Banco Santander SA

MAD:SAN

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, everybody, and welcome to [Audio Gap] conference call to discuss our financial results for the first quarter of 2022. Just as a reminder, both the results report and the presentation we will be following today are available to you on our website. I'm joined here today by our CEO, Mr. Jose Antonio Alvarez; and our CFO, Mr. Jose Garcia-Cantera. Following their presentations, we will open the floor for any and all questions you may have in the Q&A session.

With this, I will hand over to Mr. Alvarez, Jose Antonio, the floor is yours.

[José Alvarez, executive]

Thank you, Begonya. Good morning to everyone. Thank you for joining us this morning. I'm going to start with the first quarter results, starting with the activity levels of the group in the quarter where we continue to have a good customer activity, customer meeting activity. We keep growing the customer base, 2 million more customers in the quarter, 7 million more since March 2021. This reflect our growing business and increased customer satisfaction. As you know, this is one of our goals, and we rank in the top 3 in NPS in markets now. While the transactionality and the digital adoption keeps growing at a good pace, 49 million, almost 50 million digital customers, 5 million more than in March 2021, and transactions in digital channels are growing at 50%, note the digital option is in a good pace.

As a result of this, our volumes in the balance sheet being launched and deposits kept growing, both quarter-on-quarter and year-on-year, and we translate this into a customer revenue growth that you're going to see in our P&L.

So going to the performance, results and profitability. The Q1 attributable profit was EUR 2.5 billion -- EUR 2.54 billion, 19% versus first Q '21 in underlying profit and 58% year-on-year when we compare it with the attributable profit. Remember that last year, we bring around EUR 500 million restructuring costs that we don't have this year. On the cost side, and this is particularly important in this unexpected high inflationary environment, we were able to -- the cost to remain well below inflation and allow us to improve our efficiency ratio in line with our guidance of getting 45%. We improved our profitability ratios quarter-on-quarter, year-on-year. Our return on tangible equity went to 14.2% and EPS growing at 22% compared with the Q1 '21.

We continue to create value for shareholders. The tangible net asset value per share stood at EUR 4.29, 4% up quarter-on-quarter, 13% up year-on-year, including the cash dividends. When I go -- we go to the balance sheet and we look at the risk, particularly credit risk, the cost of credit remains relatively stable at 0.77%, below our guidance for the whole year. And NPL ratio stays at 3.26%. Remember that in the quarter, we have a like-for-like basis without this new finishing off to follow, the NPL ratio far like 10 basis points or something like that. The core equity Tier 1 was above 12%, 12.05%. Good organic capital generation, 40 basis points from Q1 '22 earnings and minus 23 basis points from dividend accrual and the second buyback -- share buyback that is going on and started mid-March.

So going to our P&L. Let me say that remark that the exchange rates play in a positive way, 4, 5 percentage points you have in the third, fourth column in the slide, in current euros and constant euros -- current euros is 4 or 5 percentage points more, partially offset by hedging in the corporate center that our CEO will elaborate later on that we have a negative -- due to the hedging of the expected profits.

As I mentioned earlier, we are at a profit of more than EUR 2.5 billion, growing strongly year-on-year. In the quarter, attributable underlying profit recorded the same amount, and we had no extraordinary charges. I will elaborate in the different lines on the P&L later on. When we look at the regions, we see that, well, we are around 30% in each of the main regions, Europe, North America and South America and the Digital Consumer Bank around the 10%. Well, in addition to the revenues and -- profit also received an outlook from costs, growing below average inflation. We will see later on control loan-loss provisions and lower minority interest following the acquisition mainly of the Santander Consumer U.S. minorities.

The quarterly series reflects our sustained profit growth quarter-after-quarter bucket, but what I mentioned, customer revenue growth, the quarterly comparison of NII is affected by the count, as you know. So on a like-for-like basis, we are growing 1% to 2% in constant euros NII. Q-on-Q fee income continued to increase, positive performance in the majority of the countries, partially offset by seasonality in South America, mainly in Brazil. Costs decreased quarter-on-quarter, thanks to our core discipline and partly due to bonus adjustment in the fourth quarter of 2021.

In addition, our loss provisions remained flat year-on-year and up quarter-on-quarter driven by the provision release in the fourth quarter of circa EUR 750 million. Trends in euros were better, as I said, than in constant euros, as growth rates were higher, benefiting from the positive FX impact in the quarter. So when we go in deep into the revenue, revenues were north of EUR 12 billion. Net interest income and fee income accounted 95% of total income. By line NII grew 6% in constant year due to greater volumes and higher interest rates by country and constant exchange rate, significant rises were recorded in U.K. plus 15%, Poland, plus 78%, Brazil 7%, Mexico, 7%. And on the other hand, Spain was affected by the changes of mix and lower ALCO portfolio and Portugal by ALCO portfolio disposals that we executed in Q1 '21.

Net fee income amounted to EUR 2.8 billion, plus 6% in constant euros, driven by improved activity, notably in high value-added products and services. You have the figures in the slide. Good levels of activity in cards, insurance premiums, PoS turnover, mutual and pension, well, all the fees all across the world, a significant increase in activity levels and translated into higher fees.

In cost, as I mentioned at the beginning, we are working in a high inflationary environment. We are focusing here in 2 main points. One is to make sure that our costs grow less than inflation, and this is the minus 3.3% in real terms that we achieved. That's particularly important. And the second 1 is to keep improving our efficiency that improved 1.2% going to the 45%. As you know, this is one of our key targets.

When we go by regions, we are delivering as expected, according to our plans in Europe in a much more difficult environment, yes. So it's true that we are showing here with the different reporting in Europe, but we are not far away. I think the CFO already guide you that the EUR 1 billion cost savings is going to be more in the region of EUR 800 million affected by inflation, but we are progressing very well in -- both in Spain, Portugal and U.K., and also in Poland in a high inflationary environment. And we continue to deliver according to our plans affected somehow by inflation in non-personnel expenses that are much more difficult to control.

In North America, growing well below inflation. North America, U.S., Mexico, minus 2.7%. That is a good achievement. You've seen the results of our other players in the same markets where cost control has been difficult to achieve. And in South America, well, the figure seems pretty high. Argentina is there. But also in Brazil, where the inflation is running above 10% and the agreement with the unions in Brazil that the sector signed September last year was in the region of 10%, 11% and translating to significant higher costs in line, a bit higher than inflation. I do expect in Brazil to enter into 2 quarters of having the expenses growing less than they grew in the last 2 quarters on the back of our efficiency plans. And Digital Consumer Bank that is growing above inflation due to the -- some initiatives and change in perimeter last year.

The cost of credit, well, the credit quality indicators remain stable. No significant impact from the war in Ukraine. We have no exposure to Ukraine or Russia. As you already know, our cost of credit, 77 basis points. If you look at the only the last 3 months, it's 83 basis points. As you can see later in the country review that provisions normalize after releases in Q4.

The NPL ratio, 3.26%, 19 basis points come from the New Definition of Default. Otherwise, the NPL the ratio and like-for-like basis will be through [ 3.07% ] . The loan reserves and the coverage remains relatively stable. In coming quarters, the implications of the impact of the current geopolitical situation on our business performance and credit quality are still relatively uncertain, and we don't now understand the duration of the conflict. However, I should say that our starting point is very solid. So the great diversification enabled us the resiliency to face the crisis. I mentioned that our exposure to the parts in the conflict is negligible. We have enough tools in our hands to make us confident that we will meet our expected year-end cost of risk of below 1% even in the new scenario.

When it comes to capital, our capital ratio, we delivered -- we had a very good organic capital generation. Gross organic capital generation in the quarter was 40 basis points on the back of the good results I just presented to you. 23 basis points went to the shareholder remuneration, 15 basis points for the share buyback and 8 basis points for the accrual of our 40% payout policy. That's basically -- and the other impacts are relatively minor regulatory and models and markets and others, relatively minor effects.

In coming quarters, we will maintain our credit focus of the implementation of disciplined capital allocation measures across the group and the achieving of the targets we announced in Q4. In this regard, risk weighted assets are growing below loan growth. Our front book is already delivering high risk-adjusted return. We generate ROA of 2.8% in Q1 2022. The percentage of risk-weighted assets that do not cover the cost of equity keeps falling and this is a good sign of our future profitability.

Well, our policy to remunerate the shareholders. The dividends, the EUR 3.4 billion dividends is split in 50-50 in cash dividend and share buybacks. The second share buyback program with a maximum of EUR 865 million, started on March 15, and we are -- is under execution as we speak. As a result, the total shareholder remuneration is EUR 3.4 billion, 6% yield. In 2022, you know our policy -- dividend policy that was stated by the Board and we reiterate in our AGM.

When we look at the capital -- the profitability ratios, you can see in the slide, both EPS, return on tangible equity, tangible net asset value per share going in the right direction on the back of excellent capacity of the bank to generate results in a recurring and sustainable basis.

Finally, before I hand to Jose, I would like to highlight Santander's strong commitments to ESG. You have in the slide our commitments on how are we progressing in the different commitments that we have been in green finance, where we already originated EUR 69 billion since 2019 with our commitment of EUR 120 billion by 2025. We continue to see good demand and there is significant investment going in this field, and we are participating in this. We are developing green products. At the same time, we are developing a -- starting to develop an information system that allows us to track how our portfolio behaves in relation with CO2 emissions. And this is an important tool that we need to implement in order to track all our progress here.

Well, in the asset management industry, we have also targets. You have the figures in the screen. And renewable energy, we are world leaders, and we are signing alliances in order to make progress in this field. The decarbonization targets, you have there our commitments, both in -- mainly related with the power sector. And well, we are progressing in line with our targets. These goals are included in the executives' long-term incentive scorecard and that show how committed we are with this ESG target, particularly I were referring here in the screen to the. But you know that we are also very active in the social particularly -- in the social target, particularly in the micro credit space in Latin America.

So I hand over to Jose to continue the presentation with the results by regions and global businesses.

[José Antonio García Cantera, executive]

Thank you, Jose Antonio, and good morning, everyone. As usual, I will start with a brief summary of the regions, and then I will move on to the countries to discuss in a bit more detail. We continue to leverage the -- one of the strengths of our model, which is diversification and scale, improving the operating performance in all 3 regions and global businesses.

In Europe, we are making a significant progress in the transformation of our business. and in developing a common operating model. We achieved double-digit growth in net operating income and profit, reaching a 13.5% return on tangible equity. In North America, we are refocusing our position in the U.S. while maintaining a disciplined capital allocation. We accelerated growth and volumes generated a return on tangible equity of 24%. South America, we are growing the number of customers and capturing new business opportunities, delivering to an almost 27% return on equity. And then in the Digital Consumer Bank, new lending increased by 17% and profits rose double digits with a return on tangible equity of almost 13%. Obviously, we achieved all of this while enhancing our global business and connectivity with the regions. In this way, SCIB, consumer -- sorry, a Corporate & Investment Bank earned a return on tangible equity of 25%. And Wealth Management & Insurance return on tangible equity was 55%. We continue to make progress in the development of PagoNxt, I will talk about that in a minute, maintaining high profitability in our card business with a return on tangible equity around 30%.

So moving to Europe, the business transformation to develop a simpler and a common operating model is delivering good results with increased volumes. Especially in individuals, mortgages were up 6%, consumer lending was up 9%, mutual funds up 3%. We experienced significant improvements in customer satisfaction surveys at the same time. Profit reached EUR 1 billion in the quarter, increasing 30% year-on-year. Revenue grew strongly. NII was up 9%, supported by higher volumes and interest rate hikes in Poland and in the U.K. Fee income grew 7%, but by greater activity. Our efficiency plans continue to bear fruit as the cost day shrunk rank 2%, went down 7% in real terms, and the efficiency ratio improved to around 48%, driving net operating income up by 12%.

Loan-loss provisions dropped 14% as the cost of credit started to normalize across countries, most notably in Spain. Return on tangible equity reached, as I mentioned before, 13.5%, up 3 percentage points year-on-year. All in all, we remain on track to meet our targets for the year. Our performance in Europe stood out not only for its positive set of results, but also for the special initiatives implemented to support our Ukrainian customers and employees as well as refugees and all those affected by the war. In this regard, we provided financial measures to facilitate transfers and cash withdrawals, made donations and collaborated with NGOs to help refugees such as the 2 planes chartered from Warsaw to Portugal and Spain.

Going into details in Spain and in the U.K. In Spain, we increased the customer base by 200,000 customers in the first quarter, which obviously helped volumes, especially new mortgage lending, which doubled compared with the first quarter of '21 and exceeded pre-pandemic levels in consumer credit. Profit grew 21% year-on-year, supported by the execution of our efficiency plans and the lower cost of credit. Revenue remained under pressure due to ALCO sales in 2021 and the change in mix. We had a much better performance in fee income. The quarter-on-quarter comparison is benefited from obviously the deposit guarantee fund charges of the fourth quarter but also supported by lower cost and loan-loss provisions.

In the U.K., we maintained very positive business dynamics. Gross mortgage lending rose to GBP 9.5 billion in the first quarter, near a record level. NII rose 15%, supported by increased volumes and higher interest rates, which drove double-digit growth in revenue. Fee income, the comparison in fee income is negatively affected by the transfer of the Corporate & Investment Bank activity from the bank to the London branch. We doubled our efforts to keep costs under control and thus improved efficiency by 7 percentage points, which enabled net operating income to grow 3%. Loan-loss provisions were higher following the cost -- the normalization of the cost of credit, we would expect cost of credit to be around 10 basis points. And quarter-on-quarter comparison was affected by the loan-loss provision releases in the fourth quarter.

Moving to North America. Our strategy there is to accelerate profitable growth in the U.S. while creating a joint value proposition to improve customer experience, simplifying our business to generate efficiencies. The acquisition of Santander Consumer U.S. outstanding shares, along with Amherst Pierpont Securities and Crédit Agricole, LatAm wealth management operations will improve our strategic focus and competitive position.

We had solid growth in individuals and commercial loans in Mexico and increases in auto and CIB in the U.S. On a like-for-like basis, we need to exclude Bluestem portfolio disposal in the first half of '21. Profit was 4% higher, benefiting from a better NII and the acquisition of minorities in SC USA. In the quarter, we virtually doubled the average profit recorded before the COVID-19 pandemic.

In the U.S., we continue to make progress towards simplifying our business model across our 4 core businesses: Consumer, Commercial, CIB and Wealth Management. Loans grew 8%, backed by CIB, Auto and Wealth Management. During the period, auto originations decreased, impacted by the semiconductor shortage pushing the Manheim value index to an all-time highs in early 2022. Customer funds continued to exhibit strong performance, while the overall cost of funds decreased.

Moving to the P&L. On a like-for-like basis, profits dropped 5% basically due to higher loan-loss provisions driven by normalization in the cost of credit. We also had a more normalized leasing activity due to an increase in the share of lease and vehicles repurchase at the dealership in this quarter. In the first quarter of '22, 94% were purchased relative to 35% in the first quarter of '21. NII was pressured by the runoff in Paycheck Protection Program related balances. All in all, we recorded a very high level of profit, more than doubling the quarter average profit in 2019.

In Mexico, we had an excellent quarter, reflecting our successful customer attraction strategy. We delivered a 32% year-on-year increase in profit and also great returns, great profitability due to the increase in revenues supported by NII, both due to higher volumes and the rise in interest rates and higher net fee income. We also had lower loan-loss provisions due to positive performance in our portfolio.

In South America, we continue to focus on attracting new customers, leveraging business opportunities, strengthening connectivity and synergies across the region. We recorded overall growth in loans with good dynamics in individual lending in most countries. Deposits rose 6%, driven by both demand and time deposits. In terms of results, we grew profit 8% year-on-year with double-digit customer revenue growth. Cost heavily affected the inflation, especially in Brazil and Argentina. Although cost -- total costs were virtually flat in real terms, higher provisions mainly driven by growth in individuals. Also in Brazil, we had lower taxes.

Moving to Brazil. We maintained positive trends in customer acquisition. Customer increased 12% year-on-year and digital customers grew 18% year-on-year as we launched several initiatives for our multichannel strategy. In volumes, mortgages rose double digits, card turnover was up 22%, and we maintained our leadership in auto. This great customer activity enabled us to absorb the rising cost and higher provisions due to the growth we had in individuals. Cost of risk stood at 3.94%.

In Chile, we continue to expand Santander Life, Superdigital and Getnet. We were very active in launching new strategic initiatives. And as a result, we had very strong customer attraction with 11% growth year-on-year, and we maintain our top position in NPS, and we grew the balance sheet, both in loans and deposits. In the P&L, very positive performance year-on-year, up 28%, with revenues up 10%, cost growing below inflation and a lower cost of credit.

In the Digital Consumer Bank, also a solid quarter, which reinforced our position. We are gaining market share very quickly in Europe. We also signed new strategic alliances with Stellantis or Peugeot. We launched new leasing businesses in all our markets in 2021, which experienced a 48% growth in new contracts year-on-year. We launched the subscriptions -- we signed an agreement with Wabi in subscriptions. We launched Zinia, our buy now, pay later solution in Germany, which has generated over 2.5 million new contracts in just 14 months. Moreover, new business activity is now above pre-COVID levels having increased 17% year-on-year, up 13% in new cars and 29% in used cars. We are increasing market share, as I mentioned, in both markets, new and used cars.

Openbank continued to grow strongly, both in balance sheet terms and number of customers. And obviously, this greater activity was reflected in fee income and leasing revenue growth. Costs were up due to investment in global transformation platforms and some inorganic transactions. Excluding these, costs increased 2%, more or less minus 2% in real terms. We also had very positive trends in credit quality with a further 25 basis points reduction in the cost of credit. So overall, again, very excellent results, very good results in the quarter by the Digital Consumer Bank which increased 11%.

Turning to our global businesses. In Corporate & Investment Bank, our goal is to become one of the leading investment banks in Europe, consolidating our leadership in Latin America and continue to accelerate growth in the U.S. Additionally, as leaders within the sustainable sphere, we completed in April 2022, our plan to acquire 80% of WayCarbon, a leading Brazil-based ESG consultancy firm. In terms of financial performance, Q1 was the best quarter in CIB history with record revenue, attributable profit and return on risk-weighted assets. Revenue was up 5% year-on-year, a very good quarter relative to already a very good '21, which led to a 10% increase in profit. It is worth noting that only 20% of our revenue come from market-related activities, 80% comes from customers.

In wealth management, despite market volatility, our businesses grew, thanks to our globally diversified value-added proposition and sales through digital channels. We were named as one of the top 3 global private banks by Euromoney. And activity levels remained strong with net new money, around EUR 3 billion in the quarter. Investment flows and asset valuations were less impacted than in previous crisis due to our global high value-oriented asset mix, contribution to the group rose 10%. In insurance, we had sustainable growth based on non-related business in addition to strong growth in digital sales, which were up 50% year-on-year. In summary, higher revenue and total contribution to the group's profit in Wealth Management & Insurance achieved a 7% growth, 14% up on a like-for-like basis.

Turning to PagoNxt. In the first quarter, we had several achievements in merchant acquiring, Getnet continued to deliver very high growth, increasing total payments volume by 40%, backed by Brazil, one of our main growth drivers. And Spain, thanks to our customer acquisition strategy and increased merchant activity and also in Mexico. In international trade, our One Trade platform currently connects our customers in 8 countries. We continue to expand its capabilities to provide international instant payments between Spain and Brazil. We plan to launch real-time payments in other international corridors in the coming quarters.

In summary, revenue doubled year-on-year in the quarter, obviously, quarter-on-quarter is affected by seasonality. In cards, I would like to highlight our efforts to improve our global card services. We are working to globally manage 95 million cards through the group -- throughout the group. In the first quarter of 2022, we continue to grow strongly. Turnover and the number of transactions increased well above 20%. This performance was also reflected in the quarter revenue, which reached almost EUR 1 billion, 30% higher year-on-year. We had positive performance in both credit, debit cards and across regions.

It is worth mentioning that revenue in the fourth quarter is seasonally higher. Obviously, in the fourth quarter, we had Black Friday and Christmas, and still, you see a very good comparison quarter-on-quarter, which shows how strong the first quarter of '22 was. Looking forward, we expect to continue to grow the number of accounts turnover and revenue.

Now let me finish with the Corporate Center. We reported an attributable loss of EUR 460 million, which is relatively high affected by the negative FX hedging results which obviously were more than offset by the positive performance of exchange rates in the country's results. The quarter was also impacted by the higher liquidity buffer. We also recorded a negative tax impact due to the higher results of those businesses operating in Spain. On the other hand, we recorded no material changes in costs, and we had a significant decrease in loan-loss provisions and other provisions.

And now let me turn it back to the CEO for his final remarks.

[José Alvarez, executive]

Thank you, Just to finish this presentation before we go to the questions, let me share with you the outlook for the coming quarters, taking into account the situation in which we are developing our business. As a result of the geopolitical situation, we are facing an environment in which the consensus is shifting towards an environment of lower growth and otherwise will be the case as a result of this war. And I mentioned before in a high inflationary environment that is triggering the reaction of the central banks increase in interest rates in some countries and some others, the market is expecting those to be increased.

So taking into account all of this, I should say, a couple of things. Our starting point is extremely solid. You see the results, you see the trends in our activity in the business. You see our customer gathering. So the starting point is very solid. And we face this environment from a strong position. So our capacity to attract the customers and growing more profitable business in a -- higher in rate, the scenario you're going to provide a big significant uplift to our revenues. Naturally in this inflationary environment, we need to be, as always, looking at matching the cost. We think that we can continue to deliver a cost growth well below inflation, as we showed you in the first quarter.

Third, our capacity to control the cost of risk and to keep it below the average across the cycle based on our customer knowledge and our anticipation in some markets as we are doing in some markets, make me comfortable with the guidance we gave to you in the cost of risk and our capital allocation strategy should continue to drive profitability improvement and maximize shareholder returns. This make us confident. We shared with you in our AGM that we are in the right track to achieve our 2022 targets that we shared with you, both in revenues, efficiency, return on tangible equity and capital.

So now we'll leave it here, and we remain at your disposals for the questions you may have. Thank you.

[Operator]

[Operator Instructions]

And our first question is coming from Ignacio Cerezo from UBS.

[Ignacio Cerezo Olmos, analyst]

Two things for me. The first one is on Brazil. I mean it looks like the situation has kind of deteriorated versus the guidance you gave back in December, probably most of the lines are probably below expectations then. So if you can update how you're expecting basically '22 to be shaping up on the main lines in Brazil? And the second one is, any information you can provide on the process of Banamex in Mexico interest, timing, any information, actually, incremental information versus the one you shared 3 months ago?

[José Alvarez, executive]

Okay. Thank you, Ignacio, for your questions. Let me to elaborate on Brazil. I should say first that our expectations are not materially different than the ones we had in the last quarter. Let me to share with you where we in Brazil. So as you know, we tightened our credit standards back in September last year. As a result, we are growing our portfolio less. But for the whole year, I feel comfortable growing the portfolio in line with the inflation. So more or less in line with inflation in the country, so around 10%, a bit less, a bit more. So this is our expectation. Our -- very significant customer spread expansion in the business, so the spread -- customer spread went up more than 100 basis points. It's true on the other side, it was more than offset by the ALCO positions that were on the back of increasing rates almost 10 full percentage points, naturally the NII and the NIM coming from ALCO compositions collapse. And this is what you see, the combination, this is what you see in NII.

So revenue-wise, on the net interest income, I feel that we can grow high single digits. No problems to get there. And the same, let me say, even more optimistic on fee income that we can be -- for the whole year in double digit, the quarter show some seasonality here. The costs have been difficult to control. Costs, as I mentioned, the agreement with the unions back in September increased the salaries 11%. And what we are showing in the panel exactly this, probably in the second, third quarter, we're going to -- this is going to trend down, the cost growth, and we will see the agreement with unions in September. But I felt that we're going to be able to match to get around inflation for the whole year.

Finally, you see -- going through the P&L, you see in the quarter, an increase in the cost of risk that we were anticipating. And while we went from 3.75% or a figure like that to something above 4%, I remain confident that we're going to match to be in the range between 4%, 4.5% for the whole year, yes. So that's my view. This case environment in which -- we're going to continue to deliver good results in Brazil and growing probably nicely in the country and having a return on tangible equity north of 20% or around 20%, not a particular deterioration in this regard.

In this, I should say, a more complex environment, although I should say also that the war in Ukraine. Well, when I look at Brazil, it should be neutral to positive for Brazil. So I'm not as pessimistic as you seem to be about the trends in Brazil. So second question, Banamex, well, very little I can add, yes, to this, yes. So we said we -- our Chairman said the conditions, our requirements for participating -- well, we're going to participate in the analysis of the deal. Our conditions, but nothing I can add at this time because we haven't -- we don't have additional information other than the 1 that is public information. And the process has not officially started as far as I know.

[Operator]

Our next question is coming from Sofie Peterzens.

[Sofie Peterzens, analyst]

Here is Sofie from JPMorgan. So my first question would be, if you could just kind of remind us of your order partner agreements. How should we think about the Chrysler-Fiat agreement that comes on in next year? And could you just remind us what your new agreements in the U.S. are? You also had some new agreements in Europe. So could you just remind us what the potential impact from these agreements in Europe are? And related to that, if you could also talk about the U.S. cost of risk because it remains very low, below 50 basis points. So how should we think about a normalized cost of risk level in the U.S.? And when do you expect loan losses in the U.S. to normalize?

And then my second question would go back to Brazil. In terms of asset quality, we are starting to see some signs of kind of higher cost of risk, but also higher NPL ratios in Brazil and NPL was 5.7% and at the same time, coverage fell to 101%. So how should we think about the asset quality outlook in Brazil? How concerned are you about the potential credit bubble given that rates have gone up so much?

[José Alvarez, executive]

Okay. Thank you, Sofie, for your questions. The first 1 related with Stellantis, our agreement with Stellantis. As you know, first thing, I should say, we have an excellent relationship with Stellantis. And we reached an agreement in Europe, very satisfactory agreement, I should say, for us. As a result of this agreement, we're going to focus in the main markets of Stellantis in Europe, France, Italy and Spain. As a result of the agreement our portfolio with Stellantis in Europe is going to grow -- I don't remember, sir, the number, a couple of billion, EUR 4 billion, EUR 5 billion. The total portfolio is EUR 30 billion or EUR 30 billion something. We're going to add an extra EUR 4 billion to EUR 5 billion as a result of this agreement that we reached with them in Europe.

When it comes to the U.S., as you know, Stellantis, Chrysler bought a small finance company, and they plan to develop this company. While this company is fairly small. As a result of this, we're going to continue to be the preferred provider -- for a while. How long it will last? It depends on how fast the other company evolves. Having said that, we feel that we're going to continue to underwrite significant -- having significant originations on Chrysler Stellantis in the U.S. as long as with other originators.

We reached an agreement with Mitsubishi, we become the provider of Mitsubishi. We have agreements with certain dealers, with certain originators in the online space. And I do feel comfortable that we're going to continue to have the car traditional, car subprime business we underwrite in our own. In the near-prime and prime space, I think that the origination level is going to remain relatively stable, at least in the U.S., provided the car market evolves and recovers the activity levels. So I'm pleased with the developments in this front and the agreements with Stellantis, Chrysler.

You mentioned the cost of risk in the U.S. and Europe. It's true that in Europe on the back of very low unemployment levels, the cost of risk and good price of -- in the used car markets, the cost of risk is at -- one of the lowest levels, we are not seeing any particular development here. So I will focus more on -- the main KPI here is, to me, is the unemployment rate, yes. So as long as unemployment rate remains as low as it is today and the trends in labor market is solid, I feel comfortable with the current cost of risk and even can stay here or even go lower on the back of this.

In the U.S. it's different. In the U.S., we are going back to more normalized levels, you see in the trends. And this trend will continue to go on. Jose already refers to the special situation of the used car markets in the U.S. that has changed a little bit the dynamics in the sense that when the leases expire, the lessors prefer to keep the car instead of giving us back and selling us to the market. And this has changed a bit the dynamics in our P&L. The other income in the P&L gets reduced as a result of not making gains in disposal of the leases just because the lessors prefer to keep the cars and [ dispose by ] themselves. But the cost of risk is going to get more normalized over time.

Brazil, you elaborate -- I already -- to the previous -- not just questions, I elaborate on the cost of risk. You mentioned higher NPL ratios, the coverage for outlook and the potential. Well, I said that my best guess now based on the information I get is to have a cost of risk in the region of 4% to 4.5%, yes. So probably 2 quarters more, 3 quarters more before we come back, but this is my best estimation here. Well, this is the result of, as you rightly pointed out, of a significant decrease in the disposable income combined with higher rates. Nothing that we were not expecting and that advise us to reduce our split in the consumer lending in the fourth quarter last year and in the first quarter, we had the same position. I hope I answered your questions.

[Operator]

Our next question is coming from [ Ignacio Lopez from Santander ].

[Unknown Analyst]

Just I have two questions. On one side on lending growth outlook in Spain, I mean, performance in the quarter has been strong. If you could just update a bit us on the outlook for the Spanish NII and the rate sensitivity domestically? And also, I guess, I have a question on the cost side. If you just could elaborate a bit on what were the changes in perimeter or the initiatives that you are posting in the Digital Consumer Bank? What do we expect going forward? If I just may, I mean it's very early probably, but if you could just give a bit of a sense of what should we expect of the impact in Poland from the measures announced yesterday by the Prime Minister, it would be very useful.

[José Alvarez, executive]

Okay. The third question I got the information yesterday, probably is a bit early. So I'm sorry, I can't elaborate more on this space, probably in the coming days or weeks. Once we know more, our IR department will be -- we will be more than happy to share with you our views. But now it's a bit early. Naturally, the trends sounds definitively not positive for the banking system, but difficult to say at this stage and to guide you with any impact.

On the other side, you're seeing results in the franchise that are stellar results. And well, I do expect that these measures, potential measures that come, will not harm significantly this net income generation, but we'll see. We'll see. We'll come back to you on this.

Lending growth in Spain, NII sensitivity. Well, lending growth, Spain, mortgage market has been quite strong in the last 2 quarters or in the last 3 quarters, and this is the -- this has been one of the main drivers. The other driver is more in the CIB space, where on the back of, were referring renewal energy, we were referring also the energy sector where we are we've been pretty active. And the lending growth that you see there comes from particularly these 2 spaces, mortgages and the other side, CIB. In the middle market, SMEs, we haven't seen a strong activity there. NII, Jose elaborate, but it's north of EUR 1 billion sensitivity. Jose, would you want to elaborate on this?

[José Antonio García Cantera, executive]

Yes. The sensitivity we have the rates right now in the group is in Europe. Continental Europe is around EUR 1 billion to 100 basis points parallel shift in the interest rate curve, approximately EUR 250 million in the U.K. and EUR 200 million in the U.S. In South America, after having raised rates earlier, we are approaching the point of neutrality already probably in the second half and should be positive in next year.

[José Alvarez, executive]

Okay. Finally, your question, I'm not sure if I get the -- was about the consumer bank. You mentioned the perimeter. Well, what we've done last year, we bought a company -- a leasing company in Germany, along with Hyundai, a joint venture, 50-50, we bought from the market. And the other developments we have is we enter in the business in Greece with the main importer of cars in Greece, and we are developing this business. And also other minors was mentioned by Jose in the presentation, the agreements with Peugeot and others that, well, you can say this is business as usual, yes, somehow. At the same time means that we are changing the perimeter is a way to grow the businesses.

[Operator]

Our next question is coming from Carlos Peixoto from CaixaBank BPI.

[Carlos Peixoto, analyst]

Carlos Peixoto from CaixaBank. So first question would actually be on the outlook for cost of risk in Spain. I believe that the fourth quarter, you have guided to roughly 50 basis points for the full year, where the first quarter is around 60 basis points in my math, but I was wondering if you keep the guidance for the full year or the changes in -- with the war in Ukraine and rising energy prices, you mean some changes on that front?

Then on the second question regarding the capital. I was wondering if you could give us some color on the pending regulatory impact that you see for 2022? And if there are any in 2023? And on a related question, what would be the -- currently the minimum level that you would be willing to see common equity going down to in the context of an acquisition, like say, on an execution obviously to have some references there?

[José Alvarez, executive]

Okay. Thank you, Carlos. Outlook for cost of risk in Spain, we got you in the region of 50 basis points. Basically, if I remember well, we said we're going to halve the cost of risk of last year that was 97 or close to 100 basis points. I remain comfortable with this guidance, yes, even in the new scenario. I don't think that this is going to affect materially our expectation for the cost of risk in Spain. It's true that we're going to have the expiration of the extensions [indiscernible] now starting in April, the same amount and will -- I being talking to you many times about some uncertainties around in this. And this still some uncertainty, how those customers are going to behave.

Having said that, the risk we have here is only 25% of the outstanding volumes and it's not going to change materially our outlook, the cost of risk for the whole year. In capital like I will leave Jose to elaborate on the regulatory impact that will come. Let me to elaborate on your asking for a minimum level. We don't have a minimum level stated as we have a target to be 12% and we -- this is our target, but we don't have such as a minimum level. you're asking for Banamex, I should state again, as we stated last time, the question that I think was Ignacio. Maybe a question about Banamex. I said, what we say remains in -- what we said was that we do not plan to issue shares potentially to buy Banamex, nor in the parent company or in the subsidiary in Mexico, and this remains. So the conditions we establish to potentially buy Banamex remains in place, including not issuing shares. And Jose, do you want to elaborate on regulatory capital.

[José Antonio García Cantera, executive]

Yes, in terms of regulatory charges and models this year, same estimation we mentioned in the previous quarter, 20 to 25 basis points this year, more or less. For '23, we wouldn't expect any significant amount obviously but it's still very far away. But with what we know today, is very, very little.

[José Alvarez, executive]

For the very first time, we don't expect [indiscernible] in '23.

[Operator]

Our next question is coming from Pamela Zuluaga from Crédit Suisse Bank.

[Pamela Zuluaga, analyst]

I first want to ask a follow-up. If you were to be interested in acquiring Citibanamex, and again, quoting you, without the possibility of issuing capital, you would to rely on organic capital generation. So could such an interest potentially change the payout targets that you have currently? Or would any shortfall in the required funding come from any potential divestitures? And, if I may, some questions. One, around the cost of risk.

The cost of risk for the quarter was still quite below the guidance for the year, even without allocating the COVID overlay, which I understand was the case. Have you had any updates so far to your IFRS models? Or are you waiting to see how the macro continues developing? So do you anticipate a pickup in provisions later in the year? Or could another potential releasing provisions offer upside to the cost of risk guidance for this year? Around Spain kind of in line with what Carlos was talking about, but more from the loan growth perspective, do you see the mix -- how do you see the mix evolving? Do you see the extension of the ICO guarantees kind of revitalizing the corporate segment this year? How is the high inflation amid rising energy prices in the country impacting the consumer book? Have you seen any weakness there so far? And I'm sorry, if I may, 1 last one. I was looking at the interest rate sensitivity that you were giving for Europe. It's now lower than what was disclosed at the end of 2021. Can you maybe give us some color on this change?

[José Alvarez, executive]

Okay. Thank you, Pamela. Let me talk about your questions. Well, your first question was in relation with Banamex, again, is this may affect the buybacks? Well, the dividend policy for this year is public. It's the intention of the war to continue with the payout of 40%, half in shares -- half in buying back shares and half in cash, so there is no intention to change this. And that's the question. Organic capital generation, I'm fairly positive on this, yes. So you see the quarter. And I do think that we going to keep growing. But taking into account return on tangible equity and risk-weighted asset growth, that in the quarter was in the region of 3%, if I remember well, probably we're going to keep growing risk-weighted assets there, our capital generation, taking into account the payout policy is going to be significant. Our capital accumulation is going to be significant.

That's what I can tell you at this stage. Cost of risk update, well, I mentioned to you the main changes. The main drivers were Brazil, where I do elaborate the cost of risk is going to go up from 3.70s to 4% to 4.5%. And Spain, I also elaborate on the back of Carlos' question. And we see certain normalization in the U.S. Other than that, I do not see major changes of the ones you have seen in the presentation, the trends you are seeing in the presentation. Those are the 3 main moving parts, and we remain confident that we're going to be below our expected across the cycle.

Spain loan growth perspective, well, you mentioned the corporate sector and I'm not optimistic on seeing plenty of strong demand coming from the corporate sector, not at this stage. The consumer book, I mentioned mortgages, I do expect mortgages to continue to be strong. And the corporate sector in general, we are seeing significant demand on the energy and energy-related sector and infrastructure, and on the back of the M&A activities, yes. Those are the areas in which we are seeing significant activity there. And mortgages continue to be one of the sources of demand at this stage, not as much in the SME space. And the final question, yes, Jose.

[José Antonio García Cantera, executive]

Yes. So it is slightly lower because of Poland, where we had already a significant increase in rates, and that's coming through the NII. I also gave a bit lower outlook for the U.K. because we have had already 50 basis points increase, and we expect to have another 25 at least basis points increase in May. But roughly, we are, again, highly geared. And that lower sensitivity in these 2 countries is compensated by now, again, higher sensitivity in Brazil, in Mexico, that originally was negative, but as time goes by, obviously, it's going to turn positive.

[José Alvarez, executive]

Okay. I should say that -- well, in relation with the interest rate sensitivity, when you come from negative in Europe, like we are in Europe, and you go into positive territory, very likely going from minus 5% to plus 0.5%, you're going to capture 100%, yes. So on this space, you're going to capture 100%. Elasticity will change. I don't know if it's going to be 0.5% or 1% beyond that. So that makes sense is, as the rate goes up at the beginning, sensitivity to rate is extremely high, and it's close to one and dependent on the utilization, but is very high.

As you go by and the central banks keep increasing rate, so the market keeps increasing rates, elasticity changes, and use the elasticities, what Jose explained, this is happening already in Poland, not yet in U.K. But may start relatively quickly in U.K. if the Bank of England keep increasing rates and is far away in Europe where we need, well, 100 basis points official rate, at least to start to change in sensitivity, that at the beginning is extremely high, yes. So this is how you should think on this at least in our balance sheet that is extremely asset sensitive, as you know, because of the mortgages because all the SME lending that tend to be shower and tend to be Euribor based for the CIB -- in the CIB space on large corporates. So highly sensitivity to rates with elasticity that keeps changing along the increase in rates from the central banks.

[Operator]

Our next question is coming from Alvaro Serrano from Morgan Stanley.

[Alvaro de Tejada, analyst]

I got who follow-up questions, maybe 1 on Brazil and 1 on capital. Jose Antonio, I think on Brazil, if I understood you correctly, I think you said high single-digit NII growth, you still remain confident. Given the minus 6% quarter-on-quarter, that seems to imply that there's going to be sort of recovery -- significant recovery in the next few quarters. Can you sort of maybe confirm that I've referred correctly and if that's correct, what would be driving that rebound?

And on capital, again, a follow-up on some of your comments. I mean, Q1 to me, at least should have been the most difficult quarter, given what the curves have done, and you've actually pulled off a pretty decent sort of capital print with slowing growth, you mentioned you're confident that you can -- going to continue to still grow. If you -- if Banamex doesn't happen and you end up, I don't know, [ 12.3%, 12.4% ], whatever, at the end of the year, you might come up -- do you think from your discussions in the Board or from management thinking, what would you do with our capital? Would you -- is the preference would be to keep the extra buffer to distribute it, maybe normalizing sort of pay out faster? Or do you think you can grow into it or M&A, but just some thoughts there?

[José Alvarez, executive]

Okay. Thank you, Alvaro. Let me to elaborate again in Brazil, yes. So why I do see this trend? I mentioned to you the dynamics in the balance sheet. You have on one side, customer spread that went up from around 10% 1 year ago to 11%, I don't know, 11.30% or 11.40% or something like that in the first quarter this year. And on the other side, you have the ALCO portfolio that last year was producing revenues of around EUR 3 billion and now is close to zero. So if you take into account the two dynamics, one is customers, the other is the ALCO is what allow me to be -- to give you the guidance I gave to you.

So you put these dynamics forward and you see how much the rates can increase from where we are and how much the customers -- the revenues coming from customers can increase based on the spreads, you get dynamics in line with what I mentioned to you before. I hope it helps you to project the numbers with these ideas.

Second, capital, well, you say pretty decent, it's more than pretty decent, yes? So this seems to me a bit downbeat. It's very good capital generation. And -- well, this is on the back of good results and well, growth, we keep growing. And well, probably we've been telling you that we -- our ALCO portfolios were nonexistent in some jurisdiction and what I've seen in many banks is the available-for-sale portfolio impacting strongly the capital. And in our case, our position -- well, in Europe, is nonexistent, and in other markets at least, I think is smaller than other banks based on the impact that I see in the capital base.

Going forward, we're going to keep generating capital in line with the guidance we gave you. And Jose already elaborated on the potential regulatory impacts that -- well, for this year and expectation next year, not regulatory impacts. Discussion of the Board, well, it's also transparent. So the Board said, we established an intention of paying 40% payout, health insurance, housing cash and the intention to go to 50%. So this is up to the Board, naturally, it's not only up to me. But the first discussion I will expect, if you ask me, in the Board is, when we go to from 40% to 50%. Well, this is the first step, I will expect the Board to take. As I said, it's up to the Board to discuss probably, I don't know, 2 quarters from now is when the discussion needs to take place.

[Operator]

Our next question is coming from Andrea Filtri from Mediobanca.

[Andrea Filtri, analyst]

Back again on capital, sorry, but it's a clarification. You are now targeting 12% CET1. You maintain that. But what would be the plan to maintain this if Banamex came along, you do want to issue shares at the parent or at a subsidiary level? Is the 12% target, a hard target? Or could you compromise on it in the case of Banamex? Second question is just kind of yes or no. Should we expect an IFRS 9 charge in Q2 given the broader macroeconomic scenario? If you could elaborate, please, on your ALCO strategy and if you have already included that evolution in your guidance or if you have upside from that? And just finally, a very quick one, Brazil. What's happened to taxes this quarter? And is the NPL increase we have in the quarter just due to the New Definition of Default or is it a genuine change?

[José Alvarez, executive]

Okay. On capital, well, very little I can add. Our target is 12% and remains 12%, and this is the target that the board established. Naturally, the moving parts here are the growth we're going to achieve that in the current scenario, activity levels in line with less growth in the wall probably will be a bit -- we expect to keep growing probably less so than otherwise would be the case. And what we plan to do with this is too speculative. You're asking a third question, if something happens, what happens afterwards, difficult to elaborate on this. But well, we have the tools, the tools to match our capital. We can securitize. We can dispose assets. We can do many things, okay. So we have the convenience that we have, that is the payout to the shareholders, not to issue shares. Those are the commitments we have and an intention going forward when advisable to go for a higher payout ratio, this is our stance on capital. And I can't elaborate more on this.

Second question, IFRS 9 charge, we don't expect material charge there. Naturally, we need to apply the new market scenario, but we do not expect a material charge that changed our outlook for the cost of risk. In Brazil, taxes, well, plenty of moving parts there. The main one is the what they call JCP that is -- when they pay dividends on the [ young ] funds or something like that, juros sobre o capital proprio, I don't know how, interest over own equity or something like that. When this happens, they pay a dividend that is free of taxes. And this affect you review the last couple of years, you have this quarter-on-quarter, nothing special this year. Sometimes it happens in one quarter, sometimes it happens in a different quarter. And in this particular quarter, you reduce what is called the JCP in Brazil.

NPLs, naturally, New Definition of Default affect NPLs everywhere, including Brazil. I don't have in mind, probably IR can give you how much is the impact of the New Definition of Default in Brazil in the NPLs, and I gave you for the group that was, if I remember well, 17 -- 19 basis points, so they're telling me that 19 basis points in the NPL, so I don't know how much this was in Brazil, but we provide you with this number for Brazil.

[Operator]

Our next question is coming from Francisco Riquel from Alantra.

[Francisco Riquel, analyst]

Most of my questions have been answered. I just wanted to ask on the U.K. business. The mortgage volumes are stronger than we thought, but I understand that the spreads for new lending are also very low. If you can update on the front book, back book dynamics and NII guidance in the U.K. and overall in the profitability of the new mortgage business?

[José Alvarez, executive]

Okay. Thank you, Francisco, for your question. U.K., well, as you see, the NII has been evolving in a positive way in the last couple of quarters on the back of volumes, mortgage volumes, good spreads when rates start to go up and the translation of this increase in the swap rates into the mortgage, the new relation in mortgages produced some attrition in the NIM of the new mortgages. Having said that, overall, we do expect the good news to continue on the NII. We expect to continue to grow NII in the U.K., well, low mid-single digits probably, we continue to expect to grow in this line. So we are not positive.

On top of this, you have the changes in rates, naturally, okay? So that while you have the sensitivity to rates, that is starting to show up. So the first increase in rates was, if I remember well, in December, it takes 2 months more or less until this goes into the P&L. So we saw another increase in rates that is going to show up. So we will see what probably is not yet well now is what is going to happen on the liability side in the U.K. in an ecosystem where there are plenty of new players that may affect the traditional elasticity on the liability side, yes. So this is a -- just to be transparent -- 100% transparent with you, this is an unknown at this stage. The market -- some market participants fear that we're going to have immediately very aggressive players on the back of higher rates. We'll see if this happens, it doesn't happen. This may change a bit the outlook for this. But in general, I feel constructive -- we're going to keep growing there with flat costs. So operationally, we're going to have very good trends in the U.K.

[Operator]

Our next question is coming from Carlos Cobo Catena from Societe Generale.

[Carlos Cobo Catena, analyst]

Most of my questions have been answered, but I have a couple of follow-ups on cost of risk. The cost of risk this quarter, it's around 80 to 85 basis points, if I remember. That is still remains below your 90 basis points guidance for the full year. And also, you kind of revised that slightly higher after the conflict in Ukraine. So shall we expect a gradual increase in the cost of risk driven by that higher loan losses expectations in Brazil? Is that the main driver? Or are the other moving parts that should converge to the 90, 95 basis points guidance? And that guidance is, in my own words, you haven't really provided that specific target. And the other one, have you used the provision overlay this quarter? How much is left?

[José Alvarez, executive]

So the cost of risk, we're going to be approaching the 100 basis points. We're going to remain below. Of this is what we said, we're going to be below expected across the cycle, using [ expected across the cycle of 1% ]. This is our guidance in the cost of risk. I elaborate the markets in which we expect changes. U.S. trending up, Brazil trending up. I already elaborated on this. And Spain trending down. Those are the main moving parts that can -- that explain this expectation for the cost of risk.

You see the provision overlay. We haven't used that much, yes. So they are telling me that less than EUR 100 million here and there. So not material in this quarter, yes. So -- But remember that when we run the IFRS 9, we need to necessarily update where we're going to head into basic unexpected losses used in the new macro. But as I said before, we do not expect a big deal in this exercise unless the macro scenario change.

[Operator]

Next question is coming from Daragh Quinn from KBW.

[Daragh Quinn, analyst]

First question on the valuation adjustments or other comprehensive income, which improved in the quarter, I think by about EUR 1.7 billion, and is improving on -- in equity, but then I was just curious as to why that didn't translate into an improvement in capital where there was a negative impact from market valuations? Maybe you could just provide a little bit more color around the moving parts of FX bond portfolios, et cetera, and how they impacted capital in the quarter?

And then second question on Spanish revenues. Firstly, on fees, which delivered very good growth this quarter relative to maybe some of the seasonality we would normally expect in Q1 versus Q4. So just if you could provide a little bit of color of what you're doing that is growing the fee business. And is that a sustainable level of growth for the remainder of the year?

[José Alvarez, executive]

This valuation is due to the FX. So the changes in the -- we'll go back to you and explain where the changes were. But the main driver here -- as I mentioned at the beginning, the FX played a significant role and this effect naturally the tangible net asset value per share because this affect the equity. And this valuation is due to the FX. As you know, the euro depreciated almost against every currency in which we work, and this has had this impact you mentioned, but you need more elaboration and specific details on it, happy to do that through our IR department.

Fees, you mentioned the seasonality Q4, Q1. And you mentioned also that Q1 was better than you were expecting. Well, the fee income was better than expected due to transactionality levels that grew significantly and CIB business. You saw CIB business [ going also 1% on ] results. The Corporate & Investment Banking activity, our fee income is growing very nicely. Our business is gathering traction, it has been gathering traction for a couple of years. And our fee business, our CIB business did very well. Also, I should mention the wealth management and asset management business that they are growing double digit. And not as -- the growth is less so than in CIB. CIB quarter-on-quarter results went up 78% and partially it was due to the good fee income generation and also this applies to wealth management and asset management that performed very well in the quarter, and this is on the back of the good fee income generation that we got.

[José Antonio García Cantera, executive]

And with regards to the available-for-sale impact on capital in the quarter, it was 7, 8 basis points. So the ALCO portfolio impact on capital was 7, 8 basis points.

[Operator]

Our next question is coming from Britta Schmidt from Autonomous Research.

[Britta Schmidt, analyst]

Just coming back to the rate theme with 12 months you already having moved, what sort of impact do you expect in Spain for 2022? And when will we start seeing that? And maybe you can give us a rundown of what rate expectations you have incorporated in your planning for the U.K., Brazil, U.S. the 12 months you in, maybe Mexico as well?

[José Alvarez, executive]

Okay. We do provide information on this. In Spain, the Euribor, let me to speak in my memory, our mortgage book, that is the one, Euribor 12-month effect like EUR 80 billion of our portfolio in Spain. So it takes 2 months -- 2 months, 3 months before when Euribor -- we apply the Euribor of April to the renewals in June, okay? And this affect to a portfolio of EUR 80 billion on the year. So [ 1/12 ] amount is [indiscernible] EUR 6 billion or something like that, yes. So this is the sensitivity Euribor -- more in Euribor 3-month. So you don't going to see this effect in the Euribor 3-month start to go up. And this depends on when the renewal, but it's another EUR 70 billion, EUR 80 billion in companies in more or less related to Euribor. This will give you a sense of the asset sensitivity in the Spanish book.

You mentioned also other countries, we provide you with the data. We are geared toward high rates in Mexico, clearly, U.K., Europe, the Euro area, including -- and Poland. Is a bit negative in Brazil, and we are seeing that already. And Chile is much more difficult because we have a trade between inflation and nominal rates that is much -- a bit more complex. So -- And it depends on what happens with [indiscernible] inflation is fairly volatile. But in general, one tend to offset the other, but in specific quarters maybe going in a way, another way in another quarter, yes. So do you have something to add, Jose?

[Operator]

The next question is coming from Fernando Gil de Santivañes from Barclays.

[Fernando Gil de Santivañes d´Ornellas, analyst]

I have just one more question on the ALCO portfolio. I see that the size has gone up by EUR 9 billion this quarter. I was wondering if you can update the strategy among the European part of this portfolio. When do you expect this to go up? And how far can you go up? And if this is included in your forecasted outlook that you have provided?

[José Alvarez, executive]

We don't have euro portfolio at this stage. We have, I think, EUR 2 billion in Portugal. So it's minor, yes. Nothing in Spain. And in our forecasting, we are not counting in any ALCO portfolio.

[José Antonio García Cantera, executive]

And again, Jose Antonio already referred to this, we didn't increase the ALCO portfolio size in any country in the quarter. The increase in euro terms is because of the exchange rate.

[Operator]

Our last question is coming from Benjie Creelan-Sandford from Jefferies.

[Benjie Creelan-Sandford, analyst]

Two quick questions on lending and revenue growth outlook. First of all, in Brazil, it looks like you are continuing to grow below the system. I was just wondering whether you expect to kind of remain more restrictive versus the market through the rest of this year and whether you're aiming to change the mix of the book in Brazil going forward? And the second was on the European consumer business. You've obviously talked about the inorganic opportunities. Jose talked about unemployment being a very important lead indicator for risk in the consumer business, but perhaps from a revenue and a loan growth outlook leaving aside the inorganic opportunities, given the inflationary pressure data, what are you seeing in terms of customer demand levels at this point in time? How do you expect that to trend through the rest of this year?

[José Alvarez, executive]

Okay. Lending in Brazil, you elaborate in relation with our lending standards. We're going to remain where we are as long as until the point we see a stabilization in the risk premium, yes. So if we are right, we expect the next 2 quarters to have stabilization in the risk premium. If that were the case, we may become more confident to start to grow strongly against maybe in the last part of the year. But this is -- I'm sharing with you my expectation, we need to look at the data, we need to look at the vintages, how the vintages come in and how do they behave until we change our stance towards our lending -- consumer lending in Brazil.

The other question is at other consumer finance in Europe, aside from inorganic opportunities well, this is a business that I mentioned before that were inorganic. I don't know how do you deem opportunities when we add a new OEM to our portfolio. You may deem as inorganic or organic. What I can tell you is very likely this continues to happen. So we are gaining significant share. And we are a partner of choice for many OEMs that are willing to expand into Europe and very likely we're going to capture opportunities there.

Aside from that, that you may think is organic or inorganic, some other, how do we see the customer demand? Well, as you know, there is scarcity in new cars. The supply is weak. We are seeing this in the stock finance. Our stock finance normally in Europe stays at EUR 5 billion with the car dealers, now stays 1/3 of this or less. This tells you about the situation of the supply/demand dynamics in the industry. This is for new cars. So there is what restrict the volumes there, the origination is more supply than demand.

When we go to used cars, the opposite is happening. So prices went up and demand is -- the prices went up due to the strong demand there, and our origination has been pretty strong. If you look at the quarter, our origination in auto lending in Europe was -- grew more than 10%. When the market for new cars decreased a bit, okay, this tells you we are gaining share. That's for sure. And at the same time, our position in the used car market is pretty strong in the main markets, particularly in Germany, but not only in Germany, but particularly in Germany. Those are the dynamics that we are seeing.

And I do see the opportunity -- overall, the business is going to grow the volumes. The speed at which we grow depends on how many agreements we reach with OEMs, car dealers associations, importers, Chinese OEMs that are coming to Europe. This is plenty of moving parts there. But I remind on the back of our recognition of the leader in the market and the best operator in the market, that is while recognized. I do expect us to keep going and to gain market share in this through a combination of traditional origination, new agreements and all the sense, yes. So that's my expectation. I hope I answered your question, yes?

Okay. is the last question, Begonya?

[Operator]

Yes, that was the last question. Thank you.

[José Alvarez, executive]

Thank you all of you. Thank you for being there. Bye.