Caixabank SA

MAD:CABK

Earnings Call Transcript 2020-Q3

[Operator]

Hello. Good morning, and welcome to CaixaBank's results presentation for the third quarter of 2020. Today, it will be just Gonzalo Rotaeche, CEO; and myself, Javier Pano Riera, the CFO, presenting. Eddie O'Loghlen, our Head of Investor Relations, is away on sick leave but is recovering well and expected to return shortly. Otherwise, the format is the same as usual. We plan to spend around 30 minutes presenting with 45 minutes available for live Q&A for which you should have received instructions via e-mail. Let me just add that the Investor Relations team is at your full disposal after this event. And without further ado, let me hand it over to the CEO.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Javier. Good morning, everybody, and thanks for your time. We'll get directly into the result presentation for the quarter. I'm highlighting here 4 ideas in the quarter. First, the recovery in activity and, hence, the continuity in the market share progress. Obviously, after the second quarter, this was quite critical for us to make sure that the machinery regained speed very quickly, and it has happened. You see there how our market share, and we're highlighting particularly long-term savings and business lending, one, because it's so much our core business and the other one is also our core business, and it's been quite critical in this year 2020. Second, credit metrics, I have to say, much more positive than what we were expecting. We have actually reduced nonperforming loans quarter-on-quarter by 1.5%. Obviously, ratio is stable on that slight contraction that we have some seasonality in the third quarter of the total loan book. The cost of risk is lower in the quarter, obviously, because we actually did a major provisioning for COVID in the first and particularly the second quarter. But I have to say, given that this was a quarter in which most of our moratorium started to resume payment obligations, we were expecting a different impact, and the situation has been quite good. I know this is looking backwards, and we are all concerned about what is coming in the future, but let's make it clear, the third quarter has been, I would say, outstanding from this point of view. Third quarter revenue growth and cost control. We have actually delivered a 3.1% reduction in costs compared to last year. So a pretty good level. And then on the core revenue side, we have pressure on NII. You've seen that, but have been able to almost completely offset that with good performance on fees and particularly on the insurance business. And this is obviously part of our strength. So we are confident, I would say, quite confident that we will be achieving positive jaws in 2020. In terms of solvency, it's been a good quarter. We know we have some market headwinds associated to our equity stakes. But despite that, we actually have grown our CET1 and build up further our MREL buffer. So I'd say, pretty good on that front as well. Getting some detail on market share. You see our long-term savings, up 66 basis points. Life-risk insurance, a major outperformance in terms of premium versus the market. And then on loan to business as well, almost 100 basis points, in fact, not almost but over 100 basis points of market share gain. We continue to increase the number of clients that we define as relational with 3 or more products with us. So things are working well despite the very difficult situation we have. In terms of the activity, we're sharing here our statistics on credit card turnover, which are a good proxy for what's happening in Spain. Obviously, big reduction during the hard part of the lockdown in March, April, May, and then a recovery pretty fast towards similar levels to last year. But then in the last 2, 3 weeks, clearly, some weakness associated to the situation of the pandemic and the new restrictions that are being imposed. On loan production, we have households where we are -- on mortgages we actually better than last year. Consumer, we have recovered a good level of activity compared to second quarter, but we are still below last year. I think it does make sense in the current economic environment, and we want to be, obviously, prudent in this environment. Long-term savings, a pretty good performance. As you can see in the third quarter compared to the second quarter, almost as good as the first and be better than the third quarter. You all know that there's seasonality in the third quarter, negative seasonality and activity. So the fact that we had this level of net inflows is a pretty good signal and protection insurance, again, comparing to last year is a major improvement also compared to second quarter. So good feelings about how we actually managed to recover activity quite quickly after the worst part of the lockdowns. Nonperforming loans. I mentioned we reduced 1.5% in the quarter. We have maintained the 3.5% and then out of our moratoria, we had 97% of the amount under moratoria that have resumed payment. Sometimes it's partial payment or most of the times because we start with interest payments, not yet with principal. But out of auto moratoria, only 3% are not up-to-date in terms of payments. So -- and obviously, of this 3% is just -- some of them will eventually be nonperforming loans. Others may actually not, depending on the recovery process between sort of 0 and 90 days of default. So good feeling from that point of view and a good reduction of nonperforming loans actually across all lending segments. It's evident that there will be credit quality issues ahead of us. Let's not make any -- or have any doubt about that. But clearly, at this stage, where we are is much better than what we were expecting we would be at this stage. So I guess, that part of the picture is pretty good. In terms of the macro outlook, and obviously, Javier will elaborate on all this, but we have basically a macro environment that is similar to the one that we had expected at the end of the second quarter. What we have done and you see the dotted line blue and the sort of firm blue. The difference is basically that we were being more negative about 2020 and more positive about the recovery in 2021. And we are a bit less negative. And even after today's GDP number, we're clearly even less negative for 2020, but less optimistic for the recovery in 2021. So we are ending up basically at the same point at the end of 2021 than we were before. And that's really the driver for provisions. And for that reason, the COVID sort of generic provision has not been changed. We did make a great effort in the first half, and we've seen that the current macro forecast are consistent with that level. We've also put there some expectations by, for instance, the forecast of Bank of Spain, to give you an indication that we feel what we have done already is conservative. There's no question that the environment now as we speak and given what's happening in Europe and Spain should sort of move us to the side of even more cautiousness around what may happen in the fourth quarter and 2021. That's why we're also pointing there what is our first case, which is obviously a very slow recovery in 2021. And the fact that we have also included that scenario and with that scenario and our provisions gives us good comfort about where we are now in terms of provisioning level. You've seen that we had this guidance of 60 to 90 basis points. In this third quarter, not on an unrealized basis, we've added 10 basis points. So we're at 63. I think we have to be quite confident at this stage that we are on track within that guidance. We have 2 factors. One is performance in the third quarter, which makes us much more optimistic than we were and at the same time, outlook for the fourth quarter and 2021, which makes us more cautious, at least for the time being. So we'll see depending on how these 2 things play, particularly the second one because the first one is a fact now. We will end up in one -- closer to one side of the range or more in the middle of it. Nonperforming loans coverage up to 65%. Obviously, that indicates the provision that we have built for future problems. Other pretty good news from the quarter is the jaws. You see we had good drivers of comparison in terms of core revenues and recurring costs, core revenues, obviously, positive in the quarter, but negative year-on-year, but a much significant -- much more significant reduction in cost of 3.1%, which shows, as you can see, in terms of core operating income. So deducting the cost, recurring costs from core revenues, you see that we have actually managed to go back to positive jaws in this sort of 3 quarters. And we certainly expect to maintain that by the end of the year. Solvency. Finally, I think, a pretty good performance. You have the details here of significant organic capital generation. The impact of commerce, I have to say, this is a pro forma, but it has closed on the first of October. So yesterday, after the quarter end. So it's a pretty hard number. And the accrual of dividends, which, as you know, because of the current rules we have from the ECB is being down at 37% despite -- sorry, 43% despite the fact that we have said that our intention is to be with a payout that will not exceed 30%, assuming that the recommendation of the ECB is somehow lifted. On top of that, we had issued additional Tier 1 during the month of October, and this has increased notably our MDA buffer to that level of 458. Obviously, I have to remind you what you know well, but is that we have one of the lowest SREP requirements among the large banks in Europe for good reasons. I think our risk profile is obviously much reduced compared to others. And hence, our absolute levels of capital compared to our SREP requirement gives us a very comfortable MDA buffer, well above our targets and also obviously allows us to get into this merger project with Banca from a position of strength. And I wanted to finish there. On the merger project, there's not much news. Idea as things are progressing well. Time table is on track. We'll have EGMs, at the beginning of December, our EGM is expected for the third of December. But we're still expecting to close during the first quarter. And actually, we're now working also with an initial target of integrating all IT systems by the end of the year. And again, we have a good spirit. There's quite a few things of preparing for the merger that we can do. Obviously, there are others we cannot do until we have competition approval and then the transaction closes. But so far, so good. We're in the, I think, on the right track. Thank you very much.

[Javier Pano Riera, Chief Financial Officer]

Thank you, Gonzalo. And let me now elaborate on the third quarter. Let me start with an overview of the evolution of the loan book. You may see that in the third quarter, the book is almost flat. I told it's improving considering seasonal impacts by 0.4%. You know that year-to-date, what has been driving loan growth has been mainly the new origination of government warranted loans. But this demand has tapered during this third quarter, EUR 1.4 billion for a total balance of eco loans close to EUR 12 billion. We have had also good performance in the origination of mortgages and consumer loans this third quarter. And with this, year-to-date, our loan book is up by 6.5%. In the right-hand side chart, you may see precisely this evolution -- the monthly evolution of the new production of mortgages and consumer loans. You may see that for mortgages, we are at the same level since the month of June, approximately compared to last year. And that in consumer lending, we are slightly below and considering current circumstances, but clearly improving from the trough we had in the second quarter. Just a few words on the ALCO portfolio, we have had maturities this third quarter. Now the size of the book stands at slightly below EUR 42 billion, but the metrics of the portfolio remain broadly unchanged. Yield duration maturity profile and the sovereign exposure, you have here all the details. But as I say, no changes at all during the quarter. And on the customer funds, I would mention here that in the third quarter, we have had lower inflows into on balance sheet deposits compared to what happened in the second quarter. But we have had inflows also into long-term savings, EUR 600 million this third quarter. This makes the total for the year EUR 1.4 billion which we think is a good result. And also this third quarter, markets have helped to recover part of the losses. We recovered EUR 2 billion, thus making the negative mark-to-market impact for the year at EUR 2.4 billion. In the right-hand side chart, you may see the evolution of our average AUMs. You may see that in the third quarter, average AUMs are over the average of last year, approximately by 3%. And also by the end of the period, we have over [ 3% ] over. So this will result or this bodes well for fee revenues on AUMs in coming quarters, markets permitting. And with this, let me shift to the P&L. Some brief comments you have here all the details. I would say that better cost and also insurance and fee performance this third quarter has led to an improvement in our pre-provision profit. You may see that core revenues, as I say, supported by fees, up by 4.9% quarter-on-quarter and insurance, up by 6% quarter-on-quarter is what has been driving this performance. Core revenue was up quarter-on-quarter by 3.7%, still compared to last year, down by 1.1%. At the same time, we have a strong decline in expenses, underpinned by restructuring, some lower pension liabilities and other saving initiatives. And as a consequence of this, our core operating income improves significantly. And year-to-date, it's up by 2.7%. Below the line, we have lower loan loss charges. This third quarter was already in our forecast as we -- you know that we built strongly this COVID reserve during the first half. And with this, we end the quarter with a net income at EUR 522 million, a clear improvement compared to the pace of the previous 2 quarters. Some words on BPI. In this case, I would say that BPI has strong support from resilient net interest income. Despite government loan scheme -- government-warranted loan scheme, that is smaller compared to the situation in Spain, but we have managed to grow the loan book in Portugal by 3.9% year-to-date. And as you may see, also with a positive contribution from mortgages. And also in Portugal, we have a reduction in NPLs, as is the case in Spain, 6% year-to-date. And we have this third quarter a further release of the PPA that we built in 2017 with integration. And as a consequence of this, we have a positive contribution on this front this third quarter for a net attributable profit from BPI this third quarter at EUR 55 million. So more details now on the P&L. On NII, we are flattish this quarter, quarter-on-quarter and down by 2% year-on-year, in line with our initial expectations. You may see that from the client side, we have positive contribution from higher average loan volumes. But on the other hand, this is more than offset by lower margins as the loan yield is impacted by the mix of the portfolio now with a larger wave of lower-yielding eco loans. And on the ALCO activities, we have the positive contribution from the full take-up of TLTRO 3. But this is partially offset with a lower contribution from the fixed income portfolio, as we have had those maturities and also the higher cost of carry from the growth in deposits we had during the second quarter. As before mentioned, you may see that the back book yield comes down this quarter by 6 basis points to 192 basis points, but the new production the yield of the new production on the front book has clearly recovered and is up by 46 basis points as the mix is, I would say, normalized, again, and the front book yield is now at 220 basis points. We are expecting that the fourth quarter net interest income will be in line with the levels of the second and the third quarter. On fees, we have had a strong recovery quarter-on-quarter, up by 4.9%, as commented before. And year-to-date, we are flat. We have had good performance across the different segments, I would say, in recurring banking fees, we are up by close to 10% quarter-on-quarter. We are still down year-on-year, in this case, impacted by the less positive evolution of our payment business affected, obviously, in the third quarter by a weaker tourist season. In asset management, a clear improvement quarter-on-quarter, up by more than 6%, also improvement year-on-year. We commented before, the positive evolution of average AUM in insurance distribution improving quarter-on-quarter, close to 5%. And clearly, on an upward trend, and we expect that this will continue to be the case in coming quarters. And in wholesale banking, always more volatile, but we have had so far, a very good year. Also improving year-on-year, this third quarter, and obviously, the third quarter always with seasonality. You may see in the right-hand side chart, the evolution by month of our fee revenues, and we are matching last year's performance from June, except last month of August, impacted mainly by this impact in payments I mentioned before. A few words on insurance. Here, I would mainly highlight the very positive evolution of our life risk business. EUR 150 million of quarterly revenues on this business, record high, actually. And this sets the accumulated increase in this business at 8.5% year-to-date. In the right-hand side chart, you see the evolution of these all let's say, insured activities in our P&L I would remark also a positive contribution on net interest income. And what here, just to highlight again the good performance of the MyBox commercial offer that is helping to do really well in current circumstances. On costs, we are doing well on this front. Year-to-date costs down by 3.1%, and we are on track to comfortably meet our guidance. Remember that we were expecting costs to come down by this year by at least 2%. And as of today, I can tell you that probably we will be more close to the 3% area or around the 3% area, down by 3% in 2020. You see that the improvement is across the different cost lines and that what we have saved in costs more than compensate what we have lost in revenues, in core revenues, year-to-date. Thus -- this is why we have a clear improvement in core operating income and also in our cost-to-income that is down to 56.3%. A few words from moratoria, important part of our presentation. You may see here the weekly moratoria production. You may see clearly that if this is tapering or it has already ended by September 30. And in the right-hand side chart, you see the expected evolution of the stock of loans with moratoria. This is for Spain and for individuals. But you may see that most legal moratoria is -- has expired right now and has resumed interest payments in the third quarter. And actually, I would say that almost all performing, as Gonzalo commented, 97% it's honoring there, these payments. And in the fourth quarter, there are most consumer loan moratoria that is going to expire and will resume normal installments. This is affecting approximately slightly more than EUR 1 billion. So this is important to follow and monitor this fourth quarter. And then in the second quarter of next year, is when mortgage moratoria expire and will resume normal installments. Here, you have a clear profile of what is going on, on this front. In Portugal, the timetable is different. It's a different program. Stock of moratoria that is EUR 6 billion, 38% of the loan moratoria is facing payment obligations in the third quarter. I would say that almost 100% honoring those obligations. Of the remaining 62%, only 3% show any indication of potential future payment difficulties. Here, what we are doing is to cross check with other indicators for the client in order to foresee any potential issues. And some comments on loan loss charges. On this front, well, EUR 260 million for the quarter. On IFRS 9 models, we have made a few changes of fine tuning, as Gonzalo commented. But on a cumulative basis, here, you have the figures for 3 years. We are considering our base case that the Spanish GDP will be down by 1.5% in 3 years. And this remains broadly changed, although the profile changes a little bit. We have all the detail about by stages of our loan loss provisions and also our COVID reserve. I would also like to remind that this third quarter those loan loss charges include generic reserves applying extremely conservative approach. On liquidity, I would say that we continue to be at ample in a very ample situation with liquid assets at EUR 111 billion. Our liquidity coverage ratio at 280% and at a stable funding ratio of 141%. You know that we have been in the market recently with an AT1 issue with this. We feel 2% -- more than 2% of the AT1 bucket. And the -- now our MREL ratio standing at 41%, 40%, well above the current MREL requirement at 22.7%. On this one, I would like also to remark that Caixa 1 ratings have been confirmed by all 3 major rating agencies post the announcement of the merger agreement with Bankia. And finally, on solvency. This third quarter, we end considering the commercial transaction that, as Gonzalo has commented, it's already closed at 12.7% ex-transitional IFRS 9 is a quarter where we have had strong capital -- organic capital generation, 45 basis points. In this case, also with -- after the -- with a tailwind after the introduction of IRB models in the non-warranted part of ICO loans, we have been accruing dividend, clearly, as you know, 43% according to supervisory requirements. We have a negative impact from markets, mainly from Telefónica as you know well and others, and this is minus 11 basis points for the quarter and then a net positive impact considering dividends of 20 bps from Comercia. And on top of this, we have 51 basis points for transitions IFRS 9 thus ending the quarter with, let's say, regulatory capital ratio standing at 12.68% and resulting into an ample MDA buffer at 458% considering all the impacts from the Comercia and the AT1 issuance. So this is all from my side. Just to wrap up with a quarter where we have continue to have continued market share gains with activity levels clearly picking up in the quarter. And at the same time, credit metrics have been broadly stable despite the bulk of the moratory assuming payment obligations. It's a quarter where we are widening cooperating jaws. And at the same time, we have been reinforcing further our solvency metrics with the AT 1 issuance, resulting into an ample MDA buffer. So thank you very much. And with that, that is -- that's it for my part. So it's no time to proceed to Q&A. [Operator Instructions] So thank you.

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

I'm Ignacio Cerezo. I also wanted to send my quick regards to Eddie. Hopefully, he recovers fast. I just have 2 questions. One on NII. I mean, what should we expect beyond for 4Q '20 in terms of NII, given the trends that we see in Euribor? And also wanted to get a bit your thoughts on how to reduce the excess liquidity that you are gathering and whether the fee policy changes that you are fostering will lead to some reduction in that or you don't count on it? And the second question is on costs. To the Q '20 cost base has fully captured or not the departure from the restructuring that you did in 2Q? And if so, whether you're going to plan -- you are planning to book some extra costs from the merger in fourth quarter?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Ignacio. I'll let Javier elaborate about NII. In terms of levels of liquidity, I'm sure Javier will obviously, I mentioned it as well, but we continue to be fairly successful in our activity, and this is bringing additional levels of excess liquidity. This is unfortunately something that we have to cope with. The new fee commission, the new policy on fees, I don't think it's going to change that in any significant matter. But we will continue to try and pass those negative costs on the corporate side as strictly as possible, but it is certainly one of the big issues that we have. In terms of costs, there's no extra costs booked so far associated to the merger. There will be some in the fourth quarter, preparatory work that will be included. But I think it's pretty clear that we are pretty good shape in terms of cost this year. In fact, it is my expectation that we will end up close to 3% down as opposed to 2% down on cost in 2020. Beyond that, I think, Javier, you want to add and particularly on NII?

[Javier Pano Riera, Chief Financial Officer]

Well, on net interest income, I think that into 2021, for us, the uncertainty, the most important uncertainty we have now is on volumes. To what extent the production we have had strong growth in government granted loans, mainly channel to SMEs and self employees, et cetera. This will prevent loan growth into 2021. Also this is probably the biggest question mark. To what extent capital spending will be there or not in order to help loan growth. And as of today, unfortunately, I cannot give you much more visibility because you can understand that what the situation in terms of health situation is preventing to have, at least now, a longer-term view. I would also add to here to what extent consumer confidence will continue to support growth in mortgages and consumer lending, so far is the case. So we have been positively surprised with the performance. And actually, this, let's say, positive mood has continued into October. But particularly, we need to see what happens going forward. You asked about the impacts from rates. I think that here, in the past, we have been giving you a sensitivity analysis let's say, that for, let's say, for each 10 basis points on a LIBOR, we could have approximately an impact of 1% in NII. I think that this, according to, let's say, the average profile of the balance sheet, this metric continues to be valid and probably can help you to figure out what may happen in 2021 from this front. On the positives, well, let's see, how we are able to manage this excess liquidity. That's true, but it's a situation where there is an excess liquidity in the system. And actually, this is what the ECB is targeting a situation with excess liquidity. At the end of the day, this liquidity filters somewhere or another into the balance sheet of banks in general. And we, from our side, what we try to do is to put in place the right incentives for our teams, our sales force at all levels in order to at least to try to compensate what the costs of this excess liquidity that can be compensated with revenues in other parts of the business. And the right incentives for this are in place. I would also like to remark here any potential positives that we may have. And clearly, yesterday, the ECB already outlined that there will be some news in terms of monetary policy or instruments in December, so here potentially draw over of the TLTRO or at least the benefit of the TLTRO at minus 1% or a different level. But I think that this is potentially something that may be on the cars or potentially an increase of the tiering. So those are -- who knows, part of the, let's say, the toolkit that the ECB is thinking about. And well, if at some time, we may have a steepening of the yield curve, of course then -- so then we may have the chance to add to the ALCO portfolio, not that at the current levels. So I would say that thinking in the long-term probably are not the right levels to do so. I don't know Ignacio , if this answers your question. If this is the case, I would go into the next one, please, operator?

[Marta Sánchez Romero, Director and Analyst]

My first question is on Spain. Can you hear me?

[Javier Pano Riera, Chief Financial Officer]

We can hear you, Marta. The problem is that we cannot hear the operator. So we are a little bit lost, but we recognize you. Go ahead.

[Marta Sánchez Romero, Director and Analyst]

So first one, Spain loan yields. Can you explain the 7 bps drop this quarter? And looking forward, on top of the LIBOR effect, how much loan yield do you think you could lose over the next 12 months due to mix? The second question is on payment holidays. The stock is up 11% in the quarter. All the banks have reported shrinking books? What explains the increase in CaixaBank? And related to this, just a quick one on ICO lines. We've seen articles in the Spanish press suggesting grace periods and maturities could get extended. How does the scheme work i.e., in the event of a loan covered by a guarantee defaults, can you claim the guarantee from the government straight away? Or do you need to restructure first? And what's the probability of the fall you are calculated in your ICO line portfolio?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Marta. In terms of payment holidays, we actually had the end of June, a similar level, EUR 11 billion in Spain. EUR 1 billion was under analysis, and now we have EUR 11 billion. So it's been more or less stable. I -- honestly, and maybe Javier, I cannot make comparison with others because different people have in different policies. Ours has been, and so far so good, is that this instrument was actually the right instrument we use with certain clients. So we've been proactive during the lockdown. And what we're seeing is that, as I said, payment is actually now following through. So -- but there's been no increase on the total ounce because we have EUR 10 billion granted by EUR 1 billion under analysis at the end of June. At least those are the figures I have. On ICO, you are basically a question you had on how it works. If there's default on principal, not noninterest if there's default, then we can execute the guarantee. That's a reality. But obviously, we are all looking at this being an instrument that is helpful. And what discussion currently is being is, obviously, we had this lockdown we had a tool to help companies and self-employed people with this government-guaranteed lines. Most of them are 1 year with a grace period for 1 year on principal. And these will obviously expire during the second quarter for most people. The reality is, unfortunately, activity is not back to normal. So for many situations, I think the right policy tool is to extend that period maybe up to a year or 6 months or whatever. I don't know if it will be done at a sector level at an overall level, and we are in a discussion with the government Bank of Spain, or the banks, et cetera, the banking associations to try and find out what makes more sense, because 1 thing is how we recognize accounting for in our books of these. But I think most importantly is to make sure that we help people when there's really a viable business that is just temporarily under pressure. And for those businesses to have to start paying principle when activity has not been back to normal, will not make sense as a policy issue, but clearly, the rule is that if a client defaults on principle, then we can execute. There was a question about yields and well on the PD -- well on the on spoke, if you want to, Javier, I guess, close.

[Javier Pano Riera, Chief Financial Officer]

Yes. Well, on the [ back ] book yield, the main impact quarter-on-quarter is coming from the fact that you have a full quarter of the lower-yielding ICO loans in the book. I would say that this is almost main part of the impact. Actually, this third quarter, we are not having much impact from 12 months LIBOR downwards. But yes, we are having some impact on 3 months on LIBOR downwards. So this is also affecting, to some extent. And going forward, we -- our view is that this backbone, this back book should be -- level should be more sustainable. So as, let's say, the big impact of the new production impacting the back book has already been felt. And you had a question about PVs. Well, according to our internal figures, the average PV of our ICO, let's say, portfolio, it's slightly below 2%, 190-something. And even if you exclude some of the more risky parts, this is even below 1%. So probably, this helps you in this question, Marta. Okay. Thank you. Please then we can proceed with the following question, please.

[Operator]

Your next question comes from Andrea Filtri from Mediobanca.

[Andrea Filtri, Research Analyst]

Could you detail the regulatory headwinds that are implied in the merger combinations. I'm referring to the future impact on definition of default in EBA guidelines and when they're expected to come, please? And on Slide '20, the risk lives trend, would the lower claims shown in Q3 be just seasonal or there could be an impact from COVID with people claiming less making less use of the insurance. And is the trend expected to revert to normal in 2021? And then allow me, please, just a few details what dividend per share will you accrue in Q4 from Telefónica? How much generic provisions you charge in the quarter? And your minus 3% cost guidance, does it include the anticipation of merger costs that you mentioned before?

[Javier Pano Riera, Chief Financial Officer]

Okay. Andrea, if I may, start with the regulatory headwinds. Okay, well, when presenting the Bankia transaction, we disclosed our best estimate after -- after a close supervisory dialogue we had in the previous weeks, as you can imagine, of the upcoming regulatory impacts that we will face over the medium term. And there were 3 main blocks. The quick fix for intangible assets, then the IRB models on Bankia books, so mainly on the mortgage book. And then other internal model inspection, the impact from other internal model inspections plus EBA guidelines. On this third block, I would say that approximately 80% of the impact is or stems from CaixaBank. What happens here is the following. And this impact is higher than initially expected. Because in the low default portfolio for CaixaBank, historically, we have been calculating the risk parameters. This is PVs, LTVs, relying on external data supplied by rating agencies as those are large corporates. It's something that is normal to do. And this is what has been approved historically by the supervisor. And according to the new EBA guidelines, this now has to be -- those parameters have to be built according to our internal historical experience, okay? And -- but as a consequence of this, we need to rebuild those models. This is a process that will take 18, 24 months because then you need the approval, et cetera, and other internal model inspection. And what happens is that meanwhile, this happens, and we have all these in place. We have what is called by the supervisor, a limitation. So this would be set a minimum PV and a minimum LTV. And as a consequence of this, this results into a much higher risk-weighted asset density. Actually, it will result into risk-weighted asset density on this portfolio. It's a EUR 37 million portfolio of 70% and from 55% approximately that is now. In our view, clearly, this risk-weighted asset density is much higher than what is needed. And let's say that the capital -- regulatory capital that is set aside for this portfolio is much higher than what is needed according to the underlying -- the underlying, let's say, credit quality or credit risk of the portfolio. I think that this probably helps you to understand a little bit the different building blocks. But I would say that probably the main difference compared to where our initial expectations is this part. I would like also to take the opportunity to add that for the quick fix. And after the changes, we're fixing on intangibles. And after the changes announced at a few days or a few weeks ago, for CaixaBank stand-alone, the impact is 15 basis points, and that approximately. And that for the combined entity is approximately 20 basis points. Okay. I think that with this, Andrea, I have answered or help at least to understand a little bit the different blocks. I don't know what followed, there was -- no, no.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

There's a few more questions. Let me add on risk lives, this is seasonal it's every year. We have lower claims in the third quarter, and I expect for it to continue that way. COVID has affected but offset because we have had higher claims from COVID, but lower claims from others. And actually during the third quarter and month of September and July, in particular, we had expected an increase of non-COVID-related claims, and that has materialized, and it's included in what has happened in the third quarter. So I think we should look at the activity on the risk lives on a normalized basis, like every year, where we see higher profits in the third quarter because of the month of August, in particular. And the outlook there for the fourth quarter and next year is good. With respect to the rest of the questions, I mentioned on the cost side, we're talking about 3%, excluding any merger costs. It's not clear to us what amount of merger cost will book into 2020 in the fourth quarter. In any case, I expect it to be a limited number, obviously. And whatever we book in 2020, will be reduced from the extraordinary charges that we'll make in 2021. So it's not additional cost. It's just moving ahead to future costs that we're incurring, obviously, mostly related to consultants and preparatory work and some other impacts associated to the legal process. Other than that, I think there was a question on Telefónica as well, Javier.

[Javier Pano Riera, Chief Financial Officer]

Well, Telefónica has just announced the dividend for the fourth quarter, $0.20, and it will be registered in the fourth quarter accordingly. You know that it may be in cash or shares and what that decision on this will be taking in due time. Thank you, Andrea, and with this, we answer your questions. We would follow. Please operator, move on.

[Operator]

Our next question comes from Sophie Peterzens from JPMorgan.

[Sofie Caroline Elisabet Peterzens, Analyst]

Sophie from JPMorgan. A question on dividend. I think the local press was saying that you are not going to pay any dividends before the merger with Bankia is completed. Is that a correct assumption? So when should we basically expect that the first potential payment -- dividend payment from Deutsche Bank? And how should we think about the kind of dividend payments, will it be 30% of the combined entity? Or will it be 30% of Deutsche Bank's earnings. That would be my first question. My second question would be on DTAs. Bankia has a significant amount of DTAs. So does CaixaBank and combined, you will have quite a lot of DTAs. Docs' fees are going up across Europe, and I think the expectation is that we're going to see more tax hikes. Also, the macro environment is very uncertain, as you highlighted. How should we think about any potential risk for DTA write-downs in the coming year or 2? And then just a quick follow-up. On the costs, how much of the cost saves that you're seeing this year could potentially reverse in 2021 from higher travel costs fund and variable salaries? Thank you.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

So in terms of the dividend, you're right, the way the merger agreements work is that neither us nor Bankia will pay dividends until after the merger. Otherwise, we would have to have some equalization in the exchange ratio, which would have made things a bit more complex. So it will be paid after the merger is closed, subject to, obviously, the recommendation from the ECB allowing us to do that, which is our hope and expectation at this stage. In terms of what we said our payout is going to be up to 30%. And what we will do is decide on what exactly the number will be. We need to hear the ECB recommendation. At this stage, it's a bit, I think, few channel to speculate on exactly what the level would be because, unfortunately, it may be 0 if the recommendation is not lifted. I expect that it will be, but we will have a discussion. And then extend the payment to the total number of shares, which by the time rather than 1 billion, EUR 6 billion, which is around the number for Caixabank, it will be EUR 8 billion because Bankia would be part of the group, and we will have issued the corresponding shares. So that's the way it will work. On costs, obviously, we have had a positive impact from a lower level of activity in traveling expenses. And as you say, there will be also in comp and some others, you have to keep in mind that as well, we had a negative impact from COVID-related expenses. And the last number I have in mind is around EUR 50 million of not just providing sanitizers and masks and all of the pure sort of medical test and all what we're doing. We've tested 30,000, basically, the number of employees that we have. But also, we have obviously had to manage a complex process during the year. And increase cleaning systems in many areas. So all these costs in a normal year will also disappear. On top of that, we have before the merger, a very strict sort of cost-saving program, reengineering of processes, et cetera. So the expectation for 2021 is not just an increase because we have a reversal of costs that we did not incur in 2020 and well in. On top of all this, we're going to obviously have the merger with Bankia, and this is what is going to obviously dominate the ultimate outcome. We will, in due course, update on cost expectations for 2021. But to be honest, not before the merger closes because I think at this stage, you wouldn't make much else. Efficiency is the name of the game. Obviously, the merger with Bankia has much to do with that point and we're going to continue delivering. This year, we've managed to deliver more than what we expected, partly because of COVID-associated savings, but a lot of it because of other structural changes. So we'll continue on that basis. DTAs taxes going up is good, not bad, but Javier...

[Javier Pano Riera, Chief Financial Officer]

Yes. Theoretically, yes. And this in the U.S., what happened in 2016 is the opposite. If you remember well, no. So -- well, a few words on DTAs because there is always questions around -- well, just to confirm the figures. I think that public and well known. Well, yes, Bankia talking about monetizable DTAs, all EUR 7.4 billion, it's around EUR 5.6 billion. This makes EUR 13 billion, the combined well, those are, let's say, were on the DTAs. And we are paying a fee for those DTAs. Risk-weighted under so for us on that front, we don't face an issue. And for the other parts of the DTAs that are probably more complex parts. But in any case, in many cases, are already deducted. And I would like to give you some figures because I think it's worth mentioning for CaixaBank stand-alone, let's say, for cash I'm not talking about the combined entity or Bankia. We already have a consumption -- capital consumption of EUR 3 billion for DTAs. So this is 200 basis points of our CET1 ratio. So well, DTAs are there but are already having a cost also. And so I think that any time you -- the market, let's say, questions little bit all the DTAs also have to take into account that are already or deducted or we have very high consumption in capital, that in our case, is 200 basis points, as I say. So from our side, well, this has its process internally with every 6 months and, let's say, an impairment tests. And as of today, there are no issues. So according to long-term forecasts of profitability for the bank, no need for an impairment at least according to the assessment. I don't know, Sophie, if with this, we are answering your questions. If this is the case, we would move on to the following question. Please operator.

[Operator]

Your next question comes from Adrian Cighi from Crédit Suisse.

[Adrian Cighi, Research Analyst]

This is Adrian Cighi from Crédit Suisse. I have one question on cost of risk and one follow-up on NII, please. So on cost of risk, clearly, Q3 was better than expected. But we're seeing renewed restrictions in Spain. How do you expect this to impact your cost of risk into 2021? Clearly, mindful of the pending merger with Bankia? Any guidance around your outlook there would be helpful. And just following up on NII to clarify your earlier sensitivity, so the highest point, the 12 months LIBOR versus now we've seen some 40 basis points decline. Is it fair to say that you would expect NII to decline by 4% in 2021 before any sort of impact of volumes and potential incremental benefits from the ECB in December?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Adrian. I'll take on the first question on cost of risk, nothing different from what we've been saying so far. We expect this year to be between 60 and 90. We said last quarter would be probably close to the upper end of the range. Based on what we have seen in the third quarter, I will be more optimistic. But at the same time, I'm cautious because the fourth quarter and particularly the expectation for 2021 may be less positive. All in all, even if we take a fairly conservative approach, we assume further deterioration of the 2021 environment. We are expecting to stay within that range of 60 to 90 basis points. And we continue to believe that in 2021, even though we'll have the increase in nonperforming loans because this year, it has not materialized. And in the fourth quarter, I don't think it will in any sort of significant size. So even if we see a higher NPL in 2021 because we are trying to cope as much as we can with anticipating in that environment in 2020, we should have a lower cost of risk next year than this year. This is on a stand-alone basis. Then when we add Bankia, obviously, we're going to be adding whatever is Bankia's impact, but being very much protected because of the adjustments and that we have to do on completion of the transaction. So that lower cost of risk in 2021 versus 2020 should hold even more taking into account the merger transactions. Obviously, we have some degree of uncertainty. But I think when we look at the overall big picture, we're pretty confident that this should be the framework or the range on which cost of risk should evolve. Javier, do you want to take the second one, please?

[Javier Pano Riera, Chief Financial Officer]

Yes. And if I may, now I realize that I forgot to answer a question for Andrea before asking about the amount of generic provisions related to this question on cost of risk. The amount of generic provisions this third quarter, it's approximately EUR 150 million. To your question on net interest income, what you need to take into account is the delta. And the average 12 months of LIBOR in 2020 will be around minus 30 bps approximately. And into 2021, according to, let's say, market forwards. It's going to be probably 10, 15 basis points lower. And so this is the impact. So the delta is what impacts net interest income year-on-year and not the full amount of 12 months of LIBOR. I hope with this, we answer.

[Operator]

Our next question comes from Carlos Cobo Catena from Societe Generale Cross.

[Carlos Cobo Catena, Equity Analyst]

1Thank you very much for the detailed presentation. Two questions for me. One is on cost of risk outlook. And the recently published stress test from the Bank of Spain. Obviously, that is a theoretical exercise, it has nothing to do with your base case. But even under the Bank of Spain basis scenario, they are coming out with a big scenario for loan losses of around 12% of risk-weighted assets for domestic banks. And they believe that the system would consume capital under that basis scenario. Again, I understand the differences, but there seems to be a huge discrepancy, and I wanted to understand if you have a chance to compare. Because when I look at their base case, they also talk about a 1.5% cumulative contraction of GDP in 3 years. So that's similar to your base scenario. So I would like to hear your thoughts on that. Secondly, maybe if you could help us to understand some figures that other banks are publishing about the usage of payments and credit cards which are returning to normalized levels. That's quite pressuring. But on the other hand, we have also seen a reduction in cash transactions. So in a way that is improving the comparative, but it's not really implying an improvement in consumption. So do you have any way to adjust for that improvement in the usage of cash -- sorry, of plastic transactions?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Carlos. So let me answer the second question. The statistics that we publish actually include not just payments with cards, but also withdrawals with cards in our ATMs. So the statistics that we're making public for October, I like minus 5% versus last year, it already includes that impact that you mentioned, which is very true that, obviously, there's been increased propensity to pay with cards, which is good for that side of the business. But we look after the statistic we put we've said about credit card turnover, it includes withdrawals from ATMs and on that, what we've seen a minus 5% in October compared to minus 3% in September compared to slightly higher in August. And I would say the minus 5% in October is close to the levels of late June and July to give you a sense. And obviously, we're expecting the last quarter -- sorry, the last week in October has been minus 10% to give you an indication. We're expecting that in this sort of increased restriction framework, which is already obviously happening in the last week, we're going to see some weakness. But compared to April, where we were minus 40%, 40-something percent we are in a different type of lockdown. Obviously, a different type of impact on our [ car ] payments on the economy. Obviously, you may think that it's going to be so PA that will go to a very hard lockdown. I don't think it will be the case, not for a very long time period, certainly. And this current sort of partial lockdown is having an impact, but it's very different. And it's not just for our business because, obviously, that's most important is what is the impact on the economy, the impact on the economy as people, schools stay open, people send their children to school. They can continue to work, continue working from home or from wherever they have to the industry is not stopping, et cetera. Hopefully, we can keep this level of restrictions, which are hard on people, but not as hard on the economy as last time, we're going to have some weakness in the fourth quarter, but clearly, nothing comparable with what we saw in the second quarter. But obviously, we'll need to follow the situation quite closely. On the Bank of Spain exercise, I really don't have a view. Javier, you may know.

[Javier Pano Riera, Chief Financial Officer]

Nor me in detail, so I need to go into detail on this. Well, you know that this is a top-down stress test at aggregate level. The base scenario of the Bank of Spain is in line with our micro central scenario. Well according to Bank of Spain estimates this is going to have an impact of approximately 1 percentage point in CET1 between 2019 and 2022. Well, in this case, also with the help of government rental loan schemes, et cetera. In the investor scenario, this clearly is having a more harsh impact. But I would say that this initial estimate that we have done, that this is in line with previous stress test result that -- for us. So I would say that in general terms, this would result into a CET1 ratio for us above our SREP requirement. But you know that it's so difficult not to modelize the whole thing. And you know that ECB, from their site, also they presented sector-wide let's say, impacts of the pandemic. And in general terms, I would say that according to our internal estimates, we were comparing well. Not I'm sure that we can go into the details in another time so because, well, it's so complex. It's a vast in extent, I would say.

[Carlos Cobo Catena, Equity Analyst]

Yes. So we can follow-up. My intention is to understand that what they are including in the stress test, which you are to pay dividends and they don't include payment, for example.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

I -- we can follow-up on the details. I'm sure. Thank you, Carlos. Operator, please can we move on?

[Operator]

Our next question comes from Alvaro Serrano from Morgan Stanley.

[Alvaro Serrano Saenz de Tejada, Lead Analyst]

A question on asset quality, maybe in a different way than one on capital. Clearly, asset quality is surprising everyone positively. Presumably, in the retail side, it's the furlough schemes. And as long as the furlough schemes are extended, presumably, that will continue to do relatively well. Just a confirmation of that. But also on the corporate side, obviously, you've injected and all the banks have injected a lot of liquidity to the corporates and obviously, things are going. We're not going to see, from our side, any real changes in NPLs until maybe next year. But from what you track and your clients, are you being positively negative surprise or in line when you look at how much cash they're burning in doing the lockdown or during the tough times. Is that also a surprise or not, maybe you can speak to how corporate is holding up, which is maybe less intuitive and should be we worried or at about the cliff edge when they start paying the principal? And then on capital, hopefully, a simpler question, just the moving parts for CaixaBank stand-alone, this was obviously a focus when you announced the merger and the [ $11.3 million ] combined. I just want to get clarity on the moving parts for you stand-alone into Q4. So you've already called out software. I think talking with ours is around 50 basis points from the high default portfolio from new stand-alone in Q4. But on the positive side, I don't know if you can quantify the insurance dividend that is still pending and any other positives we should take into account. What are the moving parts that you already know about as we head into Q4?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Alvaro. Let me address the first question on asset quality, let me be very clear. The experience we have had so far is much better than what we expected. And obviously, we had expectations based on furloughs and moratoria [ preferrals ], et cetera, government-guaranteed loans. But even including all that, we're doing much better than expected, and that is reflected also in the cost of risk that this quarter includes that amount of approximately EUR 150 million of collective generic provisions again. Because we know that, obviously, we need to be prudent. But really the experience we're having, it's also in sort of early defaults and what we call [Foreign Language] up to 0 to 90 days, et cetera. We're having a very positive experience, and experience in October has also been pretty good, what we're having already also some sort of final maturity of grace periods for consumer lending in full principal and interest payment. So let's be clear. The quarter has been outstanding in terms of asset quality. And let's be clear, obviously, we are very much aware that we have plenty of challenges for the future. With respect to corporates, in general, we have pretty good feeling how they are coping with this. And I would say not only corporate, but the rest. Obviously, the question is for the smaller companies, their protection and the margins, the buffers they have are lower. But what we've seen in terms of how the economy has recovered, levels of activity, and generally certainly corporates during the third quarter has been quite positive. So I have the sense that if we have to make now a sort of an evaluation of where we are, say, what it's been done so far, it's been known well, and it's worked. And obviously, we also have to be conscious that this is not the end of the picture. Picture is still not final. And hence, we cannot have a final judgment on everything. But clearly, in terms of how we're seeing our clients, we're seeing them in better shape than expected. Then you have to go sector by sector. And obviously, there are sectors that are being particularly affected by what's happening right now, and those obviously generate a higher degree of concern. And the resilience, and again, I go back to the figures of sort of leverage in companies, businesses and retail in Spain before this crisis, they were before below Europe, and certainly way below where they were at the time of the last crisis. So there are some reasons to think that we are actually going to be able to cope on particularly referring to our clients that they will be. But that will be damaged certainly in certain sectors, on certain parts. I think at this stage, we are well prepared to face that, but time will tell. On capital, Javier, please.

[Javier Pano Riera, Chief Financial Officer]

Yes. Alvaro, well, for the fourth quarter, I have already disclosed the potential impacts, well, the impacts for the software deduction, 15 basis points. I think, let's say, for CaixaBank. There is also an issue about the potential non -- the contribution to the deposit rented fund will not be deducted anymore. So you know that this, in France, you had an issue on this front and probably we have also some clarity into the fourth quarter on this. This could add approximately 8 basis points. And then you mentioned the insurance company, where on this front, we have already so the insurance company has already paid an interim dividend. So this is already unlocked this issue. What we have been able to argue to the supervisor that the solvency ratios for the insurance company were sufficiently ample in order to allow for dividends. And so we don't expect, going forward, any, let's say, headwind from this front. And then the internal model inspection or I mentioned before in detail, the most probable is that it will be in the fourth quarter, although it's not 100%, but I would say that you should count that it will be in the fourth quarter, as you say.

[Operator]

Our next question comes from Domenico Santoro from HSBC.

[Domenico Santoro, Analyst]

Thanks for giving us actually the different scenario implied in your model at Page 23. I do have a question on how the amount of provision model provision will change if you have to give more probability to the adverse scenario? Any sensitivity on this side would be great to have and especially also any also implication for risk-weighted assets from rating migration, if any? The second question is on capital. I know that there are many moving parts here. I wonder whether you run the calculation for the core Tier 1 in Q1 of next year, if this 11.3 still stands as it is? Or you have probably have enough date on this. And given that, of course, this is a number which will have all the eyes from investors, I was just wondering whether you have any time line for capital rebuilding here in terms of timing to get to 12% now that probably you have done more work on the integration side? And then I have a question on deposits, if I can. I've seen that you got quite a big chunk of deposits this year. And given the level of rates where it is, I'm just wondering whether there is any -- from clients or any commercial activity from your side in order to migrate this money into asset management products going forward?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Dominic. I'm going to try and be concise an answer in order to make sure we allow for the rest because we should finish by 1:00. I would say, in terms of liquidity, we're actively managing liquidity, both through appropriate charges. And obviously, making sure that we have a balanced proportion of liquidity from clients given the business they have with us. And also if clients have a lot of liquidity, they should have all the business and the overall picture should be profitable, clearly. There's room to go further on that front because now we -- it's clear to all of us, and it's clear to our clients that money has a cost, and it's going to have a cost this year, next year and for quite a few years. So this is no longer a discussion will say, well, why don't you -- this is just a few months or a couple of years. Now this is now a structural problem. If you look at it that way, money is costly and our clients need to behave accordingly. So I expect to make further progress on that front. In terms of the merger numbers, we have not updated them on capital or costs at this stage. I think it is something that we need to do in due course when the transaction is completed. But it's obvious to, I think, everyone, given the numbers that we have delivered in this quarter there is upside certainly on the capital side to the numbers that we have presented. I think both institutions are doing nicely in increasing further the capital ratios beyond certainly what the market was expecting, and we'll keep working on that front. On the rest, Javier, can you maybe take it?

[Javier Pano Riera, Chief Financial Officer]

Okay. Domenico on rating migration. So we are in the same place. Remember that what we commented is that we have approximately EUR 50 billion of risk-weighted assets in IRB models. So the rate in migration would affect that part. Our expectation is that this will be less than somewhere between 5% and 10%. So -- but this is probably the worst case, 10%. And that's -- we think that it's something that we can manage in any case. And you had a question initially about the impact of, let's say, a more, let's say, pessimistic view in the combination of scenarios. Our view here is that, well, at least according to what we may think may happen on this front on the different way things, we should be able to accommodate this into our guidance for this year. I think that this is an important message. Unless where the situation or the whole scenarios had to be changed. But we think that we can absorb a more, let's say, asset view on the combination of scenarios. Thank you, Domenico. I think that -- this helps to answer your question, and we should move up. We should be closing by 1:00. So let's see if we have time for 1 or 2 more questions, please.

[Operator]

Your next question comes from José Coll from Santander.

[Josema Coll, Equity Analyst]

First, I have a follow-up on capital and cost of risk. You mentioned that Bank of Spain, Central [ Caixa ] you expect around a 1% impact on 3Q 1, up to 2022. I think the EBA analysis that they present a few months back, it was sort of 1.5%, 2% impact on CET ratios. And if I have understood correctly, you said that you would be -- your view would be in line with that sort of analysis. So my question is, where do you think the impact on capital are going to come from? When cost of risk -- you're guiding for a lower cost of risk next year versus this year and the pre-provision profit already more than covers our cost of risk. Is this mainly -- you see a big increase in risk weighted assets and this was the big driver for impacts on capital could be going forward? And the second question on legal lending. It's been done at lower yields versus the back book for both corporates and SMEs. So I understand that adjusted by capital consumption, ICO loans are very profitable. But would you expect a spillover effect on the rest of the non-ICO lending in the corporate and SME book when the time comes to roll over these non-ICO loans?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you. Thank you, José. Well, on the CET1 impact here, I understand that you already take into account that we have from now that much of those impacts because we have built those COVID-related provisions. So it's not from now on that those impacts will be felt. So we have already from loaded a large part of those impacts. So just to take this into account. And I would say that our macro views are in line with what you have commented. So I don't think that this is going to be an issue, at least according to our analysis. And regarding your second question on ICO, well, I think our views are not -- that should not have an impact on the new production of loans after ICO because while it's a different product, it's a different probably target. So our view is that we should be able to resume the new origination loans at, let's say, wider spreads as before. So remember that also this -- from ICO loans also takes into account the cost of the warrant. So with loans without the warranty of ICO, you don't have this. So this -- it's worth mentioning also. I don't know, José, if this answers your question. We should be moving on. Operator, please?

[Operator]

And your next question comes from Daragh Quinn from KBW.

[Daragh Joseph Quinn, Analyst]

It's Daragh from KBW. One question, a follow-up on capital. Just on the commentary explanation you gave for the low default portfolio and building out your own model. So just to be clear, the 50 basis point roughly impact that we should expect in Q4 or in Q1 will essentially be reversed as you rebuild your own models. Could you just confirm that? And if you could just outline the time line of that process? And then just a small question on NII, just confirm the amount of TLTRO accrual in NII this quarter? And the final question on Telefónica. I mean I know in hindsight it's maybe easy to look at as an investment and come to a conclusion. But as you see the impact that this has had on your capital ratio, maybe just some color around what -- I know it's available for sale and what's the kind of standard answer to this question is, but just really what is the logic and benefit of having this type of investments?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Javier, do you want to start and then I'll finish on Telefónica, as you wish.

[Javier Pano Riera, Chief Financial Officer]

Daragh, we are starting to work on, let's say, the new model according to the parameters required by the supervisor. This is going to take some time, as I said, because then it's not only that we do our homework. It's also that we, then the new the approvals for this new model that have to be obtained. And this is going to take probably up to 2 years. Our view is that we will come up with a situation that is better than this -- just with a asset density of 70%. We will be back to where we are today. It's something that is still an open question, but clearly, an improvement with the situation that we will be facing since the moment this limitation is enforced. On NII, quarter-on-quarter, the positive impact from TLTRO is EUR 35 million. We are accruing 87 basis points. According to accounting rules. And we already had some impact from TLTRO in the second quarter. And this is, let's say, the 87 basis points compared to the 50 basis points you are obtaining of your charts in the deposit facility of ECB. And Telefónica.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Sure. On Telefónica, there's nothing new other than the underperformance of the company, which obviously shows in our capital numbers. I hear you, but there's nothing new. And I think in the interest of time and taking the last question, I will not elaborate more because there's absolutely nothing new.

[Javier Pano Riera, Chief Financial Officer]

Okay. Thank you. That's all we have time today. I know that there are some other questions on the line. But -- well, the IR team is available for you. And I am also personally available for you at any moment, as always, please. Thank you very much.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you very much.