BBVA(BBVA)2023-11-01 01:30Financial Data and Key Metrics - Net attributable profit reached €2.83 billion, a 13% YoY increase, with earnings per share growing 18% YoY to €0.33 [3] - CET1 ratio increased by 6 basis points to 12.73%, despite a 32 basis points impact from the ongoing €1 billion share buyback program [4] - Tangible book value per share grew 18% YoY and 5.5% QoQ, with ROTE reaching 17% and ROI at 16.3%, the highest in the last 10 years [5] - Gross income grew 29.1% YoY, operating income grew 32% YoY, and net attributable profit grew 29.6% YoY in constant euros [6] - For the first 9 months of 2023, gross income increased 31.8% YoY, driven by a 36.5% increase in NII and 17.5% growth in fee income [7] Business Line Performance - Net interest income grew 36% YoY and 13.4% QoQ, driven by solid activity growth and customer spread improvements [8] - Net fees and commissions grew 28% YoY and 13.6% QoQ, supported by payments, asset management, and transactional businesses [8] - Spain saw a 39% YoY growth in core revenues, while Mexico grew 19% YoY, with both countries showing over 5% QoQ growth [9] - Spain's customer spread improved to 3.33%, while Mexico maintained a high customer spread of 11.94% [9] - Spain's NII growth expectations for 2023 were upgraded to close to 50%, up from the previous guidance of 40%-45% [10] Market Performance - Spain's loan book remained flat, with growth in consumer and SME segments, while mortgages showed positive evolution due to new production levels [21] - Mexico's economy outperformed expectations, with GDP growth upgraded to 3.2%, driving strong loan portfolio growth, especially in consumer loans and SMEs [24] - Turkey reported a quarterly loss of €158 million due to high inflation and an increase in corporate tax rates, but NII was supported by activity growth in short-term loans [28] - South America showed positive activity trends, with higher provisioning needs in retail portfolios due to a deteriorated macro scenario, especially in Peru [31] Strategy and Industry Competition - The company upgraded its NII growth expectations for 2023, reflecting confidence in continued revenue growth in Spain and Mexico [10] - The efficiency ratio improved to 41.8%, a 328 basis points improvement YoY, maintaining the company's position as one of the most efficient European banks [11] - The company acquired 8.3 million new customers in the first 9 months of 2023, with 65% acquired through digital channels, a key differentiator from competitors [16] - The company channeled €16 billion in sustainable business in Q3, bringing the total to €185 billion since 2018, with a target of €300 billion by 2025 [17] Management Commentary on Operating Environment and Future Outlook - Management expects continued healthy core revenue growth in the coming quarters, driven by spread improvements in Spain and strong lending momentum in Mexico [10] - The company anticipates a slight increase in the group cost of risk for 2023, mainly due to mix effects and a deteriorated macro environment in South America [12] - Management remains confident in the company's ability to deliver strong results, with positive prospects for future growth [32] Other Important Information - The company paid an interim dividend of €0.16, a 33% increase YoY, and expects to complete its €1 billion share buyback program by year-end [15] - The company's loan book increased by 8% YoY, supporting over 100,000 mortgages, 400,000 SMEs, and 70,000 larger corporates [18] - The company is on track to meet its long-term targets announced on Investor Day, with upgraded expectations for 2023 [19] Q&A Session Summary Question: Spain's customer spread and loan volume expectations [35] - Management expects customer spreads to continue improving, with lending yields expected to rise until Q2 2024 [36] - Corporate loan growth in Spain was driven by short-term factoring deals, while mortgage growth was supported by market share gains [38] Question: Cost of risk guidance and cost growth expectations [40] - The company revised its cost of risk guidance to slightly above 111 basis points for 2023, mainly due to mix effects and a deteriorated macro environment in South America [41] - Management did not provide specific cost growth guidance for 2024 but expects better bottom-line results than in 2023 [44] Question: Turkey's cost of risk and capital returns [46] - Turkey's cost of risk is expected to increase from the current 26 basis points as the macro environment normalizes, but remains below historical averages [47] - The company plans to continue its share buyback program and maintain shareholder remuneration, given its strong capital position and profitability [48] Question: Spain's deposit mix and Mexico's cost of risk [50] - Spain's deposit beta is expected to remain relatively capped due to high liquidity in the system, with retail deposit beta currently below 5% [53] - Mexico's cost of risk increased to 308 basis points in Q3, driven by higher provisioning needs in retail segments, but remains in line with guidance [54] Question: Mexico's customer spread and loan-to-deposit ratio [59] - Mexico's customer spread is expected to remain around current levels, with limited sensitivity to potential rate cuts due to the fixed-rate nature of the loan book [60] - The company is comfortable with its current loan-to-deposit ratio of 100% and does not plan to aggressively increase deposit costs [64] Question: CET1 capital composition and digital euro impact [67] - The company repatriates profits from hyperinflationary countries like Turkey, with €350 million repatriated in 2023, and incorporates currency risks into its tangible book value per share growth [68] - Management views the digital euro as a payment-focused initiative and does not foresee major risks at this stage, given the early phase of implementation [70] Question: Mexico's risk appetite and mortgage strategy in Spain [73] - The company remains comfortable with its risk appetite in Mexico, citing strong labor markets and remittances as supportive factors for retail cost of risk [78] - In Spain, 85% of new mortgage production is fixed-rate, with the company gaining market share due to its competitive pricing [74] Question: Turkey's customer spread and cost-to-income ratio [82] - Turkey's customer spread improved from -250 basis points in July to +190 basis points in September, with management expecting further NII growth to offset inflation pressures [83] Question: Group cost of risk and bond swap in Mexico [86] - The company expects the group cost of risk to be slightly above 111 basis points for 2023, driven by mix effects and a deteriorated macro environment in South America [87] - The bond swap in Mexico involved €2.5 billion, with a positive medium-term impact on NII despite a short-term negative impact on NTI [87] Question: Spain's deposit remuneration and ALCO strategy [89] - Spain's deposit beta is 85% for CIB and large clients, 35% for mid-corporates, and below 5% for retail, reflecting the high liquidity in the system [91] - The company has reduced its sensitivity to rate cuts by taking negative carry on longer-term bonds, with NII sensitivity now at 6% [91] Question: ALCO portfolio and capital requirements [93] - Mark-to-market losses in the ALCO portfolio decreased to 2.4% of TNAV, mainly due to changes in Turkey's rate environment [94] - The company expects the single resolution fund to disappear in 2024, with a significant reduction in the deposit guarantee fund [94]