Banco Santander, S.A. (NYSE:SAN) Q2 2024 Earnings Conference Call July 23, 2024 4:00 AM ET
Company Participants
Begona Morenes - Director, IR
Hector Grisi - CEO
Jose Garcia - CFO
Conference Call Participants
Sofie Peterzens - JPMorgan
Ignacio Ulargui - BNP Paribas
Alvaro Serrano - Morgan Stanley
Marta Sanchez Romero - Citi
Francisco Riquel - Alantra
Alvaro Fernandez-Garayzabal - UBS
Benjamin Toms - RBC
Carlos Peixoto - CaixaBank, BPI
Begona Morenes
Good morning, everybody, and welcome to Banco Santander's Conference Call to discuss our Financial Results for the First Half of 2024. Just as a reminder, both the results report and presentation we will be following today are available to you on our website.
I am joined here today by our CEO, Mr. Hector Grisi, and our CFO, Mr. Jose Garcia-Cantera. Following their presentations, we will open the floor for any questions you may have in the Q&A session. [Operator Instructions]
And with this, I will hand over to Mr. Grisi Hector, the floor is yours.
Hector Grisi
Thank you, Begona. Good morning, everyone, and thank you for joining us. Today's presentation will follow the usual structure. First, we will talk about our H1 results in the context of our strategy. Then Jose will review our financial performance in greater detail. And then I will conclude with some final messages. As Begona said, we will then open the floor for your questions.
The main highlights of our results in the first half of 2024 are the following. Q2 was another record quarter for Santander, which shows the strength of our strategy and the resilience of our business model. Profit reached €3.2 billion, that's 20% above Q2 '23, even after the impact of €450 million of one-time charges, net of taxes and minorities.
Excluding them, recurring profit was €3.7 billion in Q2. Profit in the first half reached €6.1 billion, also a record high of 16%, supported by the strong cost of revenue growth in all regions and global businesses. We continue to accelerate H1 transformation to become simpler, more automated, and more integrated. As a result, our efficiency ratio improved by 261 basis points to 41.6%, the best in 15 years. And our return on tangible equity rose 137 basis points to 15.9%, or 16.3% if we analyze the impact of the temporary levy in Spain.
Finally, our solid balance sheet with a sound capital ratio, solid credit quality, and a strict capital discipline helped us reach strong profitable growth and shareholder value creation, with TNAV plus dividend per share increasing 12%.
Let us stop for a moment in our income statement. As always, we represent growth rates in both current and constant euros. This quarter, there were no material differences between them. Since last quarter, we have reported variation in constant euros in all countries except Argentina, which is shown in current euros to mitigate the distortions from hyperinflation. In Q2, we have taken a prudent approach again and used an inflation-adjusted exchange rate for the Argentine peso, given the significant divergence between inflation and the official effects.
Although it has little impact when comparing half-years, distortions are more significant when we compare with Q1. Let's look at the income charges. These were 210 additional Swiss mortgage provision in Poland, reaching coverage of 100%.
€240 million from the write-down of our merchant platform in Germany and Superdigital in Latin America. That I will explain in more detail later on. Additionally, we have positive and negative one-offs impacts in Brazil, which do not affect profit and have been netted in the underlying P&L.
The increase, as you can see, is a strong first half of the year, with solid commercial and business dynamics that already puts us ahead of our plan for 2024. As a result, we have upgraded some of our targets for the year. We have increased our revenue growth target to high single-digit with better NII and fee income. We have improved our efficiency ratio target to around 42% as accelerating one transformation leads to higher operational leverage.
And we have raised our RoTE target to above 16% versus the previous 16%. We are also confirming the rest of our targets for the year. Cost of risk is expected to remain stable at around 1.2% on active risk management and strong labor markets. As a reference, year-to-date cost of risk was 1.17%, even with additional provisions that I just described in Poland.
In capital, our CET1 ratio ended June at 12.5%, with a strong organic capital generation in line with our target to be above 12%, even after the Basel III implementation. One key transformation and the operational leverage it brings are behind the record performance, structurally improving both revenue and cost performances.
Simplifying and automating processes, plus our active spread management, have already contributed 266 basis points of efficiencies since we started. Our global businesses continue to push a group's profitability and have delivered 87 basis points in efficiency gains. Finally, our proprietary and global tech capabilities have generated 71 basis points in efficiencies so far.
As we have often said, we are going back to basics, which supports value creation based on profitable growth. How? By focusing on offering customers the best products and user experience, and by obtaining the operational leverage from our global platforms and common tech. This is reflected in the performance of our global businesses. Our retail and consumer businesses efficiency ratio improved by 480 basis points and 270 basis points, respectively.
In CIB, we are building a world-class business, leveraging our expertise to grow in the U.S., maintaining a risk profile. Revenue grew 6%, another record, supported by strong performance and inclined flows in the U.S. Wealth continued its strong growth, improving efficiency and profitability and in payments, where we manage over 100 million cards in the group, we have significantly improved profitability.
As a reminder, in Q1 of last year, we had a one-time fee from a commercial agreement in Brazil, excluding this impact, payments revenue would be 6% up and efficiency would have improved by 113 basis points, even after investing in the global platforms.
In the coming five slides, I will review the advances on each of our global businesses. Let's start with retail, where we are working to become the number one bank for our customers. It is a great example of the benefits from one transformation. Innovation helps to offer the best customer experience. In Mexico, for example, our new digital processes helped onboarding time and led to a record 90,000 digital account openings just last month.
A common operating model across our banks, automation and digitalization frees up time of our people to focus on commercial activities. Dedication of resources to non-commercial activities has dropped 8% versus last year.
Deployment of our global platform has continued. In the U.S., it has been successfully completed. Within the group, Gravity is already operational in Spain, the U.K., Mexico, Brazil and Chile. And it is processing a number of transactions that is around 20% higher year-on-year.
Financially, we are extracting the potential from today's favorable conditions in our footprint as we benefit from our diversification. We carefully managed margins in the higher for longer rate environment in Europe and keep capturing the benefits from our negative sensitivity to rates in South America and while we achieve strong operational leverage across the group.
As a result, our profit grew 35% year-on-year, RoTE up from 430 basis points to 18.1% on the back of revenue up double digit on good performance of NII and fees with all regions growing, especially Europe and South America. Cost is well under control, down 4% in real terms, reflecting the structural benefits from our transformation and provision and cost of risk fairly stable at comfortable levels.
In consumer, we strive to be the partner of choice for our customers. Our best-in-class global solutions are integrated into our partners' processes. For example, last year, we launched a new digital onboarding to pure direct auto players, which allows them to offer their customers the completion of their auto finance online end to end in very little time. We are progressing well in deposit gathering to increase NII stability and autonomous funding across the interest rate cycle.
Deposits were up 14% year-on-year, supported by our digital solutions. We expect positive trends to continue helped by the launch of our deposit gathering platforms. Deploying global platforms is key to scaling our business, reducing cost to serve and improving profitability. In check-out lending, we recently launched installment loans with Apple in Germany through Zinia, which we are looking to spend to other European countries.
Consumer had a great quarter on its operational leverage, which resulted in double digit growth in net operating income and a 4% profit increase in H1, with number one, strong revenue, driven by positive commercial dynamics with higher volumes, mainly in Europe and Brazil, good NII performance and 27% fee growth from insurance.
Number two, cost falling 3% in real terms on the execution of our strategy and efficiency plans executed last year. And third, higher provisions, mainly Swiss franc mortgages and expected cost of risk normalization in Europe and the U.S. Volumes and good profitability levels of the new business makes us confident then that consumer will end '24 with profit growth of around double-digit even after the normalization of provisions.
We are building a world-class CIB business for our clients that leverages our strengths and global footprint to grow profit, while maintaining the same low-risk profile. We are deepening our client relationships and increasing our capabilities in the U.S., building on our areas of expertise to accelerate growth across regions.
Our collaboration in the U.S. with the rest of the group is starting to pay off with several firsts. For example, we made our first corporate share buyback for a U.S. company, and we were appointed global coordinator for a U.S. listed IPO for the first time ever. In Mexico, we are creating a significant partnership within the Mexico-U.S. corridor, leveraging our global markets and U.S. Pan built-out initiatives. And these are just a few examples from a long list.
As a result, revenue in CIB in the U.S. rose 33% year-on-year. This strong growth reflects the benefits of our U.S. banking build-out initiative, which will become even more evident in the coming quarters. We continue to expand and strengthen our centers of expertise, including key industry groups such as chemicals, technology, and paper and packaging.
Our CIB business is capital-light, very much linked to customers, and with fees growing at a good pace year-on-year. Our active capital management continues to support greater origination and high profitability levels. In essence, CIB had great results, increasing revenue in H1 6% year-on-year, even after record first half in '23, making H1 the best ever, with fees growing at double digits and the vast majority of our growth coming from customer flows.
Moving on to wealth management and insurance, we continue to build the best private bank and insurance manager in Europe and the Americas. How? Number one, by improving customer relationships through the best service and right solutions, resulting in double-digit growth in private banking customers.
Second, collaboration with other businesses, especially retail and CIB, which is a major driver for growth and allows us to capture network benefits. Collaboration fees increase by 12% year-on-year. Third, developing global platforms across all three businesses and digitalize our distribution and advisory capabilities to improve customer experience and promote growth.
A good example of this is Autocompara, our auto insurance comparison engine that operates in six countries and which we are expanding to new segments and businesses. In summary, we are accelerating growth and maintaining high profitability. Attributable profit rose double digits on strong private banking activity in a favorable interest rate environment, with total fees from all three businesses growing at double digits and costs toppled slightly in real terms.
Finally, efficiency improved 230 basis points year-on-year and RoTE rose to 350 basis points to over 80%. Finally, payments, where we have unique positions on both sides of the value chain. One, issuing where we manage more than 100 million cards group-wide. And second, in merchant acquiring. In merchant, we are the second largest acquirer in Latin America and a market leader in Spain and Portugal, with the right balance between growth and profitability.
We are gaining market share in most markets, as we have strengthened Getnet's customer value proposition with new global solutions. An example is dynamic currency conversion in Mexico, which has helped Getnet to become second in Mexico with a 20% market share and a 47% EBITDA margin in Q2.
We continue to migrate significant volumes of payments to PagoNxt global platform to leverage the group's scale. The transactions managed globally through PagoNxt payments surpassed $1 billion per year during the first half of this year, with 30% growth quarter-on-quarter. The rollout of Plard, our global cards platform, is on track. We continue to increase the number of debit cards managed in Plard at a good pace, and we are starting the migration of the debit portfolio.
We plan to manage around 15 million cards through Plard in Brazil by year end. As I mentioned earlier, we recorded one-off charges in PagoNxt from the write-down of investments. One, is a discontinuation of our merchant platform in Germany we announced in June, as we are focusing on our current acquiring value proposition in our core markets, where we have a very competitive business.
The other one is our decision to write-down Superdigital, a natural step to promote the use of common platforms across the group and maximize operational leverage. These decisions will enable a more stable and profitable business, reducing fixed costs going forward. Excluding these impacts, underlying performance was very positive.
Profit in payments was up 30% year-on-year, on good revenue performance, costs falling in real terms while we invest in our common platforms, and sound credit quality in cards. PagoNxt EBITDA margin improved to 20%, one of the best among competitors. We expect the consistent execution of our strategy, efficiency, and CapEx optimization will continue to drive profitability in the coming quarters.
Today's results show that our strategy has enabled us to deliver outstanding profitability growth in H1, with double-digit shareholder value creation for the fifth consecutive quarter. RoTE was 16.3%, up 134 basis points year-on-year, reflecting the high levels of profitability at which we are originating new business. EPS rose to nearly €0.37, that's around 20% year-on-year, and we delivered 12% growth in shareholder value creation.
Supported all by strong profit generation, our strict discipline in capital allocation, and share buybacks. We have repurchased around 11% of our outstanding shares in the last three years, returning around $6.5 billion through buybacks and providing a return on investment of 19% to our shareholders.
I'll leave you now with Jose, to go into our financial performance in more detail. Please, Jose.
Jose Garcia
Thank you, Hector, and good morning, everyone. Like always, I will go into a bit more detail about the momentum both in Europe and in Latin America at the same time. Revenue grew 9%, with the highest NII and fee income in our history, and costs were down slightly in real terms. As a result, operating income was up 14%.
Provisions increased even after including the 200 million increase in Swiss franc provisions that we took in the quarter. On the right-hand side, you can see the upward trend in profit quarter-on-quarter at 12%, which was driven by top-line growth with lower costs and provisions fairly flat, as I just mentioned.
Let me now spend a couple of minutes on the reasons why we're starting to use a new inflation-adjusted exchange rate in Argentina rather than the official one. We have observed a significant divergence between the official exchange rate and inflation, and we have decided to follow a prudent accounting approach. The new exchange rate is the result of adjusting the official exchange rate with the differential between the inflation in Argentina and in the U.S. This is a very conservative approach and a much more conservative way of recognizing the actual value in euros of our results and our investment in Argentina. And this should mitigate the volatility that the currency might experience in the future, as you all remember was the case in 2023.
Following these accounting rules, we have recorded the full Q1 and Q2 impacts from this adjustment in Q2, which does not significantly affect the year-on-year figures, but it has a significant impact and causes some distortions when we look at quarter-on-quarter. And I will try to show these differences in the coming slides.
For instance, NII is dropping -- is down 4% in the quarter, but if we exclude Argentina, the group's NII would have gone up 2%. Something similar happens with fees. Instead of decreasing in the quarter, increasing 1%, they would have increased 3%, and costs would have been fairly flat.
If this exchange rate does not materialize, we would revert this adjustment and account for the results that we are not recognizing today. But it looks to us that this is a prudent, more conservative way of recognizing our investment and results in Argentina.
There was a strong total revenue growth driven by customer revenue again this quarter, which made up more than 95% of total revenue. This strong growth was primarily supported by retail. Retail accounts, as you know, for more than 50% of our businesses, and is growing at double digits, with very good performance in NII across regions, and fees also growing, especially in the Americas, and also consumer, which is reaching good profitability levels in new businesses, and strong loan growth in Europe and LatAm.
Corporate investment banking also had a good quarter, as revenue reached an all-time high, both in the quarter and in the first half of the year, particularly in Spain, in the US, and in Mexico.
Also double-digit growth in wealth, as Hector mentioned, driven by solid commercial activity in private banking and in asset management. Payments also performing very well. Particularly we exclude the one-time positive impact recorded in Brazil in the first quarter of '23, you remember, which we explained, and Hector just mentioned, where we had a one-off from an agreement with Mastercard.
And finally, the corporate center’s higher liquidity buffer remuneration was offset by higher TLAC/MREL issuances, and the negative impact from FX hedging. Most of our revenue growth came from NII, which continued to increase in the quarter, if we exclude Argentina, particularly driven by retail, consumer, and CIB, which represent 95% of groups in NII.
On the slide, you can see that we are, in this small box in red, putting the figure that we would have recorded if we had used the official Argentina exchange rate. So this is important, keep this in mind, and to show again that what we have decided to do is a prudent accounting of our profits coming from Argentina.
NII rose 11% year-on-year, supported by all businesses and regions, on the back of very active price management in retail Europe, especially in deposits, also higher volumes and the benefits of negative sensitivity to interest rates in South America, in consumer South America, in retail South America -- and in consumer, sorry, which is now very evident in Brazil, especially in Brazil and Chile, and very good levels of activity in corporate investment banking.
In terms of profitability, we have improved net interest margin year-on-year, explained by higher yield on assets as we continue repricing our books, but also very good management of deposit costs, which more than basically outweighed the pressures that we are seeing. It's true that the margin is expanding, as you can see, we exclude Argentina, or if we had used the official exchange rate, so overall the margin management, pricing management on both the asset side and liability side is really strong.
We see a slight deterioration, though, if we use our official exchange rate or our adjusted exchange rate, although it's not very significant in the quarter. Going forward, we would expect some margin pressure in Europe that will be more than compensated by positive contribution from the Americas and our consumer business.
In the context of low fee growth in general across the sector as a result of subdued loan demand, we generated another record quarter in fee income at €6.5 billion with solid growth all across the five businesses. Retail increased 3%, basically driven by Brazil, North America and Poland, outstanding performance in consumer on the back of very strong insurance businesses. Corporate Investment banking also grew from already the very high levels in the first quarter -- in the first half of last year, especially in the U.S. Wealth, supported by very strong private banking activity and Payments that, as we mentioned, was affected by the one-time fee recorded in Brazil last year.
Structural efficiency gains from our transformation program are very evident quarter-after-quarter. Cost income was 41.6%, the best level that we have reported for the last 15 years and one of the best in the sector is already better than the levels that we guided for 2024. Cost declined quarter-on-quarter were very flattish if we exclude Argentina, after having been stable for the last three quarters with revenue growing steadily quarter after quarter, improving an increase in operational leverage that we obviously expect to continue to have in the second half of the year and into 2025.
Average inflation continued its gradual decline, down from 12% a year ago to below 4% this quarter. In this context, costs fell 1% in real terms year-on-year. Despite that, as you all know, we have some lagged effects from higher inflation on salaries and other costs and our investments in transformation. By businesses, costs remain well under control in retail, consumer and payments, which will represent 80% of our cost base. And 80% of the increase, as you can see on the bottom of the chart, came from CIB, reflecting our strategy to reinforce our corporate investment banking franchise. In fact, if we exclude these investment costs in the rest of the group, would have decreased 3% in real terms.
Credit quality remained very much under control, obviously, supported by a stable economic environment and our active risk management all across the group. Cost of risk was 1.21%. Remember that we look at the last 12 months, if we look at the first half of the year, cost of risk was 1.17%, even including the increase in the provisions for the Swiss franc mortgage portfolio in Argentina. So we are very much on target to reach the 1.2% for the year and we reiterate that target.
In the second half, we expect that trends in consumer and Mexico will be closer to more normalized levels, but this will be offset by a better performance in Retail Europe and South America.
Turning to capital and closing my section here, our CET1 ratio remains at a very comfortable level, backed by a strong organic capital generation and significant risk-weighted asset rotation. This quarter, we generated 52 basis points organically, supported by our asset rotation initiatives to compensate organic risk-weighted asset growth. We recorded 25 basis points charge for shareholder remuneration in line with our 50% payout.
And finally, there was a 7 basis point negative impact, mainly related to intangibles, the valuation of available-for-sale portfolios and others. There were no significant regulatory impacts in the quarter. We continue to deploy capital to the most profitable growth opportunities and expand our asset mobilization capabilities to maximize capital productivity.
Our disciplined capital allocation has resulted in a new book return on risk-weighted assets of 2.9% in the quarter, which is equivalent to a return on tangible equity of 23%, well above that of our back book at 16%. Our centralized asset management desk, we change at optimizing capital deployment is achieving outstanding results. In the first half, we disposed of an amount of capital equivalent of €30 billion in risk-weighted assets and the cost of capital of half of that of the new originations.
In addition, the one-third of our balance sheet that matures every year is being substituted by the more profitable new businesses at this return on tangible equity of 23%. The combination of these actions explained the expanding profitability and the increasing capital ratio.
Let me turn it now back to Hector for his conclusions.
Hector Grisi
Thank you, Jose. As our results clearly show, we continue to make good progress towards the targets we set for 2025 in our last Investor Day, thanks to our unique business model and execution of our strategy. With a strong and increasing organic capital generation and execution of our capital allocation plans, further improving our profitability to above 16% and by growing both profit and profitability sustainably, we have been able to deliver 12% value creation to our shareholders.
We said it in our Investor Day, and I want to remind you again, we have entered a new phase of value creation for our shareholders. In conclusion, the benefits from the execution of our strategy are very evident. The strong growth in revenue with flattish cost and around 20% growth in EPS and the best ever H1 profit with all-time high NII, fees and net operating income backed by strong performance in all our businesses and regions. Sustained progress in our structural change to a simpler and more integrated model, leveraging the group's scale is driving both higher revenue and lower cost to achieve the best efficiency ratio we have ever reported in the last 15 years.
Our rock solid balance sheet and robust credit quality are contributing to growth and double-digit shareholder value creation. As a result, we expect to exceed some of our targets for '24. We are upgrading our revenue growth target to high single digits, efficiency to run 42%. And as we deploy capital to the most profitable growth opportunities, we are improving our profitability target to above 16%. Our focus at Santander is to be reliable in providing returns that compound on an always increasing quantum of tangible book value consistently and through the cycle based on both business and geographic diversification.
The progress over the last 10 years to simplify and align our model in all our businesses and now deploy our own tech stack is already evident and now depends on execution to continue to deliver on our primary target of double-digit TNF plus EPS growth through the cycle. And now we will be happy to take all your questions. Thank you.
Begona Morenes
Thank you, Jose and Hector. We can start the Q&A session now, please.
Question-and-Answer Session
Operator
[Operator Instructions] We already have our first question from Sofie Peterzens from JPMorgan. Please go ahead.
Sofie Peterzens
This is Sofie from JPMorgan. Thanks a lot for taking my question. So my first question would be on the risk transfers. Did I hear it correctly that you saw €30 billion of risk-weighted asset disposals in the quarter? And maybe you could just talk about the decline in risk credit asset. I see risk-weighted assets, especially being down around 2% quarter-on-quarter, in digital consumer buying minus 1% quarter-on-quarter. But in both entities, the loan book grew by 3% quarter-on-quarter.
So how should we think about these SRTs or securitization? And what will be the revenue invest going forward from securitizing some of the loans. And also related to that, if you could just remind us on the regulatory capital headwinds coming in the second half?
And then my second question would be on Ebury. There has been quite a few press articles suggesting that you're looking to potentially IPO Ebury. Could you just remind us what the tangible book value per share is for the -- or tangible book value for these businesses? How much revenue do you get from Ebury and what your kind of plans for Ebury is? Thank you.
Hector Grisi
Thank you, Sofie. I mean, first of all, I mean, our policy basically has been to -- as Jose was explaining in detail to rotate the balance sheet as much as we can. This is basically a very important change for us given the high capabilities that we have to originate assets, okay? So this is basically helping us to rotate and also giving us a new, basically, I would say, a turbocharger in the sense that with every single time that we sell something, we basically reduce that capital, already deploy the capital within the organization at a much better price.
So that's exactly what we're doing and rotating the capital in a much better way. As Jose was explaining you, we rotate a third of the balance sheet every year. And since we're very focused on profitability, we're actually reinvesting better and better, and that's actually a new way of basically managing the balance sheet of the bank. Then Jose can give you a little bit of the details in terms of what you were explaining about it.
In terms of regulatory capital, as we told you, our guidance is basically to be above 12% after regulatory charges, et cetera. So we continue to basically hang on to that number, 12%, above 12% we believe. And as we -- and as I said -- and Jose basically reiterated, we're going to be above the 12% after Basel III as well. And in terms of the IPO of Ebury, we'll give you the details -- Jose will give you the details on that. Thank you, Jose.
Jose Garcia
Hi, Sofie. First of all, the €30 billion was risk-weighted assets in the first half. So more or less 40% of this is SRTs, but the rest is other types of transactions like asset sales, hedges, et cetera. The cost of mobilizing this €30 billion was around RoTE equivalent, okay? We always look at RoTE, but just to use the same currency everywhere in RoTE equivalent, the cost of mobilizing this €30 billion was slightly below 10%.
And we reinvested the capital, as I said, at 23%. So there was at least 13 percentage points difference on this €30 billion in risk-weighted assets. €30 billion in risk-weighted assets is close to €4 billion in capital times this 13%. So on an annualized basis, we generated increased profits with the same capital of around €500 million.
We expect to continue doing this. The demand for private credit is significant that we have a very busy second half of the year. It's difficult to replicate the same figure in the second half of the year because of holidays, et cetera, but we expect to mobilize much more than last year. And as you can see from the figures I gave you, this is very profitable.
Capital headwinds this year, we still expect 20 to 30 basis points in the second half of the year. Basel III, as Hector mentioned, fully loaded. And when we mentioned fully loaded, is fully loaded, even taking into account those impacts that come in 2029, we will be comfortably above 12%. And the day one impacts will be very relatively small, as we mentioned before. And in the case of Ebury, we're always looking at ways of managing the capital and maximizing capital usage.
So there were some news that we are contemplating an IPO in Ebury. Again, we are looking at all types of alternatives to maximize the capital. This is one of them. That doesn't necessarily mean that this will be executed. And again, this will be put as one of our several capital management initiatives that we have across the group.
Begona Morenes
Thank you. Can we have the next question, please?
Operator
Next question from Ignacio Ulargui from BNP Paribas. Please go ahead.
Ignacio Ulargui
Good morning. Thanks for taking my questions. I have two questions. The first one is on the revenue performance. We have seen a very good performance in Europe, probably a bit better than what we expected -- at least we expected at the beginning of the year. LatAm has been lagging a bit behind with Brazil being softer. How should we think about the revenue performance going forward in the second half?
When you have upgraded the revenue guidance to high single digits from the 9% currently so we expect second half in line with these levels kind of getting a bit of a sense whether LatAm should offset the weakness of Europe that you have flagged Jose during the call in margin? And the second question is on the U.K. If you could elaborate a bit what should we expect in terms of NII for the UK, are stabilizing so try it getting your thoughts on the outlook for the UK? Thank you.
Hector Grisi
Thank you, Ignacio. I mean, first of all, let me tell you, as Jose said, revenue has been very strong, much stronger than we believed at the beginning. Rates have helped, but also the good performance of our different businesses. As you know, we're very focus on profitability in the way we're restructuring things and that basically is paying off, right? I believe that, I mean, revenue will continue basically to give good results.
I don't see that LatAm has a weakness. I see that actually, LatAm is going to be doing very well in the second half. And you can see also very good results coming out of what we're doing in retail in Brazil, okay? And also Chile is doing quite a good performance. Mexico, basically on retail, we're changing the mix, and that's why you see the flat NII on there, but I mean we will continue to give very good results.
So we expect a very good second half of the year in terms of revenue. And in that sense, on basically what you were asking about the UK, UK was pared a better second half. First of all, we see that the market is a little bit more rational. Competition has been much rational than we saw during the first quarter. Second quarter has stabilized. We also -- some of the strategies I have done in terms of betas are paying off, okay? So I believe that all in all, UK will have a much better second half of the year than we have seen.
In terms of detail, basically is more rational behavior, as I told you, fees are not going to be doing that well due to the switcher campaign that we structured and -- but benefits will come over in the third and fourth quarter, much better than the way we basically saw it. And what you're going to see is also a very good cost control because we have cost control initiatives coming into the U.K., which are going to make the business perform much better than we saw.
I don't know, Jose would like to complement a little bit on the revenue side, but...
Jose Garcia
I think I'm sure that you will ask about -- you mentioned that revenue in Europe is better than you expected. At the beginning of the year, we guided for a drop in NII in the Eurozone. We now see NII in the Eurozone, particularly in Spain, Portugal, et cetera, up mid-single digits. Obviously, rates are higher for longer, so much better performance in NII. We have hedged a substantial amount of our balance sheet in the Eurozone, basically through the ALCO portfolio, hedging the assets, particularly mortgages and also swapping our fixed liabilities into variable liabilities. And it means that the sensitivity of our NII in Europe going forward is going to be significantly lower than we had before.
So as Hector mentioned, we expect fairly stable, maybe slightly down NII in Spain in the second half of the year and next year. But at the same time, we continue to see good momentum coming from South America, Brazil and particularly Chile. So we are constructive on the future evolution of NII and revenue in the second half.
Begona Morenes
Thank you. Can we have the next question, please?
Operator
Next question from Alvaro Serrano from Morgan Stanley. Please go ahead.
Alvaro Serrano
Hi, good morning. Can I ask a couple of follow-ups on -- just wanted to confirm the comment you've just made around mid-single digit in Spain NII? That implies, I think, almost 9% production half-on-half, which is feels a bit substantial. So I don't know if I've done my math very quickly wrong or if you can sort of add a bit of color on that.
And then on the performance and fees in the U.S., could you give us a bit of color on the obviously very strong performance. But if you can maybe sort of give us some kind of color on split on, is it ECM/DCM, just perform an opinion of how sustainable it is going forward. If I can slip in a third, you mentioned over 12% capital, but I thought the target was 12.5% at the end of the year. So can you just confirm that's the case and we should still expect the 20, 30 basis points regulatory headwinds? Thank you.
Hector Grisi
Thank you, Alvaro. First of all, let me talk about capital. In capital, we have always said we're going to be above 12%, okay? And that basically has been the guidance. We're at 12.5% right now. And we said -- as Jose basically reiterated that we're going to be above 12% even after Basel III fully loaded, okay? That's exactly the guidance.
In terms of performance in the U.S. fees, okay, the majority is basically the CIB business. CIB is the one that is driving and also a little bit in terms of good performance in retail that we're having a little bit also in the U.S., but CIB is the main driver, okay? It's been growing -- it grew 38% year-on-year, 1.3% quarter-on-quarter.
As you know, CIB business is cyclical. So we have pretty good mandates. The business is basically doing well and also a very good connection in between -- what we're doing with the U.S., as I explained during the presentation, with the business in Latin America and the business in Europe. What's happening, and let me explain a little bit is some of the businesses that we used to do in terms of DCM that we wouldn't get because we wouldn't be seen as a dollar house, we are becoming one, and you see us top three in the league tables right now in Latin America, doing dollar transactions, not just to the corporates, but also to the governments.
I mean, when UMS did their transaction at the beginning of the year, €7.5 billion, we were one of the principal book runners in the transaction. So you're starting to see that because of the beef up that we did in the U.S. So that's starting to pay off. I believe that with the four teams that we added, I think it's going to complement the rest of the business and will continue driving fees up, but let's see what happens with the cyclicality of the business. On the other side, retail is also performing well in fees, and we believe that it continues to do so over the rest of the year.
In terms of what we gave -- in terms of Spain, okay, performance, loans are starting to reprice lower at lower rates, but deposit betas are behaving very well. This is helping contain the cost of deposits. Also, as Jose explained you in detail, ALCO volumes are hoping and the lower cost of the hedging, which were not in place before and now are in place. So that's going to help us. NII, as Jose said, is reaching to speak, but I expect NII to grow mid-single digit in '24, better performance than we expected at the beginning of the year. It's also because of the higher -- for longer rates environment that we're experiencing, okay? I don't know, if Jose would like to add something?
Jose Garcia
Yes. In terms of details, Alvaro, I mean, it's first half against first half, NII in Spain is up 15%. So if we grew 0 in the second half, the year-on-year would be around 7%. So I don't understand where you get the minus 9. If we go quarter-on-quarter, NII in Spain was started in the third quarter of last year, 174, fourth quarter 174. First quarter of this year, 182, second quarter 184. We would expect the 184 to be the peak and then slightly down in the second half, probably to very, very similar levels that we had in the second half of last year. And we expect to be able to keep that same level in 2025.
In terms of capital, 20 to 30 basis point headwinds, taking into account that we generate 20 to 30 basis points BAU, you should expect our capital ratio to be basically at these levels by year-end. The guidance of 12% is post Basel III fully loaded.
Begona Morenes
Thank you. Can we have the next question, please?
Operator
Next question from Marta Sanchez Romero from Citi. Please go ahead.
Marta Sanchez Romero
Thank you very much. I've got a couple of follow-ups on the U.S. So you're still struggling to deliver positive jaws. When do you think things will turn around there? Do you think that we will see positive jaws in the second half of the year? In the U.S. as well, your P&L still remains pretty supported by tax credit. Can you help us understand how the tax line will look like in the next few quarters?
And then if I may ask, do you think the new reporting is helping investors understand Santander better because judging by your low PE, I think not. So I would like to hear your thoughts there. Thank you.
Hector Grisi
Thank you, Marta. Okay. Let me explain you a little bit what's going on in the U.S. If you look at by business, you're going to see that retail is actually having lower cost than you used to have because of the transformation even with the strong investment we're doing in transformation. But we have done a really -- good cost reduction, and we believe we're going to perform better. Their jaws are negative due to the fact that we're investing in CIB. And CIB, as you understand, I mean, cost a lot to do it.
So if we're going to have a second half that is better, it's going to start looking better, but it's going to depend on the cyclicality of the CIB business and some of the still people that are coming into the team that will start to come in, in the next few months. As you know, there is a period of garden leave et cetera. But the main reason is the investment we're doing in CIB, which by in any way is not creating a big investment bank or anything like that.
This is basically, as we said, complementing the rest of the business that we have. Our size is not going to be huge. It's the size of a really small boutique, but it's helping us out to beef up and to help us in the remainder of the business. And you can see fees are starting to basically be up due to that fact, okay?
In terms of the P&L, it's at easy to understand. The DTAs are basically what we said last year when we started doing the electric vehicles. I mean we signed contracts with some OEMs that are generating the DTAs. And that's why you see that the P&L is affected by that, and it's going to continue due to the fact that we will continue to be absorbing, I mean, that volume. So we have now three things, and this is basically leases on electric vehicles that are creating the DTAs in the U.S., all right? And you're going to see that throughout the year.
In terms of the new reporting, it's very important to understand what we're doing. The new reporting is helping us a lot in the way we are managing the business on a day-to-day basis, okay? Because it's making us work together, is making us spend a lot less. In the past, for example -- and let me give you a really stupid example. I mean we used to have 10, 11 different apps in our 10 different banks.
Right now, we're just having one app being deployed in all the countries. For example, one app is being deployed. Today, it's being deployed in all of Europe. The last deployment we did was the U.K. and they were deploying Brazil and then we will -- we are deploying also the U.S. So what happens is basically, you use the same around 80/20, and that's the goal that we're basically going through, investing jaws ones and those 80% common, 20% customization for each country.
So that basically will enable us in the future through these global platforms to work much better in a much cheaper way. We gave you a pretty good example in what we're doing in acquiring. When the acquiring platform was deployed in Mexico, it took us in 18 months to number two, and you saw the results that I explained, I mean, how EBITDA is growing. And I showed you in the presentation that is helping us quite a lot in terms of positioning ourselves to be very competitive and with really high margins in every single market.
And jaws 1 platform, the one that is being deployed. Now this platform is being deployed down to Chile, is being deployed to Argentina, and they will -- we will deploy it in Europe in the near future. So this is basically helping us to work together and to manage the business in a much better way.
Then in terms of how do you see the businesses and the way they're reporting, I mean you're going to start getting used to it because it's going to be a lot easier for you to understand every single business in the way we're managing it. We're reporting now, as you can see, the operational leverage that we're getting by working together in which revenue is going up, cost is staying stable and is giving us a really profitable run.
So it's very important that you understand that. Also, let me give you a great example. In CIB, where we have been working together for a long time, the same factories that we use for Mexico, Brazil, Spain or the U.K. are completely the same and it's the same product, and we just made them once. So that basically tells you how we're going to be able -- I mean we have been able to make it a really profitable business with growing revenue every single year and with profitability at around 19% that I gave you.
So this is exactly the points that we're doing, and I believe that this will enable us to give a lot more value to our shareholders. There is no way we're going to give you more value if we don't work together and do things in a much cheaper way.
Begona Morenes
Thank you. Can I have the next question, please?
Operator
Next question from Francisco Riquel from Alantra. Please go ahead.
Francisco Riquel
Yes, thank you. So two questions for me. The first one is on NII in Brazil. You still maintain the guidance of growth in the high teens for the year. Mid-teens would imply a quarter-on-quarter fall during the second half, if you think this could be the case or not? I mean, because selling rates have been expectations of cuts have been pushed out. So if you can comment on the main drivers of the NII in the coming quarters and also update on the sensitivity of the NII to select rates in Brazil?
And the second question is about NII in the U.S. We have seen this is bottoming out in this second quarter, but they have also seen the deposits falling for a couple of quarters now. So you would need to pay up for deposit gathering in the second half of the year or not. In this context, if you can also comment on the plans to launch Openbank, shall we expect there? Because when I look, for example, at the digital consumer bank, the deposits are growing there by 20%, but net interest margin is still falling, despite the shift to retail deposits?
So you can comment also on these NII trends here.
Hector Grisi
Thank you, Francisco. Let me start with Brazil. First of all, as you have seen, I mean, very strong and solid numbers coming from Brazil. NII, once again, a very strong quarter, up more than 3% and it's up more than 22% in the year, okay? What's behind the performance is the combination of the healthy volume growth, the change in mix and lower rates, okay? It is true. First of all, rates outlook has changed. The market is expecting a smaller than initially anticipated rate cut by the year, by year-end, and this ultimately means that NII growth will be a bit less intense than what we thought at the beginning of the year. That's a fact, okay.
Having said that, we still expect Brazil NII to grow in the mid-teens mark by the end '24, okay? It's a good performance that should continue in '25. And let me tell you that to take the opportunity that Brazil has delivered a 16% RoTE. We believe that the end of the year should end up between 16% and 17%. A strong profitability improvement is not just relying on NII growth, but on the good delivery on fees also, the cost contention that we have had and expected cost of risk is stable during the year. So I remember very optimistic in Brazil and the ability to continue funding the profitability, as you have seen.
In terms of Openbank in the U.S., Openbank will come into the U.S. with the deposit gathering facility towards September, October, okay? We expect that to come. The first phase is the deposit gathering. And I believe it would be quite successful. We had a pretty good plan in place. And then we'll come -- and we'll be improving the platform as we see fit.
In terms of deposits, the deposits -- the transactional deposits that SG&A has had remained stable during the year. What is -- what you have seen the movement in deposits in the U.S. is basically the deposits that we have in CIB, which are the ones that we decide on profitability, what's better for us or not. So sometimes because of profitability, we basically let them go and we move out if we see fit. So there is no problem into that, and we will continue to see that working profitability towards every business that we do.
Jose Garcia
One quick comment on DCB Europe margins and profitability. The new business we wrote in 2021 was extremely profitable. This was post-COVID, and we have historically high profitability levels. This year is going to stay -- this production is going to stay in our books for three years. So it's still in our books in 2024 and it will gradually disappear between '24 and '25. The new business that we are writing in 2024 is at RoTE's of around 20% RoTE was of 2.3%, 2.4%, which is much, much higher than '22 and '23 annual production.
So you should expect in 2025, a very substantial pickup in profitability in margins and in profitability in Consumer Europe because of this in and out of the different productions and the fact that there was an abnormally high profitability in the year following COVID.
Begona Morenes
Thank you. Can we have the next question, please?
Operator
Next Question from Alvaro Fernandez-Garayzabal from UBS. Please go ahead.
Alvaro Fernandez-Garayzabal
Hello, good morning. And thanks for taking my questions, I have two. First, we assume you're aiming for the upper end of your RoTE target for next year. So that is 17%, which implies a meaningful profit increase in '25 versus '24. So my question is, geographically, where is that earnings growth going to come from? And second, related to previous questions, we have seen revenues improving in the U.S. over the last couple of quarters, with volumes up, customer spread expanding and fees coming quite strong. So basically, how sustainable is this revenue pick up going forward? Thanks.
Hector Grisi
Thank you, Alvaro. Let me start with the U.S. To tell you, I believe, I mean, the U.S. revenue is going to continue to do pretty well, but the profitability is always the most difficult in the second part because of seasonality in terms of what happens to us in provisions. So what you're going to see is revenue continue to go up quietly fairly strong. Let's see how we do in fees, as I said, due to the cyclicality of the CIB business, but revenues will be doing fine.
In terms of the seasonality, let's see how we do in terms of the provisions, but we believe and the indication that we have had in terms of provisions show us that are coming better. The LTM numbers that we have in provisions for the U.S. are much better than last year. So it's looking well. And so the U.S. shall have a much better year than last year. In terms of the RoTE 17%, Jose, if you would like to comment?
Jose Garcia
Yes, I mean, obviously, we expect profitability to continue to increase on the back of increased -- Sorry what I was saying is that we expect our profitability to continue to increase on the back of higher operational leverage. Our transformation program is delivering very positive jaws that we expect to maintain, particularly in consumer and retail in 2025. The negative -- the sensitivity to rates in Europe has been much decreased, as I mentioned before, and we should have positive tailwinds coming from NII in South America, both Brazil and Chile. So definitely, operational leverage is we'll continue driving increased profitability.
In terms of cost of risk, no signs of deterioration, and looking into the next few quarters, we see no signs that we will require to increase our provisions going forward. So if you put all of these together, again, this means that our profits should continue to increase going forward.
Begona Morenes
Thank you. Can we have the next question, please?
Operator
Next question from Benjamin Toms from RBC. Please go ahead.
Benjamin Toms
Good morning. Thank you both for taking my questions. The first one is on Brazil. You used a €350 million gain to top up your provisioning. I think that's one strategy you've adopted before, but how comfortable are you that you will not need to do further top-ups in Brazilian cost of risk going forward? And are the top-ups a catch-up? Or can we assume that the top-ups will mean a structurally lower cost of risk in Brazil in the coming years?
And then secondly, in the U.K., in the deck, you mentioned that 100% of your hedge income is already locked in for 2024. This suggests that either you do not have any maturities this year or you pre-hedged some of your maturities. If you have been pre-hedging, what proportion of 2025 structural hedge maturities have you pre-hedged and what rate did you look in at given the swap rates have been volatile? And do you expect the tailwind from the structural hedge will overwhelm the headwinds on NII in the U.K. in 2025? Thank you.
Hector Grisi
Thank you. Okay. Let me go to Brazil, okay? First of all, it's very important to tell you that increase in provision is exclusively linked to the loan growth that we have in the country, okay? Cost of risk, as you have seen, is flat quarter-on-quarter, 4.77% and credit quality in Brazil remains sound and solid. It's very important to understand that the recent vintages that we have are performing very well and no signs of deterioration. So it's performing than we expected. It's very important to understand that we're also changing the mix a little bit on the portfolio.
Just to explain you a little bit, for example, credit cards where in '21, we were making around 800,000 to 900,000 credit cards per month. Today, we're just growing by 400,000 credit cards a month and just to our client base.
So the important thing and the big change is exactly that we're not going to the open market, which was the 1 that hurt us quite a lot during '22 and '23. So that's exactly the change of mix that is helping us.
Also, it's very important to understand that we're very focused on profitability, and we have been very opportunistic, and we used the proceeds of a corporate transaction to further reinforce the balance sheet at this point. And we reiterate that the '24 guidance of delivering is a flattish cost of risk versus '23, okay, excluding the one-offs. So that's what I see in terms of Brazil. In terms of the U.K., Jose, please?
Jose Garcia
Yes. So as you know, obviously, the strategy is to keep the structural hedge position in line with core deposits to protect the balance sheet ahead of decreasing interest rates. Following the recent increase in market rates and in order to protect the NII, we have accelerated the planned investments for 2024 amongst other measures.
So the sensitivity we have today is to a 100% decrease in -- parallel decrease in rates in the U.K. Today is minus GBP 120 million compared to minus GBP 220 million a year ago. So roughly, we have half of the sensitivity today than we had a year ago. The current hedge -- structural hedge is GBP 114 billion, compared with GBP 106 billion in December. So this is related to my comment before. With the duration of 2.5 years in December, it was -- sorry, 2.5 years. In December, it was 2.4 years and the yield is slightly over 2%.
Begona Morenes
Thank you. Can we have the next question, please?
Operator
Next question from Carlos Peixoto from CaixaBank BPI. Please go ahead.
Carlos Peixoto
Hi, good morning. My first question would actually be a follow-up in Spain. I'm sorry to insist on this again. But if I understood correctly, and the message was that in 2025, NII should be roughly aligned with the second half of this year where you already expect NII to drop somewhat towards the mid-single-digit growth in the full year that you are mentioning?
And then my second question was actually on the U.S. tax rebates that you have been booking. I was just wondering if you could give us some color on how the rebate works in the sense that -- or basically, for how long is it in place? Is it something that we should also witness next year? And also, is it this federal level rebate or something at the state level? And to what extent the potential changes in -- political changes in the U.S. could drive that to disappear or not. Just to have an idea on the time frame for which this is valid right now. Thank you.
Hector Grisi
Thank you, Carlos. All right. I mean I think in the -- Jose gave a pretty good explanation of what's going on in terms of how do we see now things. It's important to understand what Jose explained you about what we're doing on the hedges, the ALCO position that we have, that will help us throughout the year. Even if the rates come down, I think we're probably in the best ever position in that sense.
And even as we say, I mean, the NII would slightly come down over the second half. And then we'll see that we will have a pretty good run towards -- let's see how rates basically behave. But I don't know, Jose, if you like to complement, but it's basically...
Jose Garcia
No. It's exactly what I said. Carlos, it's exactly what you said. We expect NII to go down slightly in the second half of this year. The year-on-year growth, '24 against '23 will be somewhere between 5% to 7%. And then next year, NII should be fairly flat relative to the second half of this year, which means that NII should be down slightly low single digits. Because, again -- and this is using the forward rate curves today.
So if this was to change, obviously, we would need to update these estimates. But using forward curve rates today, that's our best estimate for NII in Spain next year. And as Hector mentioned, this is thanks to the substantial reduction in NII sensitivity that we have conducted in the Eurozone in the last year, 1.5 years.
Hector Grisi
Carlos. Okay. On your -- on the U.S., let me walk you through exactly what happens. Okay. First of all, let me tell you that it's federal, okay? We don't know if this is going to be sustained. If there is a change of government in the U.S. or not. You -- I mean, I don't want to speculate on that one. Exactly what happens is every single time we do a lease on an electric vehicle, we buy the vehicle in the bank, okay? So what you see is basically a situation in which we own the vehicle. And then we get the cash back or -- sorry, the tax credit and you show the cash credit in 1 lump, okay, during the month in which we do that, right, to be exactly how it goes.
So you don't see the impact in the revenue but the impact you see it in the taxes. So that's exactly how it works. I don't know if I'm being correct of -- I mean if I'm being clear in one, the way I'm explaining to you this, but it's exactly how it works, all right? So what we have done is that we have a program what we have signed with the OEMs that we're doing this for, it depends on the -- also the capacity that we have to absorb those ETAs because this is not, I mean, unlimited.
This is not, I mean -- we have to have depends on the balance sheet that we have, and we have calculated the number exactly that we can absorb, and this is exactly what we negotiated with the OEMs. I know if you understood the question in the right way, but this is exactly how it works, okay? And we don't know if it's going to happen in the future or not, hopefully, continues to be like that.
Begona Morenes
Thank you. Can we have the next question, please?
Operator
Next question from Miruna Chirea [ph] from Jefferies. Please go ahead.
Unidentified Analyst
Good morning, Hector. Good morning, Jose. Thank you for taking my questions. I just have a couple of follow-ups, please, on point we touched on before. Firstly, in the UK, your NII was slightly up quarter-on-quarter in Q2. So just wondering how you see it progressing from here? And is it fair to say that Q1 was probably the low point on NII and it should start building from here supported by the hedge and what is the shape of this into H2 and also into next year?
Secondly, just a clarification on your U.S. business. You were talking about some seasonality into the second half of the year in provisions. Could you please explain what is driving this seasonality? And then lastly for Brazil. Also taking into consideration your comments about changing the mix of your business. When do you expect to see a full normalization in cost of risk and around what level would this normalization be? Thank you.
Hector Grisi
Thank you. Okay. So as I said in the UK, we see that we're going to have a second half better than the first half, okay? Market is more, more rational, both in the margins and in the betas. And on top of that, cost, as I said, is going to be slightly better than the first half of the year. Q2 in NII is showing signs of improvement, okay? And as I basically explained, and we see that betas are not going to go up so that basically will help us.
In terms of revenue, we see mid-to single-digit decrease in NII, down mid-single digits versus last year and fees down low double digit due to the fact that I was explaining about what we're doing with the switcher campaign and the higher cash back. You're going to see that it's going to be much better in '25 because exactly we're preparing the bank towards that. Also, we're very focused on profitability. It's very important that you understand that, okay? We're not using capital below our cost of equity. So we're being very tough on that and that's exactly how we manage that. And then, Jose, I would like to...
Jose Garcia
A quick comment. The mortgage dynamics in the U.K. seem to suggest that margins in this business will pick up substantially from the fourth quarter of this year into next year, just as an additional comment. Brazil cost of risk, we still believe the cost of risk this year should be somehow below cost of risk last year. Remember that when you look at cost of risk quarter-on-quarter, it was a substantial increase in the fourth quarter when we look at year-on-year X the fourth quarter and we look at cost of risk for the full of 2024, we would expect to see an improvement in the cost of risk.
So year-on-year because the fourth quarter will come out in the fourth quarter of this year, you should see the most significant improvement in cost of risk in the fourth quarter. And then provisions in the U.S. are normalizing. Cost of risk this year should be somehow around 2% or slightly below 2%.
Begona Morenes
Thank you. Can we have the last question, please?
Operator
Last question from Alberto Negro [ph] from Mediobanca. Please go ahead.
Unidentified Analyst
Yes. Thanks for taking my questions. I have just a few follow-ups. So the first one is on U.K. If you can give us more color on the contribution of the U.K. structure hedge in the second half of this year and in next year? And the second one is, again, on Brazil following your comment on the change of the loan mix. Should we expect normalization of the cost of risk in the next year and see an absolute decline of total provision next year? Thank you.
Hector Grisi
Okay. In terms of Brazil, we're changing the loan mix, but we are very flexible and very dynamic in the way we change the loan mix over there depending on what we are seeing and how the vintages are behaving, okay? So if we see that Brazil basically, and we're starting to see positive signs of how the mass market basically reacts, is inflation is coming down and we see the rates coming down. We might change the mix again, and we might be a little bit more aggressive.
And I couldn't tell you up at this point, what are we going to do because we revised the strategy every single month of what we do and also the pricing okay? So I don't know what the mix is going to be in Brazil in '25, but I must tell you that we're working in a very dynamic way. It's a very dynamic market, and you need to be on top of it, all right? So I couldn't tell you at this point, but I mean, everything basically is -- and we do change the mix to sustain the cost of risk at the reasonable levels, and that's the intent that we have in order to manage that, right?
Jose Garcia
So U.K. NII, I think I gave you all the details to calculate that. I gave you the maturity, the rates, the amount and everything else. In terms of cost of risk in Brazil, rates this year are expected to stay at 10.5% by year-end, but to drop significantly next year and that should help. In addition to the structure of the balance sheet, lower rates next year in Brazil will help not only in terms of NII, but also cost of risk. It will be a gradual improvement. We need to see exactly how we will build the business in 2025 in Brazil, but definitely lower rates should help.
Begona Morenes
Thank you, Jose. Thank you, Hector, and thank you all for your attendance. And if there are any further questions, Santander Investor Relations team, is always at your disposal for anything that you may need.