Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Banco Bilbao Vizcaya Argentaria SA (BBVA, Financial) reported a record net attributable profit of EUR 2,794 million for the quarter, a 38% increase year-over-year.
- Earnings per share grew by 42% year-over-year, driven by share buyback programs.
- The CET1 capital ratio remains strong at 12.75%, well above regulatory requirements.
- Return on tangible equity reached an outstanding 20%, a significant milestone for the bank.
- Gross income showed impressive growth, increasing by 31% year-over-year in constant euros.
Negative Points
- The CET1 capital ratio decreased by 7 basis points in the quarter, impacted by market conditions and strong lending growth.
- The cost of risk increased to 142 basis points, driven by growth in high-risk retail segments and emerging markets.
- The Mexican peso depreciation had a negative impact on the quarter's results.
- The efficiency ratio, although improved, still reflects a need for continued cost management.
- The bank faces potential challenges in the antitrust approval process for the Sabadell takeover bid.
Q & A Highlights
Q: Why did the cost of deposits in Spain decline, and how were you able to move part of term deposits back into sight deposits?
A: The decline in the cost of deposits is linked to the curve coming down. Large corporate and public sector clients have deposits that are automatically linked to the curve, leading to a reduction in the weighted average cost of deposits.
Q: Can you elaborate on the profitability of new lending in Mexico, given the reliance on wholesale funding?
A: Despite the increased reliance on wholesale funding, the profitability of new lending remains strong. The yield on loans in Mexico is 14.4%, and the return on equity is 27%, indicating that the marginal funding for new loans is justified and profitable.
Q: What is your outlook for NII growth in Spain for 2025, considering better loan growth and declining rates?
A: While spreads may decline due to lower rates, we expect activity growth to compensate for this. BBVA Research forecasts a 1.5% increase in lending volumes for the market in 2025, and we anticipate growing above the market average. Additionally, asset quality improvements are expected to support NII growth.
Q: How do you see lending and deposit growth evolving in Mexico, and what is the competitive landscape like?
A: We expect continued strong lending growth, driven by robust activity and a large deposit base. Despite competition from new players, we maintain a competitive advantage with a low cost of deposits and a strong asset management offering. We anticipate customer deposits to increase in the second half of the year.
Q: Can you provide more details on the cost synergies from the Sabadell acquisition, and why are you not closing more overlapping branches?
A: The EUR850 million in synergies are primarily from administrative and technology savings (EUR450 million), personnel savings (EUR300 million), and financing savings (EUR100 million). We are closing 300 overlapping branches, which is lower than other transactions because both BBVA and Sabadell have recently restructured their networks.
Q: What is your hedging policy for profits and capital in various countries, and how do you handle FX adjustments in Argentina?
A: We hedge 50-70% of excess capital and 40-50% of next 12-month profits. For Argentina, we use the official exchange rate and expect a strong devaluation of the peso in the second half of the year. The impact on CET1 from a significant devaluation would be manageable.
Q: What are your expectations for NII growth in Mexico, considering higher rates and potential devaluation of the peso?
A: We expect NII to continue growing, supported by strong lending growth and effective cost management. Higher rates are beneficial for us due to our asset sensitivity. We remain confident in our ability to deliver on our guidance for Mexico.
Q: Can you provide more details on the Basel IV impact and the reduction in the expected impact from 40 to 15 basis points?
A: The reduction in the Basel IV impact is due to a review of criteria affecting trade finance guarantees and operational risk. The new guidance of below 15 basis points is a fully loaded estimate, and the impact from FRTB is expected to be very limited.
Q: What are the potential risks and opportunities in Turkey, excluding hyperinflation and currency discussions?
A: The main upside in Turkey will come from NII improvement and potential benefits from lower inflation. The main risk is an increase in the cost of risk if interest rates remain high. However, we are optimistic about the potential for NII growth and the positive impact of lower inflation on our financials.
Q: What are the specific timing and conditions for distributing excess capital above 12%, especially in the context of the Sabadell acquisition?
A: We are committed to distributing excess capital above 12% CET1 ratio. If the Sabadell acquisition is successful, we will proceed with share buybacks immediately after the OPA process ends. If the acquisition does not materialize, we will still pursue share buybacks based on market conditions and our financial performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
