Caixabank SA

MAD:CABK

Earnings Call Transcript 2020-Q1

[Edward O'Loghlen, Director of Investor Relations]

Good morning, and welcome to CaixaBank's results presentation for the first quarter of 2020. Let me start by hoping that you and your families are well and in good health. With us today is our CEO, Gonzalo Gortázar; and the CFO, Javier Pano, who will be joining us from our Madrid office. If you are a first-time viewer, please note that we plan to spend around 30 minutes for the presentation and 45 minutes for the Q&A, and you should have received instructions for that via e-mail.Let me just state that my team and I are available after the call for any questions that you may have after the event. Without further ado, let me hand it over to our CEO.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you. Thank you, Eddie. Good -- still good morning to all of you, and I hope you're healthy and stay that way during this difficult period. Thank you for your time again. And we'll go directly to our presentation today.Obviously, the crisis has changed things radically. I think the first thing is that we have stayed operational at every single moment. And from that point of view, complying with what is our mission in this crisis, our branches have been opened. On average, 90% of our branches have been opened, with approximately half of the branch employees, so approximately 50% have been working and the other 50% in branches working from home. And headquarters and subsidiaries, the working from home is around 98%. This has worked well. That's obviously been a challenge technologically to move from physical to remote in 1 given day, but it's worked well. And I guess that is important. It's worked well for us and generally for the whole industry, which is good news.We have been active in supporting our clients. Obviously, we have liquidity and solvency and our ability to react quickly. So we had a very strong month of March in business loans with over EUR 5 billion of loan growth only in March to businesses. Year-to-date, that figure is 3.1%, and the figures we're publishing today about the ICO loans that we have processed so far are of EUR 11 billion. So quite a significant amount.We have been disclosing -- we are disclosing today also the amount of the moratoria given to individuals, EUR 8.5 billion, it's a significant number. We'll discuss about it later, but we feel good about the moratoria, and we do not feel that moratoria is going to convert into nonperforming loans, 95% of the moratoria that we have -- moratorium that we have granted is actually -- was actually performing. Many clients are just making sure they have liquidity for the next few months.Credit quality, solvency and liquidity, you have the figures there. We're happy that we are entering this crisis with that balance sheet strength. It's obviously a result of the work of many people for a long period. But we feel we have a financial position that is very strong. It's going to allow us to help our clients and it's going to allow us to come out stronger. Every single crisis that we have faced, we have come out stronger. This is not going to be different. I'm convinced. And stronger also means, in due course, good news for shareholders.Obviously, before the lockdown, we had a pretty good quarter. Core revenues are up almost 1%, with 2 weeks of lockdown is a good result. And the final results are affected in a big way by this EUR 400 million extra provisions that we have booked related to the change in the economic scenario associated to the virus.Net income is down 83%. We have decided to formally suspend guidance and targets for both '20 and '21, which is, I'm sure no surprise to you. But obviously, in this new environment, the guidance and the targets are no longer relevant.I'll spend some time on Section 1, describing the situation of the bank and the preparedness for the crisis and then leave for Javier, our CFO, to get into the second -- or sorry, to the first quarter results.Firstly, as I said, fully operational. Obviously, that is thanks to our technology and our people, and we can continue to be fully operational for as long as we need. And hence, from that point of view, there is no problem. We have decided to maintain most of our branches open. Obviously, as you know, we have -- we're present in approximately 2,000 different towns in Spain. We have actually managed to keep branches open in 97% of these towns. We have had some infections logically. But today, we have more people that have recovered from COVID than people that are actually currently with the disease. And from that point of view, our situation, workforce is improving. It's always been of concern from an operational point of view, it's always been a concern from a management point of view to make sure that our people are in good shape. They have received appropriate protection measures, sanitary and also have changed protocols and ways of doing things to make sure that we will stay healthy and safe. We have experienced a significant growth in digital activity, that's no surprise, including activity in inTouch, in our remote phone channel, where we have 1.3 million clients already, and we will have been seeing growth of 35% calls per week. And obviously, this is a business that was very attractive for us and is going to continue to grow faster going forward.Connections to our digital channels have increased, everything that you expected. Transactions, cash transactions in branches have been reduced by 3/4, 75%. ATMs, I mean operational at all point, but also activity has been reduced by around 60% in terms of withdrawals and monetary value of these withdrawals by around 40%.This is a time of crisis. You know that banks in Spain and anywhere -- many other places have had difficult reputation. We feel this is the right time to make sure we do the right thing and that we tell the society that we're doing the right thing, and they perceive it. It's not just about propaganda. It's reality.I think this is important. This is something that generally, I see our peers are very keen to do. The sector is reacting in the right way. And as we have so many bad news in this crisis, I think this is one piece of hope. It's a great opportunity to prove to society that banks are good. And we're behaving in a way that clearly prove that. And that is perfectly consistent. Obviously, we're trying to protect our results, our solvency and in reality to making sure that in the long term, we have better returns because society feels that we are owed these better results. So some of the figures are what we're doing for individuals, for businesses, for society. Obviously, the ICO applications with EUR 11 billion and the moratoria -- 220,000 moratoria requests that we have received are very visible data, what we've been doing in terms of advancing pension payments to our -- unemployment payments to our clients, which is obviously financially attractive for them, but also has allowed us to make sure that there was no 1 day queue for getting payment for pension or unemployment subsidy. We've been calling clients to make sure that they don't come to the office. And if at some point, there's one that feels because they are not digital and have a need, still they have their previous appointment, and hence, we can make sure that everybody is safe, which has been clearly achieved for us.We have granted over EUR 14 billion of non-ICO business loans since mid-March. It's obviously a record in our history, EUR 14 billion. And these are good transactions, no guarantee. We have good clients. They have a higher need of cash now. We have capital, we have liquidity, and we have the ability because we know our clients to know which credits are going to continue to be credits that will pay us. And hence, we have been able to be with our clients immediately when they needed us, which has always been something that society or some sectors of society have blamed us for not doing. This is not the case. And we have undertaken many other actions. And we'll continue to do so and continue to do so in a responsible manner. And working for society here because of the magnitude of this crisis is also working for the benefit of the long-term future of this bank and for the returns of the bank.You have some data here on the moratorium, is -- as I said, EUR 8.5 billion requested so far, most of it in terms of balances in mortgages. And for that, we just want to make sure that -- and I will elaborate on that, that what are the statistics of our mortgage portfolio, which are very good. And hence, is a very defensive portfolio where this moratorium is not going to be a problem.Obviously, that's also on the consumer side up to EUR 1.1 billion. Both cases, you can see that practically 95% of the requests are coming from situations where the loan was performing, which is also a good indication of credit quality going forward. There will be some, no doubt, where we'll have payment problems in the future, but the vast majority of them are going to be okay, that's our view.ICO loans, you have the data here. Clearly, we have, at this stage, much more demand than the portion that has been already released and allocated to us. I am very comfortable that in the next few days, the government will continue to increase the amount of the guarantees so that we can actually satisfy the demand we have in this part of the business.Some data of relevance in terms of our credit card turnover, you know we're the largest player in Spain, thus far. So hopefully, this is quite representative of what's going on in Spain. And evidently, in mid-March, you have the bigger drop and obviously, lesser in e-commerce, but it's also somehow comforting to see, even though we're still in lockdown, the trend is positive, and it is somehow improving in the last couple of weeks. We're going to come back to normality or to a new normality in a gradual manner, but it's already happening and hopefully, will continue to be that way. There's very different degree of behavior depending on the sector. That's no surprise that supermarkets and pharmacies are doing well and that hotel, restaurants, et cetera, have been practically closed, have had a major drop. Petro stations, big drop. Also, you can see that in the last couple of weeks, there's some growth. So that's why I think the beginning of the sort of return to normality has already started. It's going to be a long trip, we all know.In terms of macro views that we have that I think they're relevant per se, but also relevant for the decisions we've taken in terms of provisioning. We have no crystal ball. Everybody knows that the visibility now is very limited. But we had to put some numbers. We have a base case, which you see here for a drop in GDP this year of 7.2% and the increase next year of 6.9%. That's sort of the blue line there. Obviously, well below the pre-COVID line, but a significant recovery in 2021. And we have also considered an adverse scenario in which the fall this year is as high as 15% and then where we have a recovery that is closer to 10%, a bit below that. And hence, we end up in 2021 exactly 7 percentage points below where we were in 2019.So I think, as you know, when we estimate provisions, we have to play with a number of scenarios, macro scenarios, and we have considered also this adverse scenario to make sure that we have a reaction in this crisis that is front loaded because we all know we're going to have significant loan losses going forward compared to what would have been before this crisis started. Our view is to front load within reason and obviously, respecting accounting principles at all points in time. And as we gain more visibility, we will see how things evolve. Beyond the GDP trajectory and what was that -- what it does for unemployment and house prices, which you have obviously a big drop in house prices this year and increasing unemployment, this will reverse next year. Beyond that, I think, and I've mentioned this in the past, it's very relevant to see the level of leverage that our businesses and families are now is completely different to what it was 12 years ago when we started with the previous crisis, completely different. It's a big -- there's a big improvement. And the reality is that even comparing to the Eurozone, now we are well below in terms of leverage for our business sector and slightly below in terms of our families. And we haven't had a house bubble. You see where house prices are compared to where they were in -- before the previous crisis. So I think we have much more resilience. Obviously, we have much more resilience in banking sector. You know that well, but just the overall economy as well as more resilience. And businesses and families and the state are going to end up with a higher level of debts. So the fact that we start from a relatively low level is quite relevant to see that we actually have the capacity to deal with this without a major crisis in a mid- and a longer amount.Some considerations about our loan book. And obviously, as we do not have the visibility of what exactly is going to happen in the next quarters, what we are trying is to be as transparent as we can. And proof of that is the data offered in moratoria and ICO loans, et cetera. Continue to be as responsible as we can also on how we see our loan book and how resilient it is. It's diversified, obviously, big proportion of residential mortgages, very defensive.You can see that on the right-hand side, EUR 76 billion, the average loan-to-value is now below 50%. I don't think it's here, but the average loan-to-value of the moratoria we have requested is 51%. So it's basically in line. Majority of that is with loan-to-value below 80%. So very, very defensive. We feel fairly good about our mortgage portfolio. And we have been quite conservative in the last few years. If anything, we've been losing market share on the mortgage side, for -- we've always said it's a matter of price and conditions. And we have not granted risky mortgages. House prices are going to suffer somewhat, but not like last time. And hence, we feel pretty good about our loan book on that trend.If you look at the rest, we have obviously, consumer lending. 6% is a profitable part of our business, but it's more part of the book. We feel obviously that we have higher losses from consumer lending. There's no question, but those will be contained, and we are taking the necessary actions to make sure that these losses are not a problem going forward and that we obviously have to tighten criteria.On the corporate side, you see we have provided some detail on various sectors, high, moderate and low impact. And I mean it's self-explanatory. Obviously, it's very well and not just how much exposure we'd have to high, moderate or low impact, but what names and specific situations we have in each of these sectors. So we have been very focused on lending to some of the best companies in each sector. You can guess as the portfolio is heavily weighted to Spain and we talk about all the type of exposure we have, it's downstream, it's refining, it's marketing, et cetera, et cetera. So I think it's both in terms of the distribution of the book and the specific criteria in the book, we have kept quite conservative lending principles. We have not been active in LBO, specialized asset in any significant manner. We expect to be resilient.So the fact that we are making a very important provision is not a result of specific concerns in our loan book, it is a view that we have to front-load and deal, bite the bullet sooner rather than late. But obviously, it's going to take a few quarters until we have a fuller view of the impact of all this on us.As I said, nonperforming loans are very low levels and liquidity very high. You can see both LCR and actually net stable funding ratio at very, very high levels. This is a great advantage at this point. We have no concern about liquidity. And obviously, we have the ECB, the -- Javier will surely expand on it.In terms of CET1, we have a higher buffer than ever with EUR 5.8 billion, 392 basis points. Yes, there will be volatility around capital this year. We have plenty of cushion. And this is going to be very important for us to be able to capture and put this capital to work properly. This is the best we can do in a crisis like this, is find good uses for this capital, and we are on that program.In terms of resilience, given the lack of visibility, just a few considerations on history. You have preprovision profit for the last 8 years, in -- no, 9 years in this graph and what has been the cost of risk. Preprovision profit obviously has a big room to absorb provision losses and some comparison of what has been the worst 3 years for cost of risk in the previous crisis, where obviously, the situation was much tougher than now. And even if we selected the 3 worst years in history, we're talking in the recent history, obviously, 154 basis points.We look at the EBA last stress test that we did, the average cost of risk was 82 basis points, approximately half of our preprovision profit. And on top of that, we have this MDA buffer. So the resilience of the bank is very clear to us. And we are going to make sure that we use that for the benefit of our clients and our shareholders.I would now leave the floor for Javier, who is, I guess, ready and move on. Thank you.

[Javier Pano Riera, Chief Financial Officer]

Thank you, Gonzalo. I am ready. Good morning to all of you. And my best wishes also for you all. Let me now give you the figures for the first quarter, although at the same time, I will try to offer some insight into the trends since the start of the lockdown.Well, first, a few key messages on the balance sheet. On the loan book, as the CEO has already commented, we have had a strong first quarter. Our performing loans up by 1.7%, clearly very 2 differentiated periods. The first part of the quarter, I would say, at least until the month of February, with the usual impact in the first quarter from seasonality. But then from March, I would say that we have had a strong growth from businesses. In many cases, we spoke liquidity facilities for large corporates. Please note that in the figures by the end of the period of the first quarter still does not include the pipeline of loans with government guarantees, ICO loans, thus this new production of loans will come into the second and probably the third quarter.A look into the ALCO book. You know that we were running comparatively smaller ALCO portfolio, but this time we have taken advantage of the widening of sovereign spreads during the last part of the quarter to add to the portfolio significantly. Spanish and Portuguese government bonds with maturities from 3 to 10 years. Here, you have the complete breakdown of the portfolio. On average, I would say that the purchases have been 6 years, 6-year maturities. And the yield of the portfolio now is standing at 0.6% and the average life is slightly over 4 years.Now continuing with our customer funds. We have had relatively stable quarter if we exclude market impacts. Excluding those market impacts, our customer funds are up by 1%. Also here, 2 very differentiated periods. In the first 2 months, I would say, strong inflows into long-term savings, as you'll see, EUR 1.4 billion up to February. And then with the correction in markets, we had some outflows, but the net on this front for the quarter is positive, EUR 600 million positive. And during the last part of the quarter, also, we started to have, again, inflows on balance sheet inflows.In the right-hand side chart, you may see the evolution of our AUMs. Market impacts, obviously, have had here an impact of EUR 11.5 billion. If we take as a reference the average AUMs for 2019, we see that on average, during the first quarter, we have been up by 2% compared to this average of last year and clearly higher than the average of the first quarter of 2019. Thus, this is why we have had year-on-year very positive results on this front. But obviously, this large market impact has impacted the balances by the end of period. We are down now by the end of the period by 6% compared to the average of last year. But in recent weeks, as you know, well, markets have been recovering as recent as April 23, we were down only by 4%. And as recent as of today, probably we are closer to minus 3%. Despite this market turbulences, we have continued to gain market share in mutual funds, up by 25 basis points, of those, 19 basis points in March and February.With this, let me now shift to the P&L to give you an overview. Despite the March impacts, we have had a solid operating performance. Core revenues are up by 0.9% year-on-year. Our core operating income is up by 4.2%. And we see an impact from lower yields in net interest income that year-on-year is down by 3%. On the contrary, on fees, we are clearly up compared to 1 year ago by 8%. And even the first 2 months, we're doing better, running at a pace around 10%.Our life risk business continues to recover as sales build on the recurrence of MyBox. And in this item, we are up by close to 16%. And also, I would like to mention the negative impact we have in trading. In this case, the widening of credit spreads impacting our credit valuation adjustments from derivatives.On costs, you know that we have on this front, savings from the restructuring of last year. And well, as of today, we've formally revised our guidance for this year. We expect now our operating costs to be below those in 2019.Below the line we have those loan loss provisions. This reserve build for COVID impacts, EUR 400 million. And without those impacts, cost of risk on a 12-month trailing basis would have been 15 basis points. A lot of uncertainty, but as of today, our best estimate for cost of risk is for it to be between 60 and 90 basis points. Remember that other provisions include a one-off for the early retirement, slightly north of EUR 100 million. And with this, our net income falls to EUR 90 million, 83% down compared to last year.Let me now give you some color on BPI, where core revenues continue to support net income. Net interest income in this -- in Portugal is doing well, up close to 10% year-on-year, thanks to strong growth in the loan book in the past. We have in Portugal the help of loan loss provisions. Here, we have released EUR 45 million from the PPA, EUR 140 million something still left. You see here the business volumes. Portugal continues to do well. The country also suffering the lockdown. Our expectation for the GDP growth in this year and next are pretty similar than the figures we have for Spain. 68% of the employees working remotely. There are also some, let's say, programs in Portugal quite similar than those in Spain. We have EUR 4 billion in new moratoria, and there are also some public lines that now amount to EUR 1 billion.Let me now enter into the usual details of the P&L and the balance sheet. First, net interest income, we are down by 2.5% quarter-on-quarter. In this case, lower yields affecting mainly on the loan book, also maturities on the ALCO portfolio in the fourth quarter affecting quarter-on-quarter, but those negative impacts are partially offset by ECB actions, tiering and ECB funding. And you may see on the right-hand side chart, our margins. The back book yield of our loan book falls 6 basis points to 215 basis points. We can discuss this in more detail in the Q&A, but mainly lower Euribor resets and some other factors. Going forward, what we see on this front is that we have a very strong pipeline in new business lending. Those state warranted new loans.Also, we expanded the ALCO portfolio by the end of the quarter and probably a lower impact of Euribor resets. We expect that NII will have some support or additional support in coming quarters.On fees, we have had a strong quarter compared to the first quarter of last year. You remember that the first quarter always affected by seasonality, and fees are up by close to 8% year-on-year. You see here the breakdown across different segments. All of them have done well. I would say that probably the line that has been more affected by the start of the lockdown has been in nonlife insurance distribution.In the right-hand side chart, you see the evolution of our insurance revenues. We have already commented on premia from life risk. I would only like to add here that on our equity accounted from SegurCaixa Adeslas, the company has had some small market impacts that have affected this performance.I would like here to give you some insight into what's going on since the lockdown. What we are seeing is that in life risk insurance revenues, the pace of those revenues is approximately 10% below the pace of those revenues before the lockdown during the first quarter. And that for recurrent banking fees, what we are seeing is that those revenues are approximately running at a pace that is 15% below the pace of the first quarter before the lockdown. Of those, I would remark that -- I would say the area that is more affected, which is e-payment fees, which are running down by around 14%. The CEO already disclosed some charts with the evolution of credit card traffic, et cetera. Those fees account for approximately 15% of our total fee revenue pool.Let me now continue with costs. On this front, we -- year-on-year, we have negative growth by 1.3%. Clearly, having the benefits from the restructuring implemented last year, you may see personnel costs down, also general expenses. We have growth in amortizations because of strong CapEx last year. You know that we have an early retirement that -- with 229 departures as of April 1. This will allow for a close to EUR 30 million of annual cost savings going forward. But it's time for additional cost savings to be implemented, and we are working on those in order to drive our operating cost base below the levels of 2019.And finally, on the P&L, loan loss provisions. We have this reserve build for COVID-19, EUR 400 million. You have here the breakdown across different stages. We have used here a top-down approach based on a weighted average of different macro scenarios. Also, in this case, following supervisory and other accounting authorities' recommendations. And as for the rest of the year, as I commented before, it's still uncertain times, but our best estimate as of today is that the cost of risk will be in the range between 60 and 90 basis points. And this upper range of guidance already taking into consideration a more adverse scenario than what is our current base case.With this, a few comments on the balance sheet. NPLs. The NPL ratio remains stable at 3.6%. We have a slight increase of NPLs in absolute terms. This is mostly reflecting the temporary pause in recoveries during the month of March. Obviously, during the lockdown, the recovery process has been more difficult. And this has resulted in a slight increase of NPLs. I would not read more than this -- on this. Obviously, in coming quarters, this is something we will follow very closely.On our OREO exposure, stable, less than EUR 1 billion. I would only like to add on this slide that our coverage ratio now with this extra provision, it's at 58% with very sound coverage ratio of our uncollateralized part of the portfolio.On liquidity, we have a very sound position. We have further reinforced our liquidity position, adding further collateral to our ECB facilities. Liquidity coverage ratio ending the quarter at 234% and net stable funding ratio of 129%, as you see, ample room on this front. We have used new ECB facilities by a figure around EUR 23 billion, also some U.S. dollars. Those facilities are maturing in June. And then we are planning to make a substantial use of the TLTRO III EUR 39 billion additional borrowing capacity we have.On the right-hand side chart, some color on our undrawn corporate and SME credit lines. I would say that not much use of those credit lines. Generally speaking, large corporates are rather preferring tailor-made loans instead of using credit lines. And as you see, we have a comfortable position in terms of wholesale funding maturities, thus, we don't have a need to tap market for funding.On solvency, finally. We have, as the CEO commented, a sound -- a solid position. The last public figure you have in mind is this 12.35% CET1 ratio after the significant event when we announced the reduction of the fiscal year '19 dividend. Since then, we have opted for transitional IFRS 9. This is adding 13 bps to our regulatory capital ratio and then we have negative impacts in the quarter. First, we have negative organic capital generation this quarter. This is a combination of, first, low profitability in the quarter after the loan loss provisions. And second, a strong risk-weight -- organic risk-weighted asset growth as we have expanded our loan book. This is minus 10 bps. And then we have market impacts on those, basically, the well-known impact from Telefónica. And also, we have adjusted the fair value of BFA. And then we have other smaller impacts, mainly fixed income-related impacts that make up to those 37 basis points.We end the quarter with this 12% CET1 ratio. This is well above our 8.1% CET1 SREP requirement, almost 4 percentage points over this level. Remember that we revised the CET1 internal target to 11.5%, and we keep an ample MDA buffer at 350 basis points.Loan growth will be mainly coming from this government guarantee scheme. Thus, we expect that this will mitigate credit risk-weighted asset growth.And with this, I would only make some final remarks. We feel that the value of the franchise remains intact. The bank is being fully operational. We have continued to gain market share in those times. And in January and February, we were performing above our expectations. Now obviously, things have changed dramatically, but we are ready and prepared to support our clients and the economic recovery. And we can do so as we face this crisis from a strong financial position with capital and liquidity that have been recently reinforced.Thank you very much. And I think that with this, we may be ready to take questions.

[Edward O'Loghlen, Director of Investor Relations]

Okay. Thank you, Javier. As you say, it's time to proceed to Q&A. I would just like to remind everyone if you can keep your questions brief for the interest of everyone who's lining up, and we'll try and do the same. So operator, let's have the first one.

[Operator]

[Operator Instructions] Our first question today comes from the line of Ignacio Ulargui from Exane BNP Paribas.

[Ignacio Ulargui, Analyst]

I wish you as well all the best for you and your families and hopefully fine and healthy. I have just 3 small questions. One is what kind of initiatives on the core side are you planning to take? Are they focused on administrative expenses mainly or also in personnel costs?The second one is where do you see NPL going? And when we should start seeing some inflows? And just finally, a very quick update on what should be on the dividend policy of the bank for 2020? And what have you done with the dividend so far?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Ignacio. And I'll start with personnel expenses. We're not expecting any further action to reduce head count. We have these early retirements that we agreed in the first quarter in Barcelona associated to the discussion we had last year. We are not, therefore, going to have a lower number of employees going forward. Obviously, there will be an impact as our financial objectives are not going to be met, our old financial objectives. There will be an impact in per capita compensation. But not -- that will not have a cost for shareholders and will have obviously just an impact in the P&L.With respect to dividend, bank has approved a change in the dividend policy for 2020. So that payout is less -- or as can go up to 30%, but no more. And because of the current growth with that, we are accruing the average of the last 3 years, basically, which is a 43% dividend. It's a consequence from the range we had said it won't be higher than 30%. But at this stage, the ECB requirement is the average payout ratio over the last 3 years. In this quarter, given the limited profitability obviously, has had very limited impact. But at this stage, we're not planning to change that policy. And hence, we have the ability to pay up to 30% of dividends. We have capital. We have a good condition. But obviously, this decision will have to be made almost a year from now, not -- it's not something for now.There was some additional question, I would like Javier maybe to answer if you can.

[Javier Pano Riera, Chief Financial Officer]

Ignacio, I think there is a remaining question on the evolution of NPLs. Well, it's early times, obviously, but we think that those measures that are in place, mainly moratoria and those state guarantee credit lines that, as you may see, we have a very large pipeline. This will obviously help to cushion the -- well, downward impact of this downward trend in GDP on borrowers. So in any case, obviously, our NPL ratio is going to go up in coming quarters. It's going to be over 4%, for sure. But according to our estimates in any of the scenarios, it's going to be higher than 5%. So I would say that between -- somewhere, between 4% and 5% will be the place where we will land probably, and this will depend a lot on the evolution of the situation, the final impact on the economy, the length of the lockdown. I'm sure that is something on what we would be able to provide you more visibility in coming calls. But according to our initial estimates, we should be well below the 5% mark.Thank you, Ignacio. I don't know if this answers all your questions.

[Ignacio Ulargui, Analyst]

Yes.

[Operator]

Your next question comes from the line of Carlos Cobo from Societe Generale.

[Carlos Cobo Catena, Equity Analyst]

Carlos from SocGen here. Three quick questions as well. One will be on your consumer lending book. If I'm not wrong, you've been launching some JVs and agreements with third parties to do some more point-of-sale lending. If you could elaborate a little bit on that, how big it is, what's your outlook for that nonpayroll clients-oriented business. Also on the 9% of other individuals lending, could you please also elaborate on that? You don't classify that pure consumer. So is that purely personal lending? Unsecured? Or do you have some self-employed lending there, which could be similar to SME? And your outlook for lending and consumer, if it's going to contract or going to remain strong.Second, on IRPH. Just hearing your latest thoughts, if there's nothing else to add, don't really worry, but we're starting to see some sentences which are ruling against the bank. And that kind of contradicts the market, initial thoughts on the European Court of Justice ruling. So what's your views there? Should we expect this case to go finally back to the Supreme Court again? What do you think that -- you expect on provision impact while you have some negative sentences?And lastly, a very theoretical question. Would your base -- sorry, would your worst case be discounting or incorporating any kind of new outbreak sort of after the summer posing a new lockdown? Would that be something that is consistent with your worst case or that is clearly something that is too unlikely that you don't want to incorporate? Just to understand how sensible the 90 basis points worst case cost of risk would be to that potential scenario.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Carlos. I'll give a few comments, and then Javier can elaborate here. We'll try to be brief to have enough time. On IRPH, there's no real change. We are satisfied with the ruling from European Court of Justice. We have obviously had different reactions in different courts, most recently from La Audiencia Provincial de Barcelona, a very clear one that is just confirming what the European Court of Justice said, the transparency of the index, et cetera. And our conviction is that in due course, the Supreme Court will make sure that everyone is aligned with that decision. So no particular worries. Obviously, the press will always speak on that sentence from a local court that is against the banks, but there's no real change. Quite the opposite. We have good news on that front. In terms of the macro scenarios, I wouldn't directly translate one macro -- one sort of sanitary scenario into one macro scenario. We feel the way out of the lockdown is obviously going to be asymmetric. And it may not be linear always to a better place. We certainly can have bad news at some point. If they happen, what we are expecting is they will be contained. It won't be a general resurgence of the problem because now we have obviously different vigilance on this, and it'll be more local possibly and certainly not generate the same problem that the last did. But obviously, the whole world is speculating about how things can develop. In a very prolonged lockdown obviously, our adverse -- or our adverse scenario will be more likely, but our adverse scenario is also associated to whether the right public policy measures are put in place. And if they are put in place, even if we have problems, I don't think we're going to end up in that adverse scenario. That adverse scenario means higher degree of problems and also inability from public measures to get them sorted out. But we have no claim to try and predict the future. At this point, it's very difficult. What we think is that 60 to 90 basis points is fairly conservative, and it is consistent with the deterioration of the economy of up to 15% this year and a gradual recovery. So what we think is we actually have resilience to deal with this. We have good capital. We can focus on our business. And obviously, if this ends up earlier, we'll have lower credit losses, and there will be better news for shareholders if it takes longer. Javier, any -- there were some questions on consumer lending as well that you can address, please.

[Javier Pano Riera, Chief Financial Officer]

Absolutely. Carlos, on the consumer loan book, probably, I can give you some color on some metrics and probably this may help you. You mentioned the part of the portfolio that is from those agreements with major merchants. This is now approximately 1/4 of the portfolio. You will know that we have been commenting in the past that we are very happy with the performance of precisely this part of the business, and I can give you some metrics. So the overall nonperforming loan ratio of the portfolio stands at 4.4%, but this sub part of the portfolio stands at 3.9%. That's below the average. So this already tells you that the underlying quality is sound, you know that we have put in place an origination criteria that is very strict on this front. And with the help of the -- all the data we gather from our payments business, we have been able to originate a very sound portfolio. And I would also add that -- and I have -- I remember myself commenting this in the past that we were monitoring very closely vintages. And the performance of every vintage has been progressing as we have been obviously fine-tuning and refining, to some extent, the origination process. Thus, we are quite confident. So this is not a kind of consumer loan book that where we have been advertising consumer loans in our website in a first thing, first served. So it has been done very carefully with -- mainly with our own clients. And as the recent vintages have performed better than the previous ones, you know that the delinquency ratios usually accelerate in recent vintages. And as we see that the performance has been better every vintage, we are quite confident that the resilience of this portfolio is significant. We -- you have a question on other credit to individuals. Of this, well, there is a lot -- a little bit of everything here. Approximately, there are around EUR 5 billion -- I give you the numbers in euros, of self employees in this case, in this area. We have also loans related to housing rehabilitation, to some pension prepayments. So you have here a broad spectrum. In some cases, we have collateral. We have collateral on those loans. And well, we are quite confident that with also in the case of self-employed people, with those state warranted credit lines, also this will cushion the situation. And I think that I'm not missing anything else, Carlos. Thank you.

[Operator]

And your next question comes from the line of Sofie Peterzens from JPMorgan.

[Sofie Caroline Elisabet Peterzens, Analyst]

Here is Sofie from JPMorgan. I was wondering if you could give an update on how we should think about the moving factors on your equity Tier 1 in coming quarters. How do you view the TRIM impact? How do you view the IT software intangible benefits from Europe SME supporting factor, the lower market risk multiplier? So if you could just discuss how these are evolving or what it will on your core equity Tier 1 and how we should think about it. The question would be the EUR 400 million of COVID-19 provisions that you took in the first quarter. How would you split this across the different product segments? How much is for large corporate? How much is for SMEs? How much is for self-employed, mortgages and consumer? And then lastly, you guided for 60 to 90 basis points of cost of risk in 2020. How should we think about the cost of risk impact in the next quarters? Will it be largely stable? Or should we expect significant upfront loading in the second quarter? Or how do you think about it? And also, if you can make any comments on '21 cost of risk, how you see that evolving.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

I'll make a comment on the last one, and then let you, Javier, do the others. Very difficult to give you guidance for 2021 on cost of risk. Obviously, we're going to need more time to see how things evolve into 2021. There's not enough visibility. And we've made an effort to measure what we think is 60 to 90. We expect obviously '21 to be a better number, but it is difficult at this stage to be more specific. In terms of the evolution quarter-by-quarter, I would be also reluctant, Sofie. I don't seem to be very helpful here. I'm sorry. But it's a bit complex to now see exactly how this is going to play out quarter-by-quarter. But anyhow, the annualized cost of risk this quarter is 84 basis points. We're expecting 60 to 90. I would say we are likely to be within that range in every single quarter. And depending on how the economy and the situation evolves, we will sort of gravitate towards the one point or the other. But I am not sure that there will not be potentially ups and downs in this trajectory. Javier?

[Javier Pano Riera, Chief Financial Officer]

Thank you. You had this question about this new European Commission measures. Well, we expect that those changes will proceed fast potentially during the second quarter. This is obviously good news. It shows an alignment of all international bodies to support banks and their lending capacity. So this is positive news. More specifically, on IT soft work (sic) [ software ], we are reporting, as probably you may see from our annual report, slightly more than EUR 600 million of software intangibles. Probably not all this amount may be eligible for this perimeter that will no longer be deducted. It's still uncertain if there will be some kind of risk weighting or not. But in any case, we estimate that if this goes ahead, the final figure would be north of EUR 500 million. It's easy to do the numbers. It's around 35 basis points. And hopefully, this will come soon. But obviously, with those issues, we'll need to wait until the final papers. Finally, on the SME and infrastructure supporting factor, this may have a positive impact on risk-weighted assets. According to our initial estimates, it's not going to be large. But obviously, we can further update you in the next future. And for the market risk multiplier, in our case, is having almost a nonrelevant impact. You had a question also, Sofie, about the breakdown across different sectors of this provision. I can give you some general comments on this front. It's approximately around 45% to SMEs and corporates. Obviously, more to SMEs than to corporates. And there is also around 40% to the mortgage portfolio. It may surprise you, but while considering those combination of scenarios, you see that in the -- in our base case, also we consider -- well, negative impact on real estate prices. Thus, as a consequence, the value of the collateral of the mortgage loan book is affected. Actually, approximately 1/4 of those provisions come from this effect. And the rest is mainly for all our consumer and other loans to other individuals. I think that with this, I have answered your questions, Sofie.

[Operator]

And your next question comes from the line of Stefan Nedialkov from Citi.

[Stefan Rosenov Nedialkov, Director]

It's Stefan from Citigroup. A couple of questions on my side. On the macro assumptions, just to get some more color here. I believe your scenario weights before were 30, 40 and 30. How have these changed under your new macro assumptions? And also related to that, what are you assuming for the default rate on the payment holidays that you have granted? My second question is on fees. In your slides, you talk about how fees are down 10% to 15%, and especially e-commerce payment fees, down around 40%. How should we think about fees for 2020 generally given these trends? And obviously, your expectations for how the inflection curve develops over the next few months. And the last question is on capital. Right now, you are down to around 11.5% as an internal target. That's around 305 basis points above your CET1 SREP. If we get more forbearance going forward, should we think about your target as a buffer above your SREP? Or is it something that kind of stays at 11.5%?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Well, on the later question, Stefan, I would say, at this stage, we are obviously very comfortable. And if, depending on how things evolve, 11.5% may appear even as too high a target, but that is something that has to be considered by the Board. Capital is not, at this stage, a problem. We have plenty. And obviously, we'll see how things settle down. And particularly, if there are new initiatives like the ones that Javier mentioned and after the question of Sofie, we'll have to adapt. Clearly, we have a very large CET1 buffer or MDA buffer, and that gives us a margin to deal with the volatility that is likely to be ahead of us and not have to manage the business in a way that we have to be concerned permanently about capital. That's why we had already a high level of capital, and we're expected to maintain it that way. Javier, please, if you can please look at the others.

[Javier Pano Riera, Chief Financial Officer]

Absolutely. On the macro assumptions, well, I think that here, we need to differentiate the situation as of today with the visibility we have today, and how this situation may evolve. In order to calculate the provision for the first quarter, we have considered different scenarios, and we have given a larger weight of -- to our base case, which is this minus -- close to minus 7% GDP growth, plus close to 7% next year. But you know that also other scenarios have been considered, including a more adverse one, but also a more -- a longer-term, let's say, scenario, a more stable scenario and following those supervisory and accounting authorities' recommendations. Going forward, we know that probably this will move, and we will have more visibility in order to assign different weightings to those scenarios. And obviously, the upper bound of this cost-of-risk guidance is already taken into account. Very large weight in the most stressed scenario, which is this scenario that in the chart in the slides presented by our CEO, you could see this minus 15% for this year. So this is how we are calculating our expectation for cost of risk for the year. We need to take into account that with the moratoria and the government guarantees, we assume that the impact on -- from the downturn on borrowers will be softened. And that as a consequence, there will -- this situation will not entail a significant increase of the credit risk, and as a consequence, a huge transfer between stages. So obviously, this is our -- this is the base case. This is why all governments, the ECB and all banks, we are, at the same time, facilitating this liquidity needed across the economy. Obviously, this has been a top-down approach. As the year progresses, we will be able to do a more bottom-up approach assessing the creditworthiness of all borrowers to what extent the situation is affecting them. And probably, we -- this will affect ratings of some of them. This will affect some shifts from stages. But all this is already taken into account in our numbers. So when we give you this upper bound of 90 basis points, it is because this is what is going to happen in coming quarters. And obviously, our loan loss provisions will be adjusted accordingly. You had a question on fees. Well, precisely, we tried to give you some color on what's going on after the lockdown. You have the figures in the presentation. We are seeing our life-risk insurance business resilient. I would say here that probably -- those are not strictly fees, but that is probably in the back of, let's say, those revenues. We had quite a bit view for this business for this year. You know that we changed our commercial offer. We have this commercial offer based on this MyBox product, et cetera. And to put it differently, our internal view is that we are -- we were going to do better than consensus. And obviously, now, those revenues are going to be affected. This is no doubt and are running at a pace for this part of the business, approximately 10% below the base of -- before March 15. So this, depending on the assumption you make on the length of the lockdown, you can extrapolate. But our -- as of today, if I am, as of today, being able to give you some kind of surveillance on this part of the business, we expect that this will be flattish compared to last year. This is for premia from life-risk. Now let's go to fees. Here, we have other moving parts. First thing is AUMs. So we displayed this chart with the impact on average balances. As of today, we are approximately 3% -- 3%, 4%, probably more close to 3% as the market has clearly done well during this week compared to the average of last year. Thus, it's quite easy to do the numbers, depending on your assumption on the evolution of markets. I would mention here something positive in our case, which is that we have not had outflows at all. So I think that here is where we see that the model is working, our model based on advice, on the proximity with clients, financial planning, et cetera. This has played extremely well in this correction. So obviously, we are close to clients, explaining everything. But we are not facing redemptions at all. So this is positive for the business. And then for the rest of the fee pool, which is probably the larger one, it depends a lot on the length of the lockdown. So, so far, our recurring banking fees are running those days, more or less 15% below the pace before the lockdown. You can do your own assumptions. E-payments obviously are more affected, but in recent weeks, improving slightly. So here, you can make your own assumptions. But probably, it's going to be difficult to avoid a negative number. So -- but very much will depend on the length of the lockdown, on the evolution of markets in this front. I think that, Stefan, I am not missing any of your questions.

[Operator]

Your next question comes from the line of Mario Ropero from Fidentiis.

[Mario Ropero, Senior Banking Analyst]

The first question is, can you comment how much unwinding, if any, of the negative capital market impact you expect in the second quarter? The second question would be, if you could give, please, extra color on Adeslas in the quarter, P&L market impact, which you referred to, but also on the combined ratio evolution. And if I may, if you could give us an update on revolving cards, the total size, also the book size with average yield above 20% and legal provisions made so far.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

If I may just give color on the second one in terms of Adeslas. It's been stable in terms of, obviously, higher claims from COVID-related systems, but lower claims from other kind of diseases. So the main impact on Adeslas has been, as I said, the financial part. And Javier, if you want to respond the others?

[Javier Pano Riera, Chief Financial Officer]

Absolutely. On the impacts we are seeing in April so far in capital, well, the main one from markets is on Telefónica. I will say that on this front, no major changes. You can follow perfectly the share price. On the other hand, we are having a slight widening of sovereign spreads during the month. This is marginally affecting negatively, although obviously, a large part of the portfolio, and you have all the data is accounted, let's say, hold to maturity. And then we have indirectly in capital in trading or related to market is the CVA valuation, which is, in this case, is being positive in the quarter. As in this front, we are seeing a tightening of credit spreads, and we are recovering a little bit on this front. So, so far, no major changes, I would say, quarter to date. And you had a question on revolving -- or well, credit cash. Well, we have a portfolio on this front of slightly above EUR 2 billion. If you consider also those delayed payments or payment delay of part of the portfolio in terms of revolving. And on average, the portfolio is around 20%. So obviously, there are some parts that may be higher. But in general, we are not much worried about the litigation we may have on this portfolio. Thus, we have not provided any specific for it. So time will tell. Unfortunately, the threshold for determining if rate is aversive or not is a little bit gray. We assume that below more or less 22%, 23%, we are safe. Thus, we expect that we are -- the majority of our portfolio lands in this space. So we are safe. Thank you, Mario.

[Operator]

And your next question comes from the line of Andrea Filtri from Mediobanca.

[Andrea Filtri, Research Analyst]

I have one on capital and one clarification on provisions. On capital, you have mentioned some of the regulatory changes. I just wanted to understand in bulk what would be the overall value of the regulatory easing that is being approved. And if you still have any regulatory headwind spending for 2020? And where do you see risk-weighted assets go this year, given the different dynamics in individual lending and in corporate? And the second, a clarification on provisions. You mentioned before, I'm not sure I understood fully. Is the upper end of your 60 to 90 basis points guidance the equivalent of your worst-case scenario in GDP of Page 9 of the presentation before the government measures? And 60 basis points is the equivalent of the base case scenario.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Andrea, in terms of the projections, we have the incorporated government measures both, and 90 basis points is closer to the adverse. The 60 basis points is closer to the base case. That's the reality. But in all cases, we are including the current measures that have been announced. What we are saying is the adverse scenario would mean that from now on, there will be policy mistakes, most likely in order to get to such a bad outcome. That's what we try to say. In any case, this is not an exact science. At this stage, as you can imagine, there can be infinite number of scenarios. And what we are trying is to model 2 reasonable cases, one for a base case, another one for that adverse case. Then, Javier, do you want to comment on capital?

[Javier Pano Riera, Chief Financial Officer]

Yes. You had a question on pending regulatory impacts. Well, you know that before the crisis started, we were waiting for the final letter for the TRIM exercise for the low default portfolio. Now everything has stopped at least for 6 months. Right now, it's difficult for us to assess if this will come in 2020 or not. My personal feeling is that -- and a little bit here from the mood from the ECB, is probably that everything will be delayed to 2021. But this is -- please take this as a personal opinion.

[Operator]

And your next question comes from the line of Maksym Mishyn from JB Capital Markets.

[Maksym Mishyn, Vice President]

I have 2. The first one is on your ALCO strategy. You have increased the size of the portfolio significantly in the first quarter. And I was wondering what's your plan for the future. Do you plan to use TLTRO operations to further boost your ALCO portfolio? And the second question is on state-guaranteed loans. And I was wondering if you could give us some color of what are the profitability levels that you expect to generate on these loans. Or at least how this compare to normal corporate loans with no state guarantees?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

On the second one, I would say the pricing is in line with the risk that we are taking. And the risks that we are taking on the one hand is increased because of the current scenario. But on the other hand, it's decreased because of the government guaranteed. Pricing is around 1.5% for businesses and up to 2.5% for self-employed. Those are the -- I would expect here that we are making appropriate returns on capital rather than excess returns on capital or losses, but time will tell. Javier, you can address the other one.

[Javier Pano Riera, Chief Financial Officer]

Yes. On the ALCO, yes, we have taken the opportunity of this widening of sovereign spreads to add to the portfolio. We felt that the size of our portfolio was comparatively smaller to many of our peers. And we saw this as an opportunity. Going forward as we are planning to make large use of TLTRO III facilities, we may -- depending on market circumstances, obviously, but we feel that we still have some room to expand the portfolio, mainly on Spanish and Portuguese government bond.

[Operator]

And your next question comes from the line of Fernando Gil from Barclays.

[Fernando Gil de Santivañes d´Ornellas, Research Analyst]

Just a question on asset allocation on the ICO allocation lines. I mean what is the criteria that you're following on -- when giving these lines to clients? Is this the same criteria in asset allocation in terms of sector, size as the normal portfolio? Or are you following any other criteria that I might be losing?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Fernando. The reality is that on these ICO lines, we have been reactive. So clients have liquidity needs or concerns, that they may have the needs in the future and they come to the bank and ask for the money. So what we've been doing is reactive, analyzing these requests. Fortunately, in most of the cases, they have come from clients that were in good shape before this crisis. And hence, they have been scrutinized according to our risk criteria and then priced and processed and in some cases already, disbursed. And in others, we are waiting for an increase in the guarantee. But it's been a reflection of our current client base and a reflection of which part of our client base now feels that they need the cash. There's been no preconceived strategy of which sectors are we going to target with these ICO loans. This is rescuing economy. I think it's the right tool to rescue the economy. It's been used in most countries. And what we've done is, I think, put some proper risk analysis. But obviously, with the guarantee from ICO, it was -- from ICO was something that we could actually get on. I don't think rescuing the society or the economy and making appropriate sort of risk-return decisions were as contradictory. But clearly, it's quite the opposite online, but it's not been a proactive decision for us to target certain sectors. But the reality is our ability to handle the tsunami of requests and separate those that made sense from those that didn't.

[Fernando Gil de Santivañes d´Ornellas, Research Analyst]

A follow-up, if I may. Do you think that the EUR 100 billion program is enough? Or would be needed probably an additional top-up on that program?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

As of now, I think it's enough. I think the split between the larger businesses and the smaller business is wrong, and the split has to be more towards the smaller part of the business. But overall, EUR 100 billion at this stage, I think, is going to be enough. However, we'll have to see how the economy evolves in the future. But this rescue operation, I think, is appropriate. Probably policy measures going forward should be, rather than just providing cash to keep people alive is providing incentives to make sure that the activity returns and that people are -- have the support to go back to this new normality. So there will be, I'm sure, new initiatives and new thinking. There would be new lines also from the, obviously, from European Investment Bank and other initiatives that need to come to Europe for rebuilding. And that is, I think, a separate thing from rescuing for which at this stage, my personal feeling -- I can get it wrong, obviously, is that the EUR 100 billion is okay. The split will be changed so that we accommodate demand in a more proper manner.

[Operator]

And your next question comes from the line of José Abad from Goldman Sachs.

[José Maria Abad Hernandez, Executive Director]

I think most of my questions have been answered. And just one very quick on -- specific on the SPV that you set up with loans that are -- still at the time, that was actually in June '19, so I think you kept a [ 30% ] stake there. I don't know whether you have -- you participate in any other SPVs, maybe on a lower scale. So have you incorporated potential losses from these vehicle or vehicles in your 60 to 90 basis points? And how do potential losses from these vehicles actually flow to your P&L? Is this through the other income and losses line? Or is the credit losses line?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

The 60 to 90 basis points is a guidance for cost of risk, and losses that may come from other participations that we have are not included. And those would come from equity method accounting or other gains and losses. But obviously, at this stage, where we see the problem or the bulk of the problem is in credit losses and, hence, that 60 to 90 basis points there.

[Operator]

And your next question comes from the line of Ignacio Cerezo from UBS.

[Ignacio Cerezo Olmos, Executive Director & Equity Research Analyst]

2, 3 quick questions from me, hopefully. Sorry to come back to the cost of risk guidance. But if you can qualitatively tell us of the mitigation factors coming from loan guarantees and moratorias, which is the one has actually reduced the cost of risk guidance the most. Any number on that will be useful. The second one is on the noncore revenue, both equity accounting and trading, in particular, declining quite heavily year-on-year. I mean how much can you tell us on equity account? Did you have a payment company, you have a health insurance company? I mean how do you think actually we have to think about that line? And the third one is on the cost of risk in Portugal. We have seen write-backs in the last couple of years. How does that reconcile with the COVID and the change, obviously, in the credit environment?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Javier, maybe you can take this one if you don't mind.

[Javier Pano Riera, Chief Financial Officer]

Okay. Thank you, Ignacio. On the -- I will start by the -- from the end with this question on -- in Portugal. We still have EUR 144 million. Please, Eddie, correct me, but I think this is the figure, PPA remaining in Portugal. Obviously, there is very strong performance of this portfolio. The portfolio is affected in Portugal. And even taking into account the COVID, we have been able to release 45. So I think that everything has been taken into account. Without the PPA in Portugal, on an individual basis, cost of risk obviously would have a negative impact this quarter. If I remember well, it's around EUR 30 million. So those are the numbers. In equity accounted, well, here, you have SegurCaixa. Other than those market impacts, we have felt this quarter, I would say, that it should be more or less business as usual. So we don't think that -- as long as the lockdown is not that long, the profits from SegurCaixa Adeslas won't be that affected. And then the main impact here comes from Erste Bank, that as of today is presenting results. Probably you can reach your own conclusions clearly on this front. But obviously, Erste Bank is going to have lower net income this year, and as a consequence, being affected. And as for the impact of moratoria and state-guaranteed lines. Well, the impact is significant, I guess, because it's an important package and providing liquidity with moratoria to households and providing liquidity with those warranted credit lines and our own balance sheet because as you could see, close to EUR 15 million have been originated from our own balance sheet since the crisis, or at least since it started heavily. So I think that the main assumption here is that as -- okay, the GDP corrects very sharp, hopefully, we are not going to have a second wave in 6 or 1-year time. So this is clearly an assumption. Otherwise, GDP would not rebound according to our base case. And by providing liquidity to households and mainly self-employed and SMEs, this obviously will cushion, as I commented, the impact of this situation on their credit worthiness. Obviously, this will not be 100%. This -- some of those borrowers will face a significant increase of credit risk. And as a consequence, we will need to set aside provisions for this. Some of them will end migrating from stage 1 to stage 2. And obviously, this will result into lifetime credit losses so -- or lifetime provision, sorry. So this is why we are estimating a credit risk that is, let's say, a cost of risk that is higher during next quarters because otherwise, we would have been to make all the loan-loss provisions upfront as of today. So this is the situation. We will be able to assess this as we progress in next quarters. And other than this kind of top-down approach, that is what we have done during the last few weeks, a more granular analysis on how the situation evolves and to what extent those moratoria and, let's say, liquidity lines work, which is what we expect. But obviously, we will need to assess this in the future. But according to our estimates, this is, let's say, the upper bound of our projections already takes into account those factors. Thank you, Ignacio.

[Operator]

And your next question comes from the line of Britta Schmidt from Autonomous Research.

[Britta Schmidt, Non]

I've got 2 quick questions, please. One, follow-up on the cost. To what extent do you think the 2020 measures will be temporary relieved, such as delaying investments, for example? To what extent are these proper sustainable cost cuts? And then a second question, just on framing the provisions and getting your impression. We've seen some pretty unprecedented regulatory forbearance that has come extremely quickly. When a bank like you guides to 60 to 90 basis points of provision, is there anything that we should be aware of that we don't know? Or how can you square this?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Britta. No, we do not see anything different than what you see. We have, obviously, all our models but they depend so much on external events to us. And we're being prudent, but there's no hidden corpse, if that is part of the question. And as always, we'd like to deal with problems sooner rather than later. We all remember that, that was not exactly what happened in the last crisis, generally in Europe and particularly in Spain, and we are not going to be going in that direction. So that's why we are being upfront, and we'll continue to do so in the future. With respect to the cost evolution, obviously, there's a lot of things happening here. We are having an increase in cost associated to fighting the pandemic in terms of changes to the way we operate, protecting the health of our employees, providing them with appropriate sanitary measures, et cetera. Those will disappear. But there are other savings that are associated to the fact that we're in a lockdown and hence, traveling, et cetera, other things are coming down. And as results will likely suffer this year, you already have seen that we're going to take a prudent approach to compensation as the management committee has already announced that it will be not accepting a bonus this year, including myself. And that is obviously just a one-off. There are various things that move. Moving into the future and what is stable, we have, a, this is all going to -- or is going to force all of us to rethink the way we do business. And I'm sure that there's going to be a decrease in travel expenditure, that big -- a part of that decrease that will become permanent as we go more towards our digital communication tools clearly. And there are many other initiatives that we had been working on already for 2021 and that we are bringing forward and deepening for that purpose. At this stage, what we are clear is that for 2020, we are going to be able to contain cost growth. But obviously, our ambition goes beyond that pure containment for this year, but particularly goes to 2021 and onwards to reduce cost growth. I think we have an environment which is going to allow us to reach agreements that make more sense. And I am now thinking about discussion of our collective bargaining agreement. And hence, we think that we will be able to adapt and reduce our cost base, not just for one given year because there's a lower activity, but going on that we will have a positive impact there. We're working on it. Obviously, there's a limited amount of things we can achieve in these 7 weeks, and you've seen that we've been super busy. But clearly, we're not just thinking about dealing with these 7 weeks or the next quarter, but dealing with the long term. And there's a lot of things that we can do, and that they are the right thing to do for our shareholders.

[Operator]

Your last question comes from the line of Marta Sánchez Romero from Bank of America Merrill Lynch.

[Marta Sánchez Romero, Director and Analyst]

Three quick questions. The first one, a clarification on the PPI -- PPA, sorry, and cost of risk. Does your 60 to 90 bps guidance include the full release of the -- of those EUR 134 million? The second one is on your IRPH and your revolving credit book. Have you been repricing those books? In that case, could you share volumes and the impact it may have already had on NII or may have in the future? What's your general approach towards these 2 books? Are you willing to reduce litigation risk by changing prices and [ -- in some ] of those contracts? And lastly, the -- thinking about potential positive one-offs that may come through in following quarters. The first one is we've seen CVA had impact on your trading line. Do you expect that negative effect to unwind in future quarters? Maybe you could quantify that impact on your trading line. And the second one is, I understand that your 10-year agreement with Adeslas comes to an end this year. What is your expectation for the final earnout fee that you may get there?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Javier, do you want to -- well, let me just say one thing on second question and pass it on to Javier. On IRPH, we're not renegotiating contracts. We think the contracts are transparent generally. And there's no change to be expected associated to that. In the case of revolving cards, we have adjusted our pricing policy downwards. And obviously, our views of this year include the impact of that. That is going to reduce litigation risk going forward. And obviously, on the PPA, well, Javier, you know the details better than I do. So please go ahead.

[Javier Pano Riera, Chief Financial Officer]

Well, the PPA release follows its own rules. It's designated to specific portfolios. And obviously, this is, let's say, business as usual in terms of deciding whether or not and what to release. And obviously, depending on the evolution of the underlying assets, we will proceed. But while giving you the overall figure, all those effects are included. On trading, yes, we had this impact. As long as spreads keep, let's say, tighter, we will have positive news on this front. Other than this, trading on the fixed income portfolio, it's a year where we'll rather defend NII instead of looking for trading profits. But obviously, as we assume that we will face volatility in coming quarters and during the year, maybe we'll have the chance to have some trading profits. But it's -- generally speaking, it's not a year theoretically where we are looking for making very large trading profits. Well -- and you had a question on Adeslas. I think that this is referring to the earnout of Adeslas. This is the last year where we will face a positive -- potential positive impact from this side going forward. This will be the last year. I think that I understood well your question.

[Marta Sánchez Romero, Director and Analyst]

Yes. It was just if you had an expectation of the quantity of that positives.

[Javier Pano Riera, Chief Financial Officer]

Not yet, unfortunately, Marta, not yet.

[Edward O'Loghlen, Director of Investor Relations]

Okay. Thank you very much. That's all we have time for today. We'll reconvene for Q2, hopefully, in better circumstances. And in the meantime, let me wish you all good health. Thank you.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you very much, and good health.

[Javier Pano Riera, Chief Financial Officer]

Thank you from my side also.