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.

A businessman making a powerful speech in a boardroom, symbolizing the company's successful asset management.

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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