, net attributable profit is also growing very nicely, by 25%. Earnings per share, we are going to be reporting this very vividly in all the presentations from now on.

EUR 0.18 -- EUR 0.18, again, very nice growth. These numbers, they are two very important notes that I would like to do here. The -- first of all, these numbers represent the all-time high quarterly results in the perimeter that we have. And they have been achieved, very important, preserving all the accumulated 2020 extraordinary COVID reserves intact.

So we are not releasing anything from the reserves that we built for COVID in 2020. Let me note for comparison purposes that all these figures, they exclude the nonrecurring impacts, more specifically, the results from our U.S. business sold to PNC. And the one-off from the restructuring costs of the collective layoff process in Spain, including all these concepts, the final reported profits amount to EUR 701 million.

The graph on the right-hand side of the slide shows our capital position with the CET1 up to 14.17% now, including the impact from the U.S. sales and also including the restructuring process in Spain. This obviously represents a new level of capital strength, providing ample strategic optionality for us. Even considering the targeted 10% share buyback, our capital position will still remain at a very high level, 12.89%, well above our target range and well above our minimum requirements.

The CET1 ratio pro forma, the 12.89% that I was telling you about, it has been calculated with the share price of July 22, which implies an amount of the share buyback of EUR 3.5 billion. On the share buyback, I'm very happy to report right upfront that following the ECB's announcement last week, we have already initiated the necessary steps to start the program in the fourth-quarter 2021, as we have been sharing with you before. Slide No. 4.

We keep advancing in our commitment to value creation. We keep putting this page right up front and we will book value per share. And as you can see, we have closed at EUR 640 million, a strong increase of 9% year over year and 4% quarter over quarter. And also noteworthy, the increase in profitability metrics on the right-hand side of the page, double-digit ROE, double-digit return on tangible equity, 10.4%, and 11%, respectively, despite the excess capital that's the accumulated after the U.S.

sale. Slide No. 5. So what stands out? Some key highlights of the quarter.

First, strong core revenue evolution, 9.7% growth versus the second quarter of last year. This is explained by both NII and NFI. But on NII, recovery, 4.1% increase. And on the fee income, excellent performance, 30.8%, 31% increase year over year.

Second point of the quarter, leading efficiency ratio closed, we closed at 44.8%. As a result of these two items, excellent performance of operating income, number three, growing at double-digit 11% growth in operating income versus same quarter last year. Fourth, solid risk indicators. Our cost of risk continues its decreasing trend to 100 basis points, better than our expectations.

And as we will share with you in a second, we are upgrading our cost of risk guidance to all of you today. Fifth, as mentioned, our great capital position after the sale of U.S. And lastly, our outstanding progress in key areas of our strategy, which ensures the success of our bank in the mid to long term. On multiple dimensions that we have put into our strategic plan, we are advancing very positively, and we are very happy with that.

So our financial digital capabilities, again, creating very good figures in new customer growth. And regarding sustainability and other of our strategic priorities, we have done so well that we decided to double our target of sustainable finance in the pledge that we have announced some years ago. Slide No. 6, a summarized P&L of the second quarter and focusing on the comparison with the first quarter of this year in constant euros.

The first column from the right, you can clearly identify the excellent quarter-over-quarter evolution in almost all the P&L lines. I would highlight the positive performance of net interest income, fee income, and obviously, impairments. In terms of the year-over-year comparison with the second quarter of last year, the second column from the left, the strong 11% increase in operating income, supported by core revenues, especially the fee income, again, as I mentioned, 31% growth and NII growing 4.1%, coupled with the significant lower impairments and provisions, leading to an excellent net attributable profit growth. Including the results from the U.S.

business sold to PNC of EUR 103 million in the second quarter and the net cost related to the restructuring process in Spain of EUR 696 million after tax, the final reported results in the second quarter are EUR 701 million. Slide No. 7, summarize P&L again, this time for the half, again, as compared to the same period last year, similar messages, but I would again highlight the very positive core revenue evolution, increasing 5.1%. Obviously, despite the interest rate environment complexity that we live in, but still very positive results there.

Great fee income performance, growing nearly 20%. So very positive results on core revenues. We are also registering a positive evolution in gross income and operating income as a result. So they are both growing close to 5%, as you see on the table.

And the bottom line, the profit comparison is very positive, obviously affected by the extraordinary provisions that we did in 2020 for COVID, but still a very positive comparison. So net attributable profit for the first half of the year is EUR 2.327 billion, excluding the nonrecurring impacts, and EUR 1.911 billion including all the nonrecurring impacts. Slide No. 8, some more light on the course of the revenues breakdown.

Our net interest income increasing nicely, as we discussed, versus last year and versus last quarter, driven by activity recovery and margin improvement in most of the countries. The recovery, which already started, you must remember in the previous calls, already started toward the end of the first quarter, has accelerated during this quarter and is expected to continue throughout the rest of the year. In the following slides, I will elaborate more on this, but the second half positiveness is creating a very good vibes in our management. Next, extraordinary evolution of net fees and commissions.

You see this positive evolution across the board. The good news of this one is it's across the board in all the countries, in all the line items in such a way that this is the fee income number is the highest quarterly figure reported over the past few years. Very good evolution of the net trading income, continuing with a solid performance in the second quarter and increasing 14% year over year. All in all, strong growth in gross income of 10% versus the same period last year.

And also, it is worth noting that the positive quarter-over-quarter evolution is also there. Despite second quarter, as you might know, it's being affected by the single resolution fund contribution under other income. But despite the huge negative impact, quarter-over-quarter evolution is also positive. Slide No.

9. Maybe we can talk a little bit about the future on that one. On revenues, let me show you the economic development on this page. So very positive signals.

And we do think that this is going to be reflected into the activity into the risk parameters in the second half of the year. But on Slide No. 9, you can see how the economic growth is strengthening. BBVA Research, they have revised upward their GDP forecast for practically all countries, but Peru is a slight reduction in Peru, but very positive upgrades in everywhere.

Obviously, again, this would be helping us in the second half. Slide No. 10. As a result of that economic development, we already see it.

But again, we are even more positive for the second half. You can see how new loan production has continued its upward trend. You see in the bubbles there the total loan growth in terms of new production. And you see very positive figures, see it in all the countries, in all the countries.

So this is making us, again, quite optimistic about the second half. On Slide No. 11, the last slide of this section about the future, it reveals the NII improvement in all of our core markets and also, again, gives some indication for the rest. On the left-hand side of the slide and linked to the previous slide, you can see how new loan production recovery is being translated into loan book growth, into the stock in both segments, in both retail and wholesale.

Additionally, in the center of the slide, the stabilizing interest rate environment and our good pricing management, we put so much focus on pricing management, it has led to stabilization and improvements in the margins. And in the bubbles, you see the latest month, June '21, month-only figures. So you see a clear improvement in all the markets. And on all -- if you combine them all, the activity and the margins on the right-hand side, you can see the improvement in the net interest income.

And as I mentioned, we expect this trend to continue throughout the rest of the year, and Jaime will walk you through the different countries in a while. Slide No. 12, after revenues on costs, growing 5.1% versus the first half of the last year where they were very low, as you can imagine, due to low accrual of variable compensation last year. Variable compensation we accrued at a very low percentage.

This year, variable compensation normalizing, obviously, has an impact on the figures. But despite that, despite the higher variable compensation accrual, we managed to keep the growth in costs below the blended inflation of 5.4% in our footprint. And on the left-hand side of the slide, you can see how our efficiency ratio, the lowest compared with our European peers, has improved since 2016, and now we are at 44.8% in the first half of 2021. Slide No.

13. We continue, although we have -- we are No. 1 in terms of cost to income, although we have been improving on this for many years, we continue on our disciplined cost management approach. So on June 8, we announced the restructuring process for BBVA in Spain and in the corporate center.

As you can see on the left-hand side of the slide, there are many reasons for this, but this is a good reflection. Digital servicing transactions in Spain, they have more than doubled since 2019, whereas the branch site transactions, they have nearly halved. So as a result of this, we had to adjust, we had to do the restructuring. So the restructuring process responds to these trends and implies the closing of 480 branches and affects 2,935 employees.

The one-off cost for this process is, as I mentioned, EUR 696 million post tax, EUR 994 million, close to EUR 1 billion before taxes. Recorded -- in the second quarter, we already recorded it in the corporate center. And going forward, the total savings estimated from this is going to be slightly more than EUR 250 million annual. Lastly on this process, which has been a long process, but I would like to highlight that we are very satisfied with how the entire negotiation process has unfolded and that we have reached an agreement with the majority of the union representatives with voluntarism at the top of this process.

Slide No. 14 on risk. Total impairments for the quarter are now more aligned and even better than pre-COVID levels. And as I already mentioned, this is what has been achieved, it's no change, no change in the accumulated COVID-19 reserves.

So we are not releasing from the accumulated prudential reserves to get to these figures. Year-to-date cost of risk continued its improving trend, closing the first quarter at 100 bps versus 117 bps in the first quarter and versus the 155 bps in 2020. So with all these positive signals that we are seeing in the underlying portfolio, in the underlying metrics, risk metrics, we are upgrading our guidance. So now we expect to close the year for the group at around 110 bps.

Regarding the rest of the asset quality indicators, we see a slight decrease in the NPL ratio in the quarter to 4.2%, mainly explained by the good dynamics of the underlying portfolios and some write-offs, especially in Spain. And our coverage ratio closed at 77%, again, affected by the write-offs. But as you would see also in the backup of this presentation, our coverage level as compared to our competitors in respective markets, it's much better than the industry average. Slide No.

15 on capital, on capital generation and the results. We basically have now left into a new level, our CET1, 14.17 in the second quarter, including the impact from BBVA USA, including the restructuring process. Regarding the quarterly evolution beyond that, excluding the nonrecurring impacts, it is negatively affected by the inclusion of 14 bps from the SOCR that we have already updated you about in the previous calls, the counterparty risk implementation. So we have completed that process as well.

So as a result, the good news is that after two quarters of important regulatory impacts, we don't expect any material impact from regulatory topics for the remainder of this year. Excluding this regulatory impact, we would have generated eight bps in the quarter. You see the breakdown in the chart, about 38 bps in terms of results. Dividend accrual at 40%, deducting the 40% dividend accrual and AT1 coupon payments, all in, they are detracting 11 bps minus six bps from RWAs.

Lastly, the bucket others of minus 13 bps, mainly explained by the lower minority interest due to a transitional regulatory measure in Peru. In Peru, they have reduced the capital requirement. And as a result, it has affected negatively our numbers. But it's a transitional thing.

It's going to be coming back in 2022. The market impact this quarter was basically negligible. Slide No. 16, continuing on capital.

Following ECB's announcement last week and as we shared before, on top of resuming the ordinary distributions to shareholders, we expect to start the targeted 10% share buyback program in the fourth quarter, obviously subject to supervisory approvals. But as I mentioned at the beginning of the presentation, even considering this targeted 10% share buyback, the CET1 ratio will still remain at a very high level, 12.89%. And the CET1 ratio pro forma, obviously, is calculated by certain assumptions. We have used the July 22 share price, which implies an amount of EUR 3.5 billion share buyback amount.

As you know, the 2021 AGM already approved the steps required to be able to implement such buyback. And after last week's announcement -- ECB announcement, not to expand the shareholder distribution limitation beyond September 30. Again, I would like to underscore that, as mentioned, we have already initiated the necessary steps so that we can start the program in the fourth quarter. Slide 17 on the evolution of our strategic initiatives.

As I mentioned, we continue to do really well. Our focus on building end-to-end digital products and processes, it has proven to be differential during COVID and even now in reaching more customers. So the graph on the left-hand side illustrates the growing trend of the new customers acquired digitally, which only represent, by the way, 37% of the total customers that we acquire in the first 6 months of the year. This digital customer acquisition, it's a 45% increase versus the same period the year before.

And when you look into the profitability of these customers, it's also very good. And you see a clear reflection of that on the right-hand side of the page, where it basically says that after we acquired these customers, after a meaningful time frame, we turn them into value customers. We refer to value customers as those customers that we want to grow, that we want to retain due to their balances, assets and liabilities, and transactionality with us. So very positive news are arriving on this front.

And lastly, on Slide No. 18, and the strategic priority for us is helping our clients transition to a more sustainable future, sustainability. And we have been doing really well here. We have made great strides in this front.

As a result, we have recently announced doubling our target of sustainable finance granted between 2018 and 2025, the original time frame of our pledge. So we doubled that to EUR 200 billion sustainable finance origination. And as also you might have seen from our announcement yesterday, we are elevating sustainability to the highest level of the organization. Javier Rodríguez Soler, our current country manager in the U.S., will head this new area.

It's a disruption to be managed, so there are risk implications as well, but this is a huge business opportunity for BBVA, and we are trying to become the reference bank on this topic in the global banking landscape. Having said all of this, I turn it to Jaime for the business areas. Jaime?

Jaime Saenz de Tejada -- Chief Financial Officer

Thank you. Thank you very much, Onur, and good morning, everybody. Let me start as usual with Spain. Again, economic growth is strengthening in the country.

2021 GDP growth estimates have been revised upwards by a full percentage point to 6.5%. And it remains at 7% for '22, mainly thanks to better data in the first half of the year. Growth going forward will also be supported by the next-generation EU recovery fund, as you all know. New lending flows, as Onur has commented, have increased by 13% quarter-on-quarter.

On top of a very solid loan demand in retail segments, credit is also steadily picking up in the commercial sector, except in CIB, where it's still lagging. This has allowed a quarter-on-quarter loan growth of 2.3%, with the consumer portfolio growing at over 4% and the SME book at 3.4% quarter on quarter. Even the mortgage book is up in Q2. For the full 2021, we expect the loan portfolio to remain broadly flat with consumer lending growing at high single digits.

Looking at the six months P&L, BBVA Spain delivered an outstanding pre-provision profit, growing by 13.2% versus last year, mainly driven by a very strong core revenue growth up over 4%, supported mainly by the strong fee performance, up 16%, led by activity recovery and a robust growth, particularly in banking fees, especially credit cards, asset management, but also insurance fees, as you know, positively impacted by the closing of the JV with Allianz since December of last year. This dynamism allows us to expect fee growing by mid-single digits for the whole 2021 versus our high single-digit guidance before. Another highlight of the half is clearly net trading income, thanks to the strong Global Markets results, but particularly in Q1. Our continued cost control efforts, expenses decreasing by 2.2%, resulting in a significant improvement of our efficiency ratio, now at 49% in the first half of '21 versus almost 55% at the end of 2020.

For the whole 2021 and including the savings from the restructuring plan recently announced, expenses are expected to go down by around 3%. Net attributable profit year to date was also positively impacted by the significant reduction of impairments, mainly explained by the front-loading of COVID-related provisions set aside last year and the very good dynamics of NPL's net entries. As a result, the cost of risk of the first half of '21 stands at 45 basis points, better than expected. For the entire '21, we now expect cost of risk to stand below 40 basis points, clearly better than the original guidance.

All in all, a very good set of results in Spain, with the first half net attributable profit reaching pre-COVID levels of EUR 745 million. Let's now move to Mexico. In Mexico, we have once again improved our GDP growth forecast for '21 to 6.3% and also for '22 to 3%, driven by a better investment and consumption, supported by the higher U.S. demand and record remittances, which should support activity and asset quality trends in the second half of the year.

Year to date, the loan portfolio is growing by 2.1%, driven by retail segments, as we've discussed before, up 3.3%, with wholesale segments also in positive territory. These loan growth levels have led to a 60 basis points market share gain in the 12 months to May, particularly supported by credit cards and the commercial segment. In short, very solid activity dynamics that make us even more confident on achieving our mid-single-digit growth guidance for 2021. In terms of P&L, BBVA Mexico's net attributable profit year to date increased by 75% compared to last year, driven by the reduction of impairments and the excellent core revenue performance.

Core revenues as of June are improving by 5.8% year on year, thanks to the strong fee performance, up over 15% due to the higher activity and transactionality. NII is also up, increasing 3.9% and due to a better customer spread and our efforts to reduce customer funding cost, which has clearly paid off. Also lower wholesale funding cost and also helped, of course, by the base effect, as remember that we did not accrue interest on some loan deferrals granted in '20. For 2021, we expect NII to grow at mid-single digits, levered on activity growth and margin improvements.

Expenses have increased year on year by 7.4%, driven by higher inflation and variable remuneration normalizing, ending June with a very strong cost-to-income ratio of 35.2%. The cost of risk stands at 283 basis points, thanks to the good dynamics in retail segments and lower impairments in commercial. The good asset quality trends during the first six months make us revise our estimates for the year in Mexico. And we now believe that we will end 2021 with a cost of risk around 300 basis points.

Let's now turn to Turkey. On the macro, GDP growth estimates for '21 have been significantly revised upwards also in Turkey to 9% versus 5% previously, thanks to the strong momentum and upward global growth forecast as the economy reopens. For '22, we expect a 4% GDP growth, in line with what we could consider to be the long-term structural growth rate for the country. In terms of activity in the TL loan portfolio, grew by over 23% year on year with double-digit growth in both the retail and the commercial segments, while foreign currency loans continued decreasing, by 11% year on year, in line with our strategy in this segment.

This strong TL loan growth continues in Q2, which is up 6.7% quarter on quarter with similar growth rates, both in retail and commercial segments. For the full 2021, we maintain our expectations for TL loan growth at mid-teens, but now with an upward bias. The foreign currency portfolio will continue decreasing. In terms of P&L, gross income in the half of the year grew by 6.9% year on year, supported by the excellent performance of fees and also net trading income, while NII was negatively impacted by the strong compression of the customer spread in Turkish lira after the sharp increase in rates.

Having said this, NII grew by over 9% quarter on quarter, thanks to strong TL loan growth, the improvement in customer spread, both in TL and foreign currency, and the higher contribution from the CPI linkers portfolio as inflation expectations increase. We expect spreads to continue improving after reaching the bottom in Q1, thanks to higher new loan rates, which will support NII going forward. Net fees and commissions grew by almost 50% year on year in the first half, mainly driven by payment systems due to the significant higher levels of activity, but also to brokerage fees in CIB. We had an excellent net traded income, up almost 90% year on year due to FX results, higher contribution from global markets, but also to gains in the ALCO portfolio.

Expenses grew by 18% year on year, above inflation, above the 12-month inflation, which stands at 14.5%, negatively impact by the TL depreciation and by higher personnel expenses, though as we've discussed previously to variable remuneration normalizing. The cost-to-income ratio remains very strong at 31.7%. In permits, declined significantly, down almost 64%, impacted by the high provisions booked in the first half of last year, and to a better underlying performance, resulting in a cost of risk of 97 basis points in the first half and clearly exceeding expectations. As a result, we are also improving our cost of risk guidance in Turkey, and now we expect to end the year below 150 basis points.

Also, a very strong set of results in Turkey, with net attributable profit in the first half up by 92% year on year in constant and 44% in current. And finally, South America. BBVA Research has also revised its macro prospects for the region in 2021 and now expect a stronger recovery in Colombia, with a 7.5% GDP growth rate for the year. In Peru, we expect GDP to grow at 9%, and 6.5% in Argentina.

Let me give you some color on the three main countries. In Colombia, loan growth is up 1.7% year on year, but accelerating quarter on quarter to 2.2% with positive trends both in retail and commercial, supported by the reopening of the economy. Operating income grew by 5.2% year on year, thanks to core revenue growth and positive jaws. Additionally, impairments decreased 33%, driving net attributable profit to EUR 106 million in the first six months of the year.

In Peru, loan growth is up over 12% year on year, supported by the state guarantee programs. Operating income increased by almost 16% on the back of fee growth up over 37% and an excellent net trading income evolution. This, together with the reduction of impairments, drove net attributable profit to EUR 55 million as of June. And finally, Argentina, that was able to deliver a positive net attributable profit of EUR 15 million in the first half of the year, even after a high inflation adjustment.

And now back to you, Onur.

Onur Genc -- Chief Executive Officer

Thank you, Jaime. We have -- it's my 11th call with you. It's one of the best quarters that we are showing in terms of results, in my view. The -- so rather than the summary, I will jump into the last page.

The thing that you have been all looking for, you have been asking for this for quite a long time. BBVA has not been doing this for many years. I would like to announce the upcoming Investor Day. In this event, we will have the chance to share with you more details on our strategy and our, obviously, future goals and targets.

We had to postpone the one that we previously announced due to pandemic. The pandemic is continuing still, but still by popular demand, we have decided to go for it. Please mark November 18 in your calendar. This event will be fully online still due to pandemic to be able to play it safe.

Patricia and the Investors Relations team, they will be in contact with you with more details in due time. And Q&A, but before going into the Q&A session, we might be even more short squeezed on time at the end. So let me do it right away. You might have seen it yesterday, we have done some organizational announcements.

As part of those changes, Jaime, our dear CFO, is assuming the group's chief risk officer role. So I would like to congratulate Jaime for his new role, thank and recognize him for the terrific job that he has done as a group CFO for the past seven years. Based on your opinions, actually, Jamie has been recognized several times as the best CFO in Europe and Spain. You will be missed in this role, but you will be contributing so much to the bank in your new role.

Congratulations once again, Jaime. And it was great to have you in this role, and it's great to have you in the new chief risk officer role. Rafael Salinas, our current chief risk officer, will be the new chief financial officer for the bank. Again, a lot of experience in Rafa, and he will be joining us for the next quarter's earnings call as the new CFO.

All said, Patricia, Q&A.

Patricia Bueno

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

Questions & Answers:


Operator

Our first question comes from Sofie Peterzens from J.P. Morgan. Sofie, your line is now open.

Sofie Peterzens -- J.P. Morgan -- Analyst

Yes. Hi. Here is Sofie Peterzens from J.P. Morgan.

Thank you very much for taking the question. On the presentation, you mentioned that you have initiated the discussions with ECB on the 10% share buyback. Could you just elaborate a little bit more what this means, what the time frame is, when we should expect you to start buying back those shares and how we should think about the kind of time frame of buying back those 10%? Will it be done within six months or shorter or longer time period? So if you could elaborate a little bit more here, that would be great. And then my second question would be on the COVID reserves.

You mentioned on Slide 14 that you haven't touched your COVID management reserves. Could you just remind us how much unused COVID reserves you have? Thank you.

Onur Genc -- Chief Executive Officer

Thank you, Sofie, for both questions. On the first one, as we mentioned today, a few times actually, because it's an important program for us, our expectation is that we are going to start the program in the fourth quarter. We have initiated the process. You're asking what does that mean? We basically submitted our application to start this process yesterday to the respective authorities in ECB.

It takes some time for them to evaluate and approve this. The maximum time frame foreseen for that is three months, which means if it's approved, obviously, it's subject to regulatory approvals. If it's approved, as we were forecasting, as we have been planning, we will start the process in the first quarter of this year -- in the fourth quarter of this year. You asked about the time frame of how to ramp to completed EUR 3.5 billion.

It is one of the largest share buybacks out there. So given the size and given some restrictions on this, and the most relevant restriction is that for market regulation, you cannot be buying back shares more than 25% of the daily average max volume of a certain period. So it takes time to complete this. Given the size of EUR 3.5 billion, 10% shares, we do think that it's going to take six to nine months to complete the full program.

On the second one, the COVID management reserves. On that one, there are two components that you should be aware. The first one is what we call the macro adjustment. So beyond the regular deterioration that you might be seeing in the portfolios, your PDs or the probability of defaults, LGDs and so on, it is being adjusted every quarter with the evolution of the macro with a future perspective.

If you look into the macro adjustments that we have done since the first quarter of 2020, so at the beginning of COVID, from that day, from the first quarter '20 to the end of second-quarter '21, in the last six quarters, the macro net effect on the bottom line -- on the provisions has been around EUR 700 million, EUR 800 million. I'm giving you the rough figures. So that's one piece that is still out there. So if macro improves, which is improving, some releases might be done from that.

That macro is actually integrated into the portfolio, into the PDs of every single file and so on. But it is integrated in a way that you are expecting something bad in terms of macro. If those macro improves, as it is happening now, some releases might be happening. So that's one component, EUR 700 million to EUR 800 million.

There is a second component which we call management adjustment. And on that management adjustment, you basically say you don't see a specific issue in a specific client yet but you might see in the future, so you become prudent and you do these adjustments. On that one, we have another EUR 700 million to EUR 800 million. So in total, EUR 1.5 billion is the total of macro plus management adjustments.

The EUR 700 million to EUR 800 million management adjustments that you have, we have allocated some of this already to clients and to certain portfolios, for example, the tourism sector in certain countries and so on. So EUR 450 million of that is allocated to certain portfolios, EUR 350 million is left at the general level. I'm giving you all these details, but it is very important. So from the beginning of the crisis of COVID, we have accumulated EUR 1.5 billion.

Some of it is allocated to portfolio, some of it is not. But given the signals that we are seeing, there might be some releases from this portfolio from these reserves, especially in 2022. But I hope you do realize that we are very prudent on these type of things. Until we see the clear, clear, clear signals on the economic development, we will hold on to those reserves.

Patricia Bueno

Thank you, Sofie.

Sofie Peterzens -- J.P. Morgan -- Analyst

Thank you.

Operator

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

Ignacio Ulargui -- Exane BNP Paribas -- Analyst

Hi. Thanks very much for taking my questions, and good luck to Jaime, his new position. Just have two questions. One is on NII outlook.

What should we expect for the second half, particularly focused in Spain, after one of your competitors has given a bit of a more prudent guidance today. How do you see competition and loan growth demand into the coming two quarters? Also linked to that, have been quite bullish on Turkish recovery of NII. What should we expect? So we start to see repeat in the second half a recovery of margins once the interest rate hikes are absorbed. And on the cost of risk, I mean, you are guiding 410 bps at a group level.

This quarter has been -- I mean, the first half has been around 100 basis points. Where do you see the deterioration coming in your franchise? Or is the aspect that you want to take conservatively still in the light of what would you have recently recommended on Sofie's question? Thank you.

Onur Genc -- Chief Executive Officer

Thank you, Ignacio. On -- three questions, I guess, on NII, and you're asking specifically for Spain. On Spain, I think we should have put it in there as presentation as well. So yearly year to date, you have year-over-year growth and so on.

But I don't comment, obviously, on competitors, but our numbers are quite positive in terms of volumes and looking into the quarter-over-quarter figures, so end of March, end of June. We are basically seeing growth everywhere. Mortgages after the -- I don't know how many quarters' time yet, but mortgages is growing stock. Consumer is growing 4.3% stock.

PMS is growing. Midsized companies, which we call backed commercial companies, it's growing. Everywhere except CIB is growing. And as you know, the margins are coming from those portfolios.

So I'm quite positive in the sense that the volumes are coming quite nicely. And as such, the second quarter, I think Jaime mentioned that we are confirming our perspective on the fact that NII will be delivering what we were projecting at the beginning of the year, but quite positive because the volumes are coming very strong. On the margins, I didn't get it, Ignacio, but you were asking Turkey or you were asking the Turkey?

Ignacio Ulargui -- Exane BNP Paribas -- Analyst

Yes. Yes. About Turkey.

Onur Genc -- Chief Executive Officer

On Turkey, you see it in one of the charts that we put in here. We wanted to reflect a bit to the future on that page. But in the Turkish numbers, you see it bottomed out in the first quarter of 2021. The June number for the TL spread is 3.12.

So as you know, in Turkey, there is this time lag that happens with respect to margins because the deposits, the average duration is slightly more than a month. But average duration for your loans is around one year. As a result, when rates go up, you immediately reprice the deposits, you get hit on the deposit on the cost of funding, but it takes a while for you to come back on the loans. And that process is still continuing.

As you know, I mean, the country has increased the rate by 9%, it's huge. And the first six months of this year, it has come down. I'm actually looking into it every single day. It's one of my focus areas.

What happens to that margin? And every single day, it is improving. Every single day it's improving. So I'm quite positive on the second half margin expectation unless, obviously, there is a new rate hike in Turkey, which we don't expect. But unless that happens, there will be continued improvements in the margins in Turkey as well.

Then 110, why are you guiding for 110 when the first half is 100? It's regular business as usual. And in the context of what we're doing, Ignacio, the total loan book and so on, 100, 110, it's not a huge difference between the two. Actually, we don't see any negativity in the second half at all. But 110, looking into the past portfolios and so on, we said in that range would be probably the final number.

Do you want to add anything, Jaime?

Jaime Saenz de Tejada -- Chief Financial Officer

No. It's perfect.

Patricia Bueno

So thank you, Ignacio, and next question, please.

Operator

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

Carlos Peixoto -- CaixaBank -- Analyst

Hi. Good morning. Thanks for taking my questions. So first on the share buyback, again, just a follow-up.

I was wondering because -- well, given the share performance and depending on the future share performance as well, but basically, the cost or the capital deployment for a 10% buyback have been going up, has gone up since you announced the intention to do so. So I was wondering up to what level of capital are you willing to do, to go all the way up to the 10% share buyback, or whether we should think about the buyback more in euro terms, on capital deployment terms? Or -- well, basically, where is the limitations to that or any certain threshold of capital? Then on the asset quality front, I was wondering, we saw here an increase in NPLs across -- or in NPL ratio across several business areas, Spain was exception, and at the same time, we witnessed some deterioration in coverage levels, which I guess it's part of the point in the cycle we are in. But I was wondering to what levels -- down to what levels of coverage could the NPL coverage go? In what levels do you see has been the minimum or the level at which you wouldn't be comfortable any longer? I know this is a very theoretical question, but just if you could give us some color on that.

Onur Genc -- Chief Executive Officer

Thanks, Carlos. On the first one, as I said, the AGM approval is up to 10%. We have done the calculations as you have seen in the document, the 12.89% after the share buyback, we have done the calculations there with the June 22 share price, which implies EUR 3.5 billion in amounts. Those are the numbers that we are currently thinking about, but we are going to execute this in tranches.

And obviously, we will -- our commitment is to the 10% -- up to 10% as we say in the AGM approval. And that's kind of the amount that we are talking about. On the NPL and on the NPL coverage, we don't have a commitment or goal on coverage. I mean, what happens is we look into every single client, actually.

It's client-specific as you know. Every single client, when we see signs of deterioration and we have expectations of future deterioration, we take provisions. As a result of that, the coverage comes up. So we don't optimize for a certain coverage number.

It's all driven by the underlying quality of the portfolio. It's in the appendix. But on Page 45, as a result of this, what comes out is we are more conservative or I don't know, prudent, I guess, than the rest of the industry. On Page 45, you see that our coverage is 77% versus 66% of European peers' average, again, it's very tough to compare because of the mix of the portfolios.

But in different countries, Spain, we have 64% coverage. Spanish banking appears the average is 56%. And I remind you that we are more mortgage-heavy in our portfolio as compared to our competitors. In Turkey, we are 69%; the industry is 66%.

Again, I'm giving you some final numbers on this, but our prudent policy will continue on provisioning, I would say, and what matters is the underlying quality of the portfolio. So we don't manage the coverage as an optimization variable. We look into the portfolios.

Jaime Saenz de Tejada -- Chief Financial Officer

Regarding the comment on the deterioration in certain countries, the deterioration has taken place in two, maybe a little bit more relevant in Turkey. But that's because of one specific client that was included in stage three this quarter. But as you were able to see, it didn't require any provisions. The quarter risk didn't increase.

It was already well provisioning in stage two. And a lot lower in terms of size, only a nine-basis-point increase Mexico because of a one-off also from a client in the leisure sector. The underlying behavior, both of the retail portfolios and the commercial portfolios apart from these two one-offs remain very, very --

Onur Genc -- Chief Executive Officer

Again, the specific lines in Mexico, it was provisioned fully. So we didn't increase the provision because of that client either.

Patricia Bueno

So thank you, Carlos, and next question, please.

Operator

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

Francisco Riquel -- Alantra Equities -- Analyst

Yes. So thank you for taking my questions, and best wishes for Jaime. First question on Mexico, if you can update on the NII guidance and the interest rate outlook has changed. You were budgeting for rate cuts, if I remember well.

So I know the sensitivity to rates is limited in Mexico, but I don't know if there is any upward bias on the guidance or if because of the repricing is delayed into '22 or not? You can update on this. And then I wanted to ask about the fee income. It's the positive surprise in the quarter. If you can update guidance for the group and the main units and explain where the growth comes from because if you are raising tariffs, if it is because of external factors, the markets or the macro helping, or if you are really improving gross-earning ratios in any geography? Thank you.

Onur Genc -- Chief Executive Officer

Perfect. Thank you very much for the questions on the first one. And the second one, Jaime, you are -- it's your last call, and you're not taking too many questions.

Jaime Saenz de Tejada -- Chief Financial Officer

No. You're being gentle to me. You're being gentle.

Onur Genc -- Chief Executive Officer

Take the second one. It's one of my favorite topics, but it's yours. On the first one, the sensitivity of the Mexican book, there is sensitivity. The local currency Mexican peso sensitivity to 100 basis points is 1.5%.

So it's a positive sensitivity in that sense. But the rate rises that we are expecting will probably be coming toward the end of the year, which means toward the end of the year, implies that we are not going to be seeing the impact this year. For the next year, there will be some impacts limited, but there will be some impact positive, as you highlight in your comments. On the implications of NII this year, again positive.

What I see in the production, you already see it in the page that we put into the presentation. But in terms of stock growth, stock has also grown very nicely in retail, in the retail book in Mexico in the second quarter, and that's going to be reflecting into the figures. On the fees, Jaime?

Jaime Saenz de Tejada -- Chief Financial Officer

Yes. Thank you, Paco. Fees year-on-year increase everywhere in the footprint. We are up almost 20%.

It's mainly by banking services, particularly those related to credit cards and other payment services due to the economies reopening after the different lockdowns. But also asset management has behaved extremely well, particularly in Spain, both because of net entries, but also because of the market performance, but also affected by the insurance fees that as I've mentioned in my comments, due to the joint venture agreement with Allianz. But also thanks to CIB. CIB, particularly in the first half, has behaved extremely strongly.

These numbers on a quarter-on-quarter basis are even more impressive because we are up 6.3%, again, due to the same -- to exactly the same concept. As you know, Paco, we do not provide guidance for fee income growth at all, except in Spain. And I take this opportunity to highlight that maybe it wasn't well understood in my presentation. We have upgraded the guidance for Spain for a growth of mid-teens versus the previous high single-digit growth that we have.

So very confident that what we're seeing today is going to be sustained going forward.

Patricia Bueno

Thank you, Paco. Next question, please.

Operator

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

Benjamin Toms -- RBC Capital Markets -- Analyst

Good morning. Thank you for taking my questions. Firstly, in relation to the ECB announcement last week on dividends and the guidance that banks remain prudent post-September, for a bank like BBVA, which is so far ahead of its regulatory target, do you think that the Board basically doesn't have to think too much about that statement despite constraints when they sit down to decide the bank's full-year dividend? And presumably, the guidance doesn't change the aspiration to be within your target range within two to three years? And then secondly, in your presentation, you mentioned you don't expect any significant regulatory impacts for the rest of the year. Are there any other types of headwinds this year that we should think about? And are there any regulatory headwinds for next year that are worth noting?

Onur Genc -- Chief Executive Officer

Great. Benjamin, we had some problems in the line. So I don't think we got it properly. If not, please correct us or ask the missing pieces at the end.

On the capital and on the target and whether you're asking whether the board might be looking into it, obviously, it's the Board's call. But in terms of this affecting the ECB, the dividends and so on, as I mentioned, we are ending the second quarter at 14.17%. This is 557 basis points above our requirements. I would remind once again, I personally failed in explaining this properly to our analyst community and the investor community, the fact that we are one of the lowest requirement bank in Europe.

I mean, we should compare our capital positions to the requirement. When you do that comparison, we are one of the best capitalized banks out there. In that context, after the 10% that we have put here, the pro forma with the share price of June 22, with the EUR 3.5 billion. With those numbers, we are 12.89%.

And I remind once again that this number is coming from a bank one of the best organic generation -- organic capital generation capacity. So we will add on to this number every quarter. To cut a long story short, given our capital position, given the capital position of others, given our organic capital generation capacity, I do think that we are one of the ones who can take these capital decisions in a comfortable way in terms of our capital position. Then the Board deciding on the rest, obviously, it's the board's call, but I don't foresee anything in the short term.

The second question was on the headwinds on the regulatory side. On the headwind for, as I said, this year, we have done the new definition of default. We have done SOCR. We have done the low default portfolios, which was a relatively big impact.

We have done the new PD-LGD guidelines; the PD side of this is done. So we have done a lot. The only remaining thing for next year would be the new guidelines on the LGDs. The PD-LGD guidelines, the PD side is completed.

The only thing that is remaining is this LGD topic. It's like, if I'm not mistaken, 10 to 15 basis points that might come in, in 2022. But unlike other years, our expectation is that 2022 would be not -- new things should not be popping up, in our view, because it's the year before Basel. So the Basel impact will be coming in 2023.

So it's going to be -- in our view, at least, as it seems, it's a light year in terms of regulatory impact. And the only thing remaining is that the final piece, LGD one.

Patricia Bueno

Thank you, Benjie. Next question, please.

Operator

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

Maksym Mishyn -- JB Capital Markets -- Analyst

Hi. Good morning. Thank you for the presentation and taking my questions. I have one technical question.

What was the final impact of Coinbase on your accounts in the second quarter? And then I also have a question on restructuring in Spain. Does the agreement that you've reached with the labor unions limit you from any further restructuring in the coming years? Thank you.

Onur Genc -- Chief Executive Officer

On the Coinbase, the number is -- it's not just Coinbase. We don't specifically tell exactly this company impact, but Propel Venture business, including Coinbase, obviously, the impact in the second quarter was EUR 160 million. EUR 110 million of that came in net trading income, EUR 60 million of that came in other income, EUR 160 million in total. This is slightly -- this is lower than the EUR 200 million to EUR 250 million that I guided you at the end of the first quarter.

Two reasons, Coinbase share price has come down from the time that I talked to you about it and to the end of the quarter. Plus one of the portfolio companies, which is going to post a good, good -- I think a -- trading income as well, it is delayed to the third quarter. That's why it's EUR 160 million. And in the third quarter, by the way, we are, from the other portfolio companies of Propel, we are expecting some good registry of trading income as well.

So it's -- that's a venture capital arm that we have is proving to be a very good investment vehicle for the bank. On the -- any further restructuring, you're asking whether we can -- we are bottlenecked by the existing area? The answer is no. Obviously, no. I mean, this area has to be complete and done.

The process is still ongoing. And in the future years, obviously, you can do other restructuring programs, obviously. That's not our plan at the moment, but you can. You're asking legally whether you are bound by it.

If that's the question, no, you are not legally bound. You can do others.

Maksym Mishyn -- JB Capital Markets -- Analyst

Exactly. Thank you very much.

Patricia Bueno

Thank you, Maksym. Next question, please.

Operator

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

Benjie Creelan-Sandford -- Jefferies -- Analyst

Yes. Good morning, everyone. Two questions for me, just on lending growth, please. First of all, in Spain, I guess, after the strong performance this quarter as we guide the full year, perhaps it's a little bit cautious in terms of guiding for flattish trends still.

So I was just wondering whether there's any specific pockets of weakness in loan growth in Spain in the second half of the year that you're expecting? I'm thinking slightly further forward, what impact do you think that the next-generation EU funds could have on loan growth in the European business? And the second part is just on Mexico. You've touched on this already, but if we look at consumer lending ex cars is still shrinking on a year-on-year basis in Mexico. Can you perhaps talk a little bit more about how you see that developing through the rest of the year and the mix of volume growth in Mexico going forward? Thank you.

Jaime Saenz de Tejada -- Chief Financial Officer

OK. I'll take the first question. On Spain, actually, the behavior in Q2 has been quite good. It's up, as I said during my presentation, 2.3%.

What was probably the best news is that except for the CIB portfolio, all the remaining portfolios increased during the half -- the quarter, and as I highlighted also, in the mortgage book. It was particularly relevant in the consumer and credit card portfolio and the midsized, the SME segment that grew at 4% and 3%, respectively. I think those trends will be able to be sustained in the second half of the year. And that's why we've also gave guidance on the consumer portfolio evolution for the full year.

There's probably the only question mark of this CIB book evolution, as you know, the base effect is very negative. A number of clients drew massively on their lines during Q1 and Q2 of last year, and that still creates a large space effect that will start to disappear because as you remember, at the end of Q2, but also during Q3 and Q4, we received a significant amount of paydowns in this portfolio, pretty much all across the footprint, but particularly in Spain. So we are maintaining our guidance of broadly flat. But clearly, with a much stronger confidence that this guidance can even potentially be beat.

Onur Genc -- Chief Executive Officer

OK. On Mexico, Benjie, I guess you're referring to Page 21 of the presentation. The credit card is actually growing, year-over-year growth in balances. The stock balances is 4.3%.

The negative was consumer. But on that one, what I would say is, in general, as you see, mortgages is growing. Credit card is growing. The only one that -- SMEs is growing.

The only one that's not growing is consumer in the retail SME side. And the reason for that is, as you know, this is a very short duration book. As such, in COVID, during COVID, we have obviously slowed down our production and the customer demand was not fully there, but we also wanted to be a bit prudent in terms of new production. As a result, the lack of production in the second half of last year, in the second quarter of last year, that production it takes time to ramp it up.

So -- because the balanced product, the reflection to the balances comes after a while. As such, the 3.3% reduction is what you are seeing in the year over year. But I -- again, we don't have the quarter-over-quarter numbers there. I have it in front of me.

In consumer, the quarter-over-quarter growth is 1.2% in stock, March versus June. Credit cards, you said credit cards. Credit cards is actually 4.8% growth quarter over quarter. SMEs, 5.4% growth.

We are seeing growth across the board in Mexico. In credit cards, you mentioned, again, credit cards, which is very important for us in terms of margins, and there's a product linkage with the customer. The new production, the new cards that we generated, the total limits, first quarter versus the second quarter is up 14%. So the production is coming, and you will see the implications of this in the balances in the coming quarters.

So we see very positive signals, in short, in the production.

Patricia Bueno

Thank you, Benjie. Next question, please.

Operator

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

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

Thank you very much. I have a couple of follow-ups on NII in Spain. Your previous guidance was minus 1%, minus 2% this year, but you're running at plus 1%, assuming similar levels that in Q2. Can you please provide an update on whether -- what's driven the improvement in the quarter? You've done much better than your competitors.

I'm wondering whether that is lending activity or there could be some ALCO portfolio additions and TLTRO and so on? And related to the NII as well, would you say you have more risk appetite in Spain than your competitors? You've guided for very strong growth in consumer lending. So I'm wondering whether your cleaner balance sheet and your stronger capital position is driving that increase in risk appetite? Thank you.

Jaime Saenz de Tejada -- Chief Financial Officer

Thank you, Marta. I'll take the first question. On NII in Spain, there's nothing really that I could qualify as a one-off in Q2. First of all, we have the very positive news of volume growth.

Average loans have increased by 0.6% in this quarter. There's been a mix improvement also, which is also quite relevant. Consumer and SME books clearly are more profitable. I would probably highlight the fact that as Onur clearly highlighted in the Q1 results presentation, the EURIBOR repricing is almost done.

The mark-to-market of the whole portfolio at this historically low 12-month EURIBOR has already been done. Onur mentioned that we could have one, two basis points negative impact going forward, and that's what has happened in Q2. We feel that that is now over. Of course, during the first half of the year, we have benefited from the TLTRO.

We were able, as we guided in Q1, that we were able to meet the volume requirement. We expect to do so also at the end of this year to also benefit from June '21 to June '22 of the TLTRO minus 1%. ALCO, it's true that we had a slightly more positive contribution in Q2 versus Q1, but it was marginal. And NPL recoveries were fine, but still nothing particularly relevant.

So what we are saying is that things are behaving more or less as we were expecting. That's why we are reiterating the guidance. It is important to highlight in Spain that Q2 of last year did had a significant one-off that we very clearly highlighted them. So we feel very confident that we will be able to achieve the guidance that we are producing.

Onur Genc -- Chief Executive Officer

Marta, on the country page in Spain, there are so many numbers on these pages. I don't know which ones you look into. So we are a bit purposeful in selecting which to put. But the quarter-over-quarter numbers we could have put, which is very good for Spain that I would like to very quickly give to you for the first question that you were asking.

In the quarter over quarter, Quarter 1, Quarter 2, stock growth. Mortgages is growing 0.1%. Consumer and credit cards, very high margin, growing 4.3%. Very small businesses is growing 0.1%.

Midsized companies, which is very important to us, commercial companies is growing 3.4%. All these high-margin areas are growing very nicely quarter over quarter. That is the reason why you are seeing these good figures. Linking it to the second question, say you are saying that's, oh, so you are growing in certain areas like consumer.

Is it high risk and so on? I think the numbers should speak here. If you take the past whatever the years, how many years you take and the cost of risk of BBVA versus cost of risk of competitors, you will see that we do have this conservative profile and a prudent profile in our risk appetite. On consumer, I would like to remind you or tell you that the reason that we are growing so nicely is for two reasons. Number one, a very high percentage of these customers, they either have their payroll with us or they flow of income to us if they're not employed, if they're autonomous and so on.

So we are looking into that income flow. We have the payrolls. We have a franchise in Spain. So we are looking into that relationship and going from there.

But why are they getting it from us? Because if they are also a payroll customer, it is so easy for them to get it. I mean, more than 70% of these loans are now digitally given. So they just go to the app and click and get the money. The convenience and the relationship that we have is what is different here.

And I remind you, the lending yield for consumer is around 6%. The probability of default and the cost of risk on that portfolio is very, very little. So we have to optimize for that return.

Patricia Bueno

Thank you, Marta. Next question, please.

Operator

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

Mario Ropero -- Bestinver -- Analyst

Hi. Good morning, everybody. A follow-up question, please, on fee guidance in Spain. You mentioned mid-teens in 2021.

If you were to repeat in the second half what you did in the first half, you would get to 20%. So I would like to ask if we should consider any one-off in the fee number in second quarter? Or you just want to give yourself some leeway? And then on capital, I just wanted to ask a follow-up. Is any additional decision on what to do with the excess capital will be delayed until the buyback is completed? Or these are two completely independent processes that you can make at the same time?

Jaime Saenz de Tejada -- Chief Financial Officer

OK. I'll take the first question, Onur. On fee in Spain, nothing relevant, except that as you remember, during January and February, we did get some extra fees, some extra success fees in the asset under management arm of Spain. And that's what probably explains the slightly lower contribution in the second half versus the first.

The rest of the underlying trends remained pretty much the same.

Onur Genc -- Chief Executive Officer

Mario, on your second question, you were saying, are you going to wait for the other thing. I don't know what that other thing is. I guess you referred to M&A?

Mario Ropero -- Bestinver -- Analyst

Yes. Sorry, Onur, I mean, yes, any additional decision that you can make with the remaining excess capital, whether it is M&A or whatever it could be.

Onur Genc -- Chief Executive Officer

OK. No. I mean, these decisions are independent and it's all driven by value creation. We don't wait for something to finish before we can do another thing.

If there is an opportunity, if we have the means to do it, we do it. So we don't wait for things to happen before we can do other things. But on M&A, I was very clear in the past few calls in my view, which is for M&A, the fact that we have excess capital has not relation to what we might want to do in M&A. As I said it before as well, we are not naive.

There is some convenience benefits from having the capital and so on. But an M&A decision should make sense whether you have capital or not. If you have a great deal, I'm sure you can find ways to finance that deal. So the fact that you have the excess capital doesn't create this motivation in us that now we have to spend it.

Otherwise, no, that's not how you look into it. The project has to make sense. If the project does not make sense, then we don't use that money for M&A. And as we mentioned before, I mean, this share buyback program is six to nine months in the future.

If we cannot find reasonable alternatives to make the best for the capital deployment, then we might do other programs. What we have been saying is that every single capital deployment opportunity is in competition with another one. They have to compete with each other. And if there is an opportunity, I'm sure we'll find a way to finance that deal.

Patricia Bueno

Thank you, Mario. Next question, please.

Operator

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

Stefan Nedialkov -- Citi -- Analyst

Thank you, and good morning, guys. Jaime, all the best to you in your new role as well, and welcome to the new head of finance. A couple of questions, if I may here. By the way, my line dropped for a little bit.

So if I'm repeating a question just tell me to not ask that question. I can check later with you guys. But having said that, number one on Mexico, you seem to be implicitly guiding to stable margins for the rest of the year. It seems like consumer lending, credit card volumes plays a part in terms of loan mix and how that affects the overall NIM in Mexico.

So with limited rate sensitivity until the remaining period of 2021 and stable spreads, what you seem to be saying is that there isn't really much upside to Mexican NII for '21. I was just curious to see what is your outlook for 2022? It may be a little bit early to say. However, if you can just give some color on how the competition is evolving, the underlying competition, so to say, when it comes to consumer lending, credit cards, SMEs heading into next year? It will be really useful for our understanding of how Mexican NII is going to develop going forward. The second question is on digital.

You guys keep on posting very good digital metrics in terms of mobile penetration. Overall digital penetration numbers are 60% to 66%. Wondering what is the digital contribution to fees. How much of your fees are currently raised via digital channels? And I'm not only talking about payments, which are obviously mostly digital, but the actual value added for you going digital, how can we measure that when it comes to fees and any other metrics you can give us as well? And if I may, a quick bonus question here.

At your Investor Day on the 18th of November, are you going to break with tradition and actually give the market an ROT target?

Jaime Saenz de Tejada -- Chief Financial Officer

Thank you, Stefan. On the first one, Mexico, actually, I'm expecting margins to slightly go up in the second half, mainly because of the customer mix that I was talking to you about because we are growing more in the high-margin products. Retail actually has grown in the second quarter very nicely. And we are seeing very nice production pickup in those portfolios.

So given the fact that they come with high margins due to mix effect, I would expect some slight pickup in the margin. And for 2022, as I said, even better. But for 2022, we don't provide guidance yet, but you're asking about competitive positioning and so on. On that one, I'm extremely happy with what we have been doing in Mexico from a competitive perspective.

Our lending market share has grown year after year, but even last year, year-over-year number is 59 basis points in the total lending market share. We are growing market share in credit card. We are now 30.4% market share in credit cards, which is a very important product and portfolio, as you know, in Mexico. Year-over-year market share gain is 224 basis points.

Commercial, which we wanted to increase here, gaining market share, public sector gaining market share. I mean in general, we are doing really well. And overall lending market share has gone up, as I said, by 59 basis points. We have a wonderful bank in Mexico.

As I did mention in some other calls in the previous times, I would encourage you, you are covering BBVA, if you have the time, if you go to Mexico, please go and meet our teams there. It's a wonderful bank. Let's see, we have the best talent. We have the best NPS, clearly the best NPS by far.

And we have been gaining market share every single year. So we are doing extremely well. So I made a positive for 2022 as well. Let me now deep dive more.

On the digital contribution, all the channels, we don't tag it because at the end of the day, it's the customer fee. The customer can do the transaction wherever. The only thing I can tell you is that the share of digital has been going up and up in the daily transaction, in the daily account activity of the customer. When you look into the, what we call, accounting entry generating transactions, accounting entry generating transactions, so it's not like checking your balance because it doesn't create an accounting entry.

But an accounting entry generating transaction, the digital share in the total number of transactions has been going up. In the first six months of, for example, '18, I have it in front of me, let me just share it. It was 24%. All the channels, ATMs, branches, digital, other channels, call center, and so on, if it's 100, that accounting generating entry transactions, 24 in 2018 was digital.

That 24 has become 54%. So it has been going up dramatically. And as they generate accounting entries, some of those transactions, again, I'm not specifically tying it to fees, but they also generate fees. So very, very positive evolution.

And these percentages of digital sales that we are sharing with you from time to time, you can find them at the backup of the presentation. Digital penetration competitively, in our view, as far as we can see, we are one of the clearly the best banks out there in terms of using digital in our banking business. Are we going to give a return on tangible equity target in Investor Day? We have not obviously finalized it. But yes, I do think that we will put something on the table for sure.

Patricia Bueno

Thank you, Stefan.

Stefan Nedialkov -- Citi -- Analyst

Great stuff. Thanks.

Operator

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

Pamela Zuluaga -- Credit Suisse -- Analyst

Hello. Good morning. Thank you for taking my questions. A couple of questions.

So you gave the new customers guidance of 110 basis points. What does that imply in terms of the release of provisions on that overlay that you were mentioning earlier? Is there any further potential upside to that guidance, if these releases are actually achieved? Another one is you talk about the pricing action on margins. Could you maybe please give us an example of differentiation versus the market -- the market price? And then if I may, sorry, one last. You were saying that you're almost done with Basel 3, but maybe can you give us some guidance on the impact from Basel 4? Thank you.

Onur Genc -- Chief Executive Officer

Pamela, we couldn't get the last question. Can you repeat that, please?

Pamela Zuluaga -- Credit Suisse -- Analyst

Yes. Sorry. Can you hear me?

Onur Genc -- Chief Executive Officer

Yes. Now yes.

Pamela Zuluaga -- Credit Suisse -- Analyst

Yes. Sorry. Yes. I was saying you mentioned that you're almost done with Basel 3.

So I was wondering if maybe you can give us some guidance on the impact that you expect from Basel 4?

Onur Genc -- Chief Executive Officer

OK. On the first one, 110 basis points, the overlay, are we going to be using? No, that is very limited to none in that guidance that we are giving to you. Our again, expectation is that if things continue to improve and so on, there might be some releases from that, but we would probably have that in 2022. We have to see, especially in Spain, the development of the portfolios until we do any releases from that.

On the pricing, you were asking what exactly you were doing then different than the market and so on, if that's the question. If not, please alert me. The thing that we are doing is, especially for what we call mid-corporate, corporate above SMEs, all the capital that has to be deployed to a client has to generate a return. So we have now a new system, we had it, but we upgraded it, which is basically looking into the return on regulatory capital of every single client loan.

So if you're giving a loan, you have to create the returns for it for the client. You might choose to invest into a client because you might not be able to create the return right away. So you have the time, we create these what we call exception pools, and in those exception pools, after a certain while, you have to invest, yes, but then you have to take that client from that exception pool so that it's still profitable at the ROC, at the return on capital levels. That's how we manage it.

And I do think that the diligence that we have in this process is better than the rest of the industry. On the Basel 4, the answer is we are going to be one of the good ones out there because, as you know, again, we keep saying this every quarter, and it's a little bubble in the presentation. Nobody pays too much attention probably, but we are the best risk density bank out there. So we are not going to be affected from the key impact of Basel 4, which is output floor.

Output floor will have no impact on BBVA. As a result, our initial estimations are that we are going to be affected from Basel 4, one of the lowest out there because of the -- no impact coming from the output floor.

Patricia Bueno

Thank you, Pamela. Next question, please.

Operator

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

Andrea Filtri -- Mediobanca -- Analyst

Yes. Thank you. Two questions. One as the quality and one on capital.

On asset quality, there is clearly no signs of deterioration so far. I just wanted to understand in terms of constraints on usage of overlay provisions, both the macro and the management parts. At what point do you envisage auditors to come in and ask you to either allocate or release the provisions? You have indicated 2022, but if you could explain a bit better the mechanics of it, it would be very helpful. On the capital side, today's price reaction is kind of saying that the market got what it was expecting to get.

What are the kind of next steps beyond the buyback that you will start in Q4 to actually start giving some visibility to your shareholders as to if there is more juice coming or if this would be translated into organic or inorganic growth? And just finally, I didn't understand before after the question of Marta on the Spanish NII guidance if you're actually confirming the negative 1% to 2% NII growth in Spain for this year.

Onur Genc -- Chief Executive Officer

To Marta's question, Andrea, yes, we are confirming. On the other two questions, asset quality, usage of the overlay, a good part of our daily life is spent with our stakeholders, including the auditors. Obviously, they analyze everything, what that money is for, is it regulation driven. The regulation tells us that if you have an uncertainty for the future, then you have that overlay.

That's what we have. And when we see the signs of overlay not being realized, obviously, we will release it. And all of this obviously is under the full management and control of the auditors as well. On the capital, you are asking, is there more juice coming? I don't know what you mean by juice, but if it's share buyback or return of capital back to the shareholders, as we mentioned before, possible.

We are one of the now, the 14.17% after the share buyback, 12.89%, our organic capital generation capacity. We will have excess capital, and we don't like to operate with structurally excess capital. We have a clear target. Anything above that we will be subject to capital deployment decisions.

On the -- if you're asking about the M&A, again, I'm not sure that you were there with the previous call question, but we don't have this reserve money for M&A. The M&A, once again, the project has to make sense. If the project doesn't make sense, we don't keep the capital waiting for something that might be coming in the future and the future and so on. We will give back the capital.

If the project is good, we can always raise capital in the future. To cut the long story short, on the share buyback, the first 10%, the targeted 10% program, we will start it, hopefully, as we were expecting, as we were hoping, in the fourth quarter. There is now even more certainty in my view on that whole thing. We initiated the process.

Actually, yesterday, we sent the full documentation and the application to the ECB. So we are -- we have initiated the whole thing, which is a great, great message to the market, in my view. That will take six to nine months to complete because of the market regulation, market abuse regulation. After that, we might do even more.

It depends on what alternatives we have, and each one has to compete with each other. Depending on the share price, if nothing else beats the share buyback alternative as a capital deployment alternative, we will do even more capital deployment, the share buyback alternatives. So obviously, we have to make sure that they all compete with each other and we deliver the best value to the shareholders. I hope we have shown in the past few years that we are very disciplined on this value-based capital approach.

We sold U.S.A. You know how difficult that was, that decision was, but we had to do it from that value perspective, and there was a better and natural owner for that asset. I don't see many other banks in that same camp. We are very disciplined on this approach, and we will continue to be.

Whatever delivers the best return, we'll be using that capital.

Patricia Bueno

Thank you, Andrea. Well, I'm afraid we are running out of time. So just one last question, please.

Onur Genc -- Chief Executive Officer

Whatever the question is, it's going to be you, Jaime. That's the last question, so it's you.

Operator

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

Britta Schmidt -- Autonomous Research -- Analyst

Hi there. I'll make it easy for you. My questions have actually been answered. Thanks.

Onur Genc -- Chief Executive Officer

I'll let you answer, so maybe take one more.

Jaime Saenz de Tejada -- Chief Financial Officer

So that -- no. No. No. Britta was very nice to me.

Britta was very nice, and we don't take that away. Now that I have the microphone, I've been asked to repeat the guidance for Turkey because it seems that we had some audio issues during my speech. So I talked about TL loan growth for 2021. I reiterated that we expect TL loan growth at mid-teens, but now with an upward bias, and then the foreign currency portfolio should continue decreasing.

And then on the cost of resites, we now expect to end the year below 150 basis points.

Onur Genc -- Chief Executive Officer

And maybe one final thing to add because we didn't get to it, but I have in front of me this wonderful page, which is talking about the guidance previous quarter versus guidance this quarter in a tracked, changed version. And I hope we could have put that into the presentation as well, but which is it's improving everywhere. For the group, asset quality improvement from 130, 140 to 110. In Spain, we are improving our net fees and commissions from previous high single digit to mid-teens growth.

We are improving our expenses guidance to minus 3%. We are improving our asset quality guidance in Spain, less than 40 bps. We are improving our asset quality guidance in Mexico, and we are confirming with positive bias the NII numbers there. We are improving the cost of risk guidance in Turkey.

And South America is more or less flat. But overall, I have red and green tags into these tracked versions and all of them are green. So we are providing a good guidance for the rest of the year. And anything else on your side, Patricia? We close, no?

Patricia Bueno

Yes. Thank you. Thank you very much, all of you, for participating in this call. Let me remind you that, of course, the entire IR team will be available to answer any questions you may have.

So Onur, if you want to close?

Onur Genc -- Chief Executive Officer

I want to close by thanking once again to Jaime. He will be missed dearly. And I want to thank everyone for the ones on the call. Stay safe.

And if you have not taken your vacations yet, have a great summer. So thank you so much.

Duration: 89 minutes

Call participants:

Patricia Bueno

Onur Genc -- Chief Executive Officer

Jaime Saenz de Tejada -- Chief Financial Officer

Sofie Peterzens -- J.P. Morgan -- Analyst

Ignacio Ulargui -- Exane BNP Paribas -- Analyst

Carlos Peixoto -- CaixaBank -- Analyst

Francisco Riquel -- Alantra Equities -- Analyst

Benjamin Toms -- RBC Capital Markets -- Analyst

Maksym Mishyn -- JB Capital Markets -- Analyst

Benjie Creelan-Sandford -- Jefferies -- Analyst

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

Mario Ropero -- Bestinver -- Analyst

Stefan Nedialkov -- Citi -- Analyst

Pamela Zuluaga -- Credit Suisse -- Analyst

Andrea Filtri -- Mediobanca -- Analyst

Britta Schmidt -- Autonomous Research -- Analyst

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