Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) achieved a 17.2% growth in tangible value per share plus dividends, despite market headwinds.
• The bank surpassed the 10 billion threshold in net attributable profit for the first time, with a 28% increase in earnings per share.
• BBVA increased its loan portfolio by 14.3% and acquired a record 11.4 million new customers, expanding its client franchise.
• The bank channeled almost 100 billion in sustainable business in 2024, surpassing its cumulative 2018-2025 goal of 300 billion one year early.
• BBVA announced a total shareholder distribution of 5 billion for 2024, equivalent to a 50% payout, including a new share buyback program of 993 million.

Negative Points

• The bank's CET1 ratio is at 12.88%, above its soft target of 12%, raising questions about the use of excess capital.
• There is a noted slowdown in demand deposits growth in Mexico, from 10% in Q3 to 4% in Q4, raising concerns about competition.
• BBVA's cost of risk in Turkey increased to 127 basis points, reflecting higher provision needs in retail.
• The bank anticipates a slight decline in net interest income in Spain for 2025, despite active hedging strategies.
• BBVA faces potential impacts from the Spanish banking tax, which could increase with the acquisition of Sabadell.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Sign with BBVA.

Q: Why is BBVA holding on to excess capital despite having a CET1 ratio above its target? A: The CEO explained that BBVA is committed to profitable growth and will distribute excess capital back to shareholders. The restriction on share buybacks has been lifted, allowing BBVA to start a new share buyback program worth 993 million. The bank remains committed to returning to its target CET1 ratio of 12% in due time.

Q: What is the outlook for deposit costs and loan growth in Mexico, given the rising loan-to-deposit ratio? A: The CFO noted that BBVA has managed deposit costs well, maintaining a competitive advantage with a lower cost of deposits compared to peers. The bank expects the loan-to-deposit ratio to remain around 104-105%, which will support continued profitable growth in Mexico.

Q: Can you provide more details on BBVA's hedging strategy and its impact on capital and P&L? A: The CFO stated that BBVA hedges around 62% of excess capital in Mexico, with a sensitivity of nine basis points to a 10% depreciation. The cost of hedging is about one basis point per month. For P&L, BBVA hedges 60% of expected 12-month forward results in Mexico, with an option strategy to increase hedges to 80% in case of a tail risk devaluation.

Q: How does BBVA plan to manage costs in Mexico if revenues do not meet expectations? A: The CFO highlighted that BBVA's cost base in Mexico is flexible, with a significant portion of compensation being variable. The bank has levers to adjust headcount and IT expenses if necessary, but the current outlook is positive with strong loan growth expected.

Q: What are BBVA's expectations for Turkey's net interest margin and the impact of interest rate changes? A: The CEO explained that BBVA has a duration gap of five months in Turkey, which positions the bank to benefit from declining interest rates. The expectation is for interest rates to decrease to around 30-31% by the end of 2025, which should positively impact the net interest margin.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.