Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) Q1 2024 Earnings Call Transcript

Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) Q1 2024 Earnings Call Transcript April 29, 2024

Banco Bilbao Vizcaya Argentaria, S.A. beats earnings expectations. Reported EPS is $0.4, expectations were $0.35. Banco Bilbao Vizcaya Argentaria, S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Patricia Bueno Olalla: Good morning. Welcome, and thank you for joining BBVA’s First Quarter Earnings Conference Call. I’m joined today by Onur Genç, our CEO; and Luisa Gómez Bravo, the Group’s CFO. As in previous quarters, Onur and Luisa will firstly discuss quarterly figures and then we will open the line to receive your questions. Thank you very much for your participation. Now, I’ll turn the call over to Onur.

Onur Genç : Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining BBVA’s first quarter 2024 earnings webcast. Let’s jump into it, starting with slide number three. On the left-hand side, you can see our net attributable profit reaching EUR 2.200 billion, showing another quarter of record results, obviously continuing the positive trend that we have been having for the past years. This figure is 19% above the results of the same quarter of last year and almost 7% above last quarter. I should remind you that this quarter’s number already includes the EUR 285 million of extraordinary tax in Spain. If the extraordinary tax was not there, the net attributable profit would have been obviously close to EUR 2.5 billion.

Our results represent EUR 0.36 earnings per share, 23% year-over-year growth, a higher growth rate than the one of the net attributable profit due to the share buyback programs we have been executing. The graph on the right-hand side of the slide shows our CET1 ratio, CET1 ratio at 12.82%, reflecting a 15 basis points increase in the quarter and stands clearly above our target range and also the regulatory requirements. Moving to page number four, behind the excellent results we have been announcing lies, in our view, the strength of our franchises and our performance at the core operating income level, core operating income level. In that sense, and acknowledging here some inherent seasonality between the quarters of the year and so on, we are showing a very consistent growth in our operating income, more than EUR 4.8 billion in current year reported this quarter, very close now to the EUR 5 billion operating income line.

Page number five, our tangible book value per share plus dividends. It continues the outstanding evolution of previous quarters with a 20% increase year-over-year and a 6.5% growth in the quarter. Regarding profitability, we continue to improve on our profitability metrics, reaching 17.7% in return on tangible equity and 16.9% in return on equity. These numbers in this page, in my view, are some of the most impressive figures of this presentation. Page number six, we talk about in this page, it sounds like a conceptual chart, but it is driven by numbers. We talk about the truly unique profile of BBVA within the European banking sector, combining growth and profitability at the same time. To be more specific, on this map, in the x-axis, we use return on tangible equity as a profitability metric, and in the y-axis, we show the loan growth in current Euros for comparability purposes during 2023.

As a clear indication of potential future value creation, in our view, BBVA stands out, being in the top right corner, with one of the best profitability metrics and the highest loan growth among the European peers. Obviously, we will see how our competitors have evolved in this quarter, but in our case, when we update the slide with BBVA’s first quarter 2024 figures, our positioning moves even further to the top right corner of the chart as we continue to increase our profitability and as our growth also has improved in the quarter, year-over-year growth. We are very much committed to maintaining this differential value creation profile, and some of this optimism is related to the potential evolution of our core markets. And with that, I move to page number seven, where we would like to show the positive prospects that we see in Spain going forward.

On the left-hand side of the slide, you can see the GDP growth evolution in Spain versus the Eurozone in the last decade. Despite a stronger hit during COVID, there is a positive growth gap for Spain that we expect to widen during 2024 and 2025. Additionally, in the top right chart, Spain, after a very long period of deleveraging, shows in both households and companies, debt levels leverage lower than the Eurozone, in our view indicating a potential recovery to arrive when rates come down in Europe. Finally, moving to the bottom right chart, we want to highlight that we are one of the main banks in the country, as you all know, where we have seen a very good track record of increasing market share in recent years, especially in those most profitable segments, placing us in an excellent position to benefit from Spain’s positive prospects.

Moving to Mexico, on page number eight, on the left side of the slide, in a similar trend to Spain, Mexico has a GDP evolution with a positive growth gap versus its comparable countries in the region. Obviously, beyond the demographic dividend that Mexico has and obviously shares with the countries in the region, the clearly differential positioning due to the proximity to the U.S., the latest trends around nearshoring, increasing commercial and financial flows between the U.S. and Mexico, it’s worth to highlight here. Coupled with the positive macro prospects, and as I have mentioned many times in the past, in the top right corner, Mexico also offers an even more impressive growth opportunity for banks like us, as it has a very low credit to private sector over GDP, a clear potential compared to its peer countries.

Lastly, in the bottom right corner, in this context of a positive and healthy banking growth environment, we want to further reinforce our claim that we will be able to achieve double-digit loan growth going forward, as we have seen in the past. During the last decade, in pre-COVID and post-COVID years, with GDP growth around 2%, the average loan growth that BBVA has achieved in Mexico has always been around double digits, as our guidance to you for the coming quarters and years. Having talked about the perspectives for the future, on page number nine, I go back to the quarter. This page is a summary of the pages to follow, where I will talk to you about the P&L, the revenue growth, costs, asset quality and capital, and obviously the execution of our strategy.

So please, rather than repeating the messages here, allow me to directly move to slide number 10, the summarized P&L. This slide focuses on the first quarter results and the quarterly comparisons, as you always have in this page. You can find the year-over-year quarterly evolution in the second column from the left, in constant, and the third from the left, in current terms. Basically, the P&L it continues its impressive evolution, thanks especially to core revenues, with an increase in gross income, gross income line, with an increase of 31% in constant and 18% in current Euros. As a result, the last line, net attributable profit, it grows 38% in constant and 19% in current Euros. Some light into the revenue breakdown and the quarterly evolution on slide number 11.

We very much like the trends that we see in this page, as we continue to improve our revenue generation capacity quarter-after-quarter. First, our net interest income, it keeps increasing, 25% versus last year, 3.6% growth compared to last quarter, driven by the solid activity growth and also the good customer spread management. Second, clearly differential, this quarter clearly differential evolution of net fees and commissions, increasing with an outstanding 37% year-over-year and 3.5% versus last quarter, levered mainly on payments and asset management businesses. Third, another strong quarter in the net trading income heading, 124% year-over-year, driven mainly by the good evolution in global markets. All in all, excellent growth in gross income, 31% year-over-year, although it reduces minus 5.9% quarter-over-quarter due to hyperinflation impacts and the extraordinary banking tax in Spain that you all know that we record under other income, which then affects the gross income line.

Moving to slide number 12, regarding costs, on the left side of the slide, we continue showing positive jaws at the group level. Thanks to the good performance of gross income, obviously, but as I mentioned before, growing 31% year-over-year. At the same time, when the revenue is growing 31%, costs are growing at 19.5%, slightly below inflation numbers. On the right side of the slide, you can see our efficiency ratio, which shows an outstanding improvement to 41.2%, 398 basis points lower than last year. I mean, with these numbers, we clearly remain as one of the most efficient European banks out there. Turning to slide number 13, asset quality. In this page, you can see our asset quality metrics. They remain in line with our expectation in the context of strong activity growth, especially in the most profitable segments and especially in the context of higher interest rates, completely aligned with our expectations that we have guided you.

On the left-hand side of the slide, at the bottom, our cost of risk, it increases 14 basis points in the quarter to 139 basis points, slightly better, actually, than our guidance. The increase, quarter-over-quarter, is mainly explained by two factors. First, the aforementioned activity growth in highly profitable, but high cost of risk retail segments and the emerging market geography, so the mixed effect. And second, Turkey, that showed a gradual increase after abnormally low levels that we had in 2023. Then, MPL ratio on the right bottom remains fairly stable at 3.4%, and our coverage ratio is also broadly stable at 76%. Slide number 14, on capital. We have increased our CET1 ratio by 15 basis points in the quarter. The ratio now sits at a very strong level of 12.82%, as I mentioned before.

Needless to say, this level is well above our target range of 11.5% to 12%. In terms of the changes in the quarter following the waterfall: First, our strong results generation that contributes 60 basis points to the ratio. Second, the dividend accrual and the 81 coupon payments, detracting 33 basis points. Third, 43 basis points due to RWA’s growth, somewhat higher than a typical quarter because of the growth that we have seen in the quarter. But due to the profitable nature of such growth, this will result in even more organic capital generation in the coming quarters. Lastly, a bucket of others of 31 basis points, which includes all the market impact and deductions and so on, together with the credit and OCIs, that accounting-wise neutralizes the deductions in the P&L due to hyperinflationary accounting.

Page number 15, our strategic progress. In this page, we have the new customer acquisition. As I said many times before, we believe that the most healthy way of growing the balance sheet is through growing our franchise of clients. In the first quarter of 2024, we acquired 2.8 million new customers, a record as compared to other first quarters of previous years. Even more positive, in our view, is the share of those acquired through digital channels, which comes at a lower cost, which increased to 67% in the first three months. Turning to slide 16, another pillar of our strategy, sustainability. It’s an incredible business opportunity, as we keep saying, and we believe we are trendsetters in this area. This quarter, we have channeled EUR 20 billion in sustainable business, the second best quarterly figure ever, and the total of EUR 226 billion since 2018.

Therefore, we remain committed to our increased target of channeling a cumulative EUR 300 billion to sustainability by 2025. Moving to slide number 17, I also would like to highlight our positive impact on society as a result of our activity in the first quarter. We continue to help our clients achieve their life and financial goals through our primary activity of lending. We have increased our loan book by 9.5% in the last year, and more specifically in the first quarter of this year, we have helped 35,000 families buy their homes. We have awarded more than 155,000 new loans to SMEs and self-employed individuals, and we continue to finance around 70,000 larger corporates in their growth. On the right-hand side of the slide, we also mobilized EUR 4.9 billion in financing for inclusive growth, such as social housing, social infrastructure, like hospitals.

As we grow our activity, in our view, we promote employment, investment, and welfare in the society in the communities that we operate in. Finally, slide number 18, regarding our 2021, 2024 goals that we announced on the Investor Day in 2021. As always, I will choose to not go into each one of them for time purposes, but on all the metrics, we are once again well on track to realize our upgraded expectations and clearly beating our original goals. And now, for the business areas update, I turn it to Luisa. Luisa.

Luisa Gómez Bravo : Thank you very much, Onur, and good morning to all. Starting on slide 20 with Spain. Spain has begun the year with very strong numbers and a very positive outlook based on better-than-expected activity dynamics. We are seeing our loan book grow 0.8% year-on-year, 0.5% quarter-on-quarter on the back of strong new lending flows, and I would like to highlight consumer lending and mortgages, as well as the sound activity from CIB in the first quarter. Indeed, in mortgages, for three quarters in a row now, the stock remains flat on a quarterly basis, supported by strong new loan production, where we are one of the market leaders, and lower prepayments. This means that we continue to outperform our peers and the system keeps deleveraging.

On the deposit side, the shift from demand to time deposits in the retail segment has been lower than expected, and this is one of the key star dynamics, I would say, of the quarter, keeping the cost of deposits well contained. At the same time, we continue to grow strongly on off-balance sheet funds above 10% year-on-year, 3.4% quarter-on-quarter. Supported by these solid activity trends, we are delivering outstanding results in first quarter of EUR 725 million at the bottom line, which would have been more than EUR 1 billion without the bank tax. Strong core revenues continue to drive earnings growth in Spain. NII is growing by 2% quarter-on-quarter, showing an impressive 35% growth on a year-on-year basis, driven by our superior customer spread management and loan growth in the most profitable segments.

Along with outstanding performance of fees, supported by very sound dynamics in the asset management and insurance businesses, as well as an increasing contribution this quarter by CIB. Deficiency ratio therefore stands at 37.8%, showing an improving trend as the franchise continues to deliver wide operating jaws. Finally, we are seeing benign trends on asset quality. Both the NPL ratio and the cost of risk remain broadly stable and fully aligned with our guidance. All in, these impressive results in Spain support a more positive outlook for the year. Therefore, we are improving our guidance for NII to grow a double digit in 2024. As I mentioned, we are improving our guidance to grow a double digit in 2024 in NII on the back of excellent price management and higher commercial dynamism.

We also have an optimistic perspective on the performance of our business in Spain beyond the NII. Moving on to Mexico and slide 21. In Mexico, we have delivered also exceptional results one more quarter, reaching EUR 1.4 billion net profit, supported by the undisputed leadership and structural strengths of our franchise. Outstanding core revenue growth, which is growing 9% year-on-year, supported by sound activity dynamics, means that NII continues to grow very soundly, driven by continued strong loan growth of 10%, excluding the impact of a very strong appreciation of the Mexican peso in the quarter, and as you see, 8.8% year-on-year. This growth is geared towards the most profitable portfolios, as you see, credit cards, consumer loans, and SMEs. On top of NII, we are delivering a solid performance in fees, mainly driven by payments and credit cards, but also with an increasing contribution from asset management.

This is an under-penetrated business in Mexico and definitely represents a growth opportunity for BBVA. At the same time, we continue to invest in the country for future growth while maintaining outstanding efficiency levels at 30%. Finally, asset quality is performing in line with our expectations; risk metrics are consistent with our growth strategy in the retail segment, highly profitable, but with higher cost of risk. In short, we have once again delivered an extraordinary set of results in Mexico, where we expect our growth story to continue going forward. The country continues to benefit from solid GDP growth, a robust labor market, resilient consumer demand, and a very positive outlook linked to nearshoring. Moving on to Turkey on slide 22.

In Turkey, further policy rate hikes during 2024, coupled with additional credit tightening measures, reinforced the Central Bank’s commitment to orthodoxy in order to curb inflation. Additionally, the fiscal stance after local elections will become more restrictive, more likely. In a still challenging environment for banking, Guarantee BBVA achieved EUR 144 million of net profits in the first quarter of the year. Our franchise delivered a quarterly increase in gross income supported by strong fees on the back of very good dynamics in the credit card and payments, and higher net trading income. Finally, asset quality indicators remain contained despite the rate hikes. As expected, the cost of risk rose to 77 basis points in first quarter from an unusual low level in full year ‘23, and it remains within the guidance that we gave to the market for the year.

And moving on to South America, in slide 23, net profit reached EUR 119 million in the first quarter of the year. Core revenues have been really the main driver of the P&L, supported by sound activity trends across the region and outstanding management of customer spreads. I would highlight that in this regard, Colombia is growing 14.8% year-on-year, the core revenues, and Peru is also growing around 14% year-on-year, the core revenues. On the asset quality front, impairments due to higher provisioning needs coming from the retail portfolios have been increasing and is still a very challenging macro environment. However, the easing monetary cycles across the geographies and the measures we have taken to adjust the risk appetite in some segments should be supportive for an improvement of risk metrics in the second half of the year.

And now, back to Onur, who will highlight the main takeaways. Onur?

Onur Genç : Thank you, Luisa. So for the summary of the first quarter on page number 24, let me not take time by repeating the key messages listed on the left and the middle, as we have already underscored them throughout the presentation. But in short, this was one of the best quarters that we have ever had. That’s how we feel about it. But rather, I would highlight the two key points regarding our outlook for the year in the box on the right-hand side. So two messages, basically, in short, we are raising our 2024 core revenue outlook for the Group on the back of the upgraded Spain NII guidance to double-digit growth, as mentioned by Luisa, and due to the broader rate environment. As a result, the second bullet point, the outlook for 2024, net attributable profit for the Group, it further improves to double-digit growth as well. Now, back to Patricia for the Q&A. Patricia?

Patricia Bueno Olalla: Thank you, Onur. So we are ready to start with the Q&A. So the first question, please.

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Q&A Session

Operator: Thank you. [Operator Instructions] And the first question goes to Maks Mishyn of JB Capital. Maks, please go ahead. Your line is open.

Maks Mishyn : Hi, good morning. Thank you very much for the presentation and taking our questions. I have three. The first one is on the outlook for loan book growth in Spain. You have been gaining market share in the last quarters, and I was wondering if you could tell us what’s the reason your gain in the market share and what outlook do you see for the coming quarters. The second question is on the number of employees in Spain. You keep on increasing the headcount, and it would be very helpful if you could explain us why and what should we expect for the future. And then the final question is on capital. You keep on accumulating capital. When can we get an update on how you plan to deploy this? This would be very helpful. Thanks.

Onur Genç: Very good. Thank you, Maks. On all the three questions that stood quick. On outlook for loan growth for Spain, in the guidance that we have given to you at the beginning of the year, if you remember, we were saying that loan growth would be flattish. We do have a positive bias on this now, given also what we have seen in the first quarter numbers. Quarter-over-quarter also we have increased our loan book, and we have been gaining market share. We do expect that, that market share gain will be there for the rest of the year, and you are asking why is that happening. I don’t know, Luisa, why is that happening? We are working hard, I believe. But in the segments that we are growing, when you look into the segments that we are growing, it’s on the presentation for Spain page, you do see that we are growing very nicely in mid-size company segment.

That’s a segment that we like. We call it Banca de Empresas, BEC. We do have very clear plans to grow in that segment, very profitable high-work segment. Then the other one is consumer. You do see that year-over-year in that segment, we have grown 7.8%. This is mainly given to our payroll clients, loans digitally dispersed to payroll clients. As you have seen, we go through it very quickly in the presentation, but this 2.8 million new customers that we acquire in the quarter, it’s the treasure for this growth in consumer and for the healthy growth of the consumer book. In the case of Spain, you are asking Spain specifically, the new customer acquisition, this is the derivative of the growth, know. I mean, the new customer acquisition has grown by 9% in the first quarter.

So, as we acquire new customers and as we get the payroll of these clients, as we extend consumer lending to them, you see that growth of 7.8%. In the rest of the segments, mortgages, quarter-over-quarter, after a long while, quarter-over-quarter, you see also a growth in the mortgage book. As a result, all the line items, they are relatively strong, driven by our push, to be fair, to continue to gain market share. I showed it to you in the page for the prospects for Spain, page number seven, our market share gain in the last five years, 2018 versus 2023. In the consumer book, it used to be 12.3%, now it’s 16.4%, so 410 basis points increase in market share. In the company segment, we also gained 130 basis points market share. So, in the segments that we wanted to grow, we are growing, that’s the key reason for this growth.

Number of employees in Spain, why is it going up? The core reason for the number of employees going up is basically technology. We are internalizing our technology employees. You see an increase in FTEs, but in the total costs, it’s actually better for us. In the case of Spain, especially Spain, a large part of our IT, FTEs were external and we do have a strategy of internalizing that capacity, which has an implication on the FTE growth. But on the overall costs, it’s actually better for us to internalize. So technology, a bit more in data and sustainability, obviously aligned with our strategic plan, but in general, the core reason is internalization, which actually has a positive impact on costs. The third question was capital. We are accumulating capital.

What do we do with it? The same response as before. The same response as before. We do have this wonderful cycle of deliver, always deliver, deliver good results, invest in profitable growth, create excess capital even more, organic capital, and then continue to invest in growth and also rewarding shareholders. That’s what we’re going to be doing. We told you before that in a typical year, excluding any M&A or regulatory impacts that we cannot judge, on a core operating income level, core operating and organic capital generation level, beyond the payout, the regular payout that we have, we expect to generate 50 to 60 basis points every year. That’s more than EUR 2 billion, again, beyond the regular payout. After our WA’s growth, after market impact and so on, that’s our expectation for the next three years and we are on that path.

This quarter, we added another 15 basis points to our CET1 ratio, which is clearly in line with what I was saying before, 50 to 60 basis points, additional capital creation every year. And as we told before, we don’t want to operate with excess capital. As long as we trade where we trade, we will continue to buy back our shares. We will continue to buy back our shares. Anything you want to add, Luisa?

Luisa Gómez Bravo: No, I think that was very clear.

Onur Genç: Very good.

Patricia Bueno Olalla: Thank you, Maks. Next question, please.

Operator: Thank you. The next question goes to Francisco Riquel of Alantra. Francisco, please go ahead. Your line is open.

Francisco Riquel : Yes. Hello. Thank you. My first question is about Mexico. The stock of deposits fell by over 5% quarter-on-quarter, which is a bigger decline than last year with a similar seasonality. The cost of deposits in Mexico is also trending up, whereas it is starting to fall for some local peers in these first quarters now that interest rates have started to fall. I also see the migration of the balance sheet has accelerated. So, I wonder if this is all the way you are reacting to the aggressive deposit offering launched by Nubank. So if you can give guidance on the cost of deposits, EBITDA, what, which are expected in Mexico for the coming quarters would be appreciated. Then my second question is a follow-up on capital allocation. Is your appetite for continuing buying back your own shares versus the appetite for M&A, for example, in the context in which Scotiabank might be looking to sell some assets in South America? Thank you.

Onur Genç: Do you want to take the first one, Luisa, on Mexico?

Luisa Gómez Bravo: Yes, sure. Okay. So in Mexico, indeed, we saw the demand deposits specifically coming down quarter-on-quarter. But, I would highlight that this is also as a result of the seasonality of deposits. As typically in Mexico at the end of the year, we have a very strong growth in demand deposits coming from the double pay that the employees get and the accumulation of balances in deposits. So, we typically do understand that this quarterly trend is more based on the seasonality than otherwise. Year-on-year, we see a growth of 4.9% on demand deposits. I think that we are putting — focusing the delivery of the cost management in deposits very significantly. As you know, we maintain, we continue to maintain a very solid advantage in terms of cost of deposits in Mexico versus our peers.

Cost of deposits in the quarter are around 2.9% versus peers at around 4.75%. So still a very solid competitive advantage there. We’re trying to ensure that we provide our clients with the best possible investment products. That’s why you’ve seen the strong growth in assets under management and off-balance sheet funds growing 10% quarter-on-quarter and 25.6% year-on-year to be able to be, to delivering those clients the investment returns that they may require. But, also I would say that the increase in cost of deposits in the quarter is a continued strategy as well of migrating wholesale financing to wholesale customer deposits in the quarter. That’s why you’ve seen a higher cost of deposits in that regard.

Onur Genç: Maybe Paco, one quick addition to this. I mean, it’s quarterly you see this, but it’s a switch between wholesale funding from the market versus wholesale deposits. It’s more the description of the quarter than anything else. You would also see that in the first quarter, we have done some wholesale issuances in Mexican peso as well. That wholesale issuances from the market has helped us in the deposits. So as a result, if you look into the market shares, I mean the published market shares, you do see that our retail demand deposits in market share, we actually gained 17 basis points year-over-year. Some of the names that you mentioned, is it a competition topic and so on. We gained 17 basis points market share in retail demand deposits, which is the market where some of the players that you mentioned, again, are competing.

The loss is on the wholesale deposit side. The wholesale deposits, in demand deposits, we basically lost 91 basis points. That’s, again, basically the switch between the wholesale funding from the market versus wholesale deposits. So, if you want to acquire deposits in Mexico, we can do that. It’s basically optimizing the cost through the market. Regarding your second question, continuing to buy back shares versus M&A, let’s start with the buyback side of this. As I mentioned before in the previous question as well, I mean, we put this relatively conceptual, some like bubbles in one of the pages that we have in the presentation. Paco, we do believe that we have something unique. In this quarter, we are announcing 17%, 17.7% return on tangible equity.

In a quarter where we have had a 285 million extraordinary tax, which is the tax in Spain. Despite that, 17.7%. On the growth, this quarter, year-over-year growth in current Euros, current Euros is 7%. So we are growing 7% our loan book. We are delivering 17.7% in a quarter where we have had some extraordinary one-off impact because of the Spanish tax. Despite that, we trade where we trade. Sometimes some of you mention it to me very closely and very nicely, but saying that we kind of complain about the market. No, no, we never complain about the market. Who are we to complain about the market? What we are saying is that 17.7% return on tangible equity, 7% growth in current euro lending book, our belief of the intrinsic value of BBVA is much higher than where we are.

As a result, you can be — it’s very clear strategy that we have been applying since 2021. As long as we have the excess capital, we will continue to buy back those shares because our intrinsic value is, in our view, much higher. You asked about M&A, on the M&A, I get this question every quarter. I give the same response, so it will be a repetition. But as before, let me repeat it once again. We have 121,000 people working at the bank, 121,000 people. The overwhelming majority, we focus on organic growth. There is a small, small, small team who looks into opportunities all the time. We analyze opportunities, but obviously our focus for the majority of the organization is on organic growth, and we will always do capital decisions based on numbers, based on numbers.

Given what I said, the share buyback is a wonderful opportunity to create a value creation for our shareholders.

Patricia Bueno Olalla : Thank you, Paco. Next question, please.

Operator: Thank you. The next question goes to Benjamin Toms of RBC. Benjamin, please go ahead. Your line is open.

Benjamin Toms : Morning, both. Thank you for taking my question. I’ll keep it to one in line with your guidance at the top of the call. It’s a high-level conceptual one, please. You printed an ROTE this quarter of 17.7%. Global rates will likely come down from here. I’m just interested in your degree of confidence that 2024 isn’t as good as it gets and you expect in the next couple of years that profits and returns will keep growing from 2024 levels. Thank you.

Onur Genç: Benjamin, very straight answer to a straight question. We don’t think we have reached the peak. As I mentioned, 17.7% includes the Spanish extraordinary tax. It’s the one of impact that will not be in the coming quarters. But, more importantly, and that’s why we have had that little page and little bullet at the end of the document, basically saying that outlook for 2024 net attributable profit further improves to double-digit growth. That double-digit growth implies that we will continue to have even better return on tangible equities in the coming quarters. Why is that? Because we do see very positive dynamics in Mexico, very positive dynamics in Mexico. The 8.8% loan growth that you see year-over-year for the Mexican page, if you isolate for the appreciation of peso, for the appreciation of peso if you isolate for that, the number is 10% growth, even in this quarter.

The first quarter of 2024 is, first quarter is in general, but especially this quarter, seasonally speaking, is very seasonal. First quarter, after the fourth quarter, and in this year, we also had Easter holidays falling into March rather than April, which had some impact. But we see very positive pipelines in Mexico, and we are confident that double-digit growth, double-digit loan growth in Mexico, as we have guided you, is very feasible. We maintain and reinforce that guidance point that we have had in the first quarter. As a result, Mexico is going to continue to do really well. Then you look into Spain, better than what we have been expecting. That’s why Luisa has mentioned from mid-single digit to double-digit guidance update on NII. Then Turkey and South America, we do think that, especially in the second half of this year, we will see better numbers in both geographies.

Looking into every single part of our footprint, we are positive on what we see. I think you’re also asking for next year, or the guidance in general. That’s the piece that we also continue to deviate significantly, actually, from the consensus. Looking into the underlying dynamics of our business, I see even a better 2025 versus 2024, in terms of underlying results, in terms of net attributable profit. We clearly see a growth in 2025 versus 2024, which also implies that the return on tangible equity that you would see is going to be very positive. To cut the long story short, we are quite positive on what we see. In all the geographies that we are in, we are quite positive.

Patricia Bueno Olalla : Thank you, Benjamin. Next question, please.

Operator: Thank you. The next question goes to Marta Sanchez Romero of Citi. Marta, please go ahead. Your line is open.

Marta Sanchez Romero : Thank you very much. My first question is on South America. Its contribution to the group remains subpar. Just 5% of earnings this quarter, but it consumes 14% of capital. What are you doing to close that gap, which keeps widening, by the way? And related to this, what is the rationale of sticking around in Argentina? Then my second question is on Mexico. Net NPL entries, they keep going up. When do you see a change in trend? And just a third quickly, what is your expectation for the Mexican peso and how much of your P&L have you covered? Thank you.

Onur Genç: Do you want to take the first one, Luisa, on South America?

Luisa Gómez Bravo: Yes. Well, in South America, I think that we are, showing a slower contribution that perhaps is the one that we would like. But primarily, this is because of the cycle that we’re in. I think the challenging macro context in the region is still affecting the capacity to grow the results. However, I would say that the strength and resilience of our franchise is still there. When we look at Argentina, Argentina is, first, I think we need to talk about the macro perspectives in Argentina. The measurements and the measures announced by the new government are going in the right direction. The main problems that Argentine economy faces are still very relevant. The focus there is in the short term on lowering inflation, solving monetary fiscal imbalances.

I think the first steps have been taken. There’s been a strong devaluation of Argentine peso back in December. Gradual depreciation since, fiscal measures have been put in place. There’s a monetary policy rate cut as well to improve BCRA’s balance sheet. All these measures are, in the right direction, and in the medium to long term, there is a pro-growth agenda that needs to take place. So, obviously, it’s a very challenging environment in Argentina. A lot of things need to be resolved, but the steps that are being taken are the right ones. In this regard, I think that we’re managing our Argentinian business in a very solid way. The Argentina is well prepared to face a challenging macro environment. Despite the high quarter inflation, the fundamentals of the bank remain solid.

The capital is very solid. 34.1% liquidity is also very good with loan to deposits at 79%. We are, doing very well in terms of gaining market share in the places where we want to gain market share, primarily, in the credit card business and some commercial businesses. I think this is a story that needs to play out on the back of the macro side. With regards to Colombia and Peru, there are different dynamics going on in the different countries, I would say starting with Colombia. The macro outlook was significantly affected by economy decelerating last year, significantly at 0.6%. We do expect the macro to improve this year, especially from the mid-2024 onwards with a 1.5% growth of GDP. Inflation continues to ease, and the central bank has started shyly to reduce interest rates.

Again, this has to continue to play out. We need to see, the economy improve significantly. On the back of this improved growth, we have seen Colombia launching a strategic plan to strengthen its position in the country. It’s gaining scale. It’s improving its banks’ business mix, and it’s already delivering solid results in the past three years. We have increased market share by 90 basis points, and we’re moving towards a profitable or more profitable loan mix. So we are trying to work in that way. In this regard, as I was mentioning before in the presentation, the P&L on a year-on-year basis has been negatively affected by higher expenses and impairments. But, I would say that NII growth remains solid, growing at 17.3%, supported by loan growth and customer spreads.

I would say that in Argentina, I mean in Colombia, really the main impact this quarter has been lower NTI. This has happened also in Peru. Lower NTI coming from global markets as the rate volatility continues. I would say higher impairments. In Argentina, impairments have increased in a relevant fashion. On the back of worse retail dynamics, we have already addressed this in terms of the origination, particularly on the consumer side. And we think, as we mentioned before, that as the rate scenario eases, the asset quality dynamics will improve towards the end of the year. Peru, on the other hand, has been showing better macro dynamics. We’ve actually upgraded our GDP estimates for the year. We also are seeing very good positive growth in market shares and positive growth in activity.

The P&L is very supported by the NII growth in the year at 15.4%. Again, this growth has been offset primarily with somewhat high still impairments, although we see the cost of risk decreasing year-on-year. So, we expect Peru also to be able to deliver improving results in the second half of the year with easing asset quality metrics.

Onur Genç: I would highlight just two very quick things that Luisa has mentioned. The asset quality, cost of risk, has been the story of the region in the past year, including this quarter. We have a clear expectation that in the second half of this year, the numbers will improve. The second thing that she said, especially in Colombia, but there is a rate. We are in general asset sensitive in all the geographies except Colombia. So, when rates start coming down, it will be positively affecting Colombia. But South America, it’s a region that is a very critical part of BBVA. Our clients are there. We have to be supporting them throughout. We do think that the value creation will come along. Quarter-after-quarter, we might be deceived by the numbers that you see, but in the second half of this year, in the coming years, we are positive that we will deliver the value that is deployed in terms of capital in there.

Then the NPL entries in the second question, NPL entries in Mexico. I think to comment, Marta, first, our guidance to all of you was 325 basis points in Mexico for the year, which is basically what we had in the first quarter, 327 which is very close. So, it’s completely aligned with our expectation. But as you know, in Mexico, our monthly cost of risk provision numbers are reported to the Mexican regulators. So it’s public, monthly numbers. You would see that in the month of March, you would see a slight jump in the cost of risk and NPL entries also. A big part of this in terms of cost of risk was basically the macro adjustment. You might have seen it. Our BBVA research team, they have reduced the macro growth from 2.9 to 2.5, slight decrease, but it did have an impact in the NPL, in the cost of risk number.