Banco BBVA Argentina S.A. ADS

Good morning, everyone, and welcome to BBVA third quarter 20 results presentation. I'm Gloria Caucedo, Head of Investor Relations, and here with me today is Onur Genç, Chief Executive Officer of the group, and Jaime Sander Tejada, BBVA Group CFO. As in previous quarters, Onur will begin with a presentation of group's results, and then Jaime will review the business areas. We will move straight to the live Q&A session after that. And now, I'll turn it over to Onur to start with the presentation.

Thank you, Gloria. Good morning to everyone. You're welcome, and thank you for joining our webcast. I really hope that you and your families and friends, they are all healthy and safe. I wish you the best in this complex environment. So I go to immediately to the presentation slide number three. Very positive, in our view, financial results. On the left-hand side of the slide, you see that net attributable profit reaching €1,141,000,000 in the third quarter, an increase of 79.5% versus the second quarter, and a 4.1% growth in constant euro versus the same quarter of last year. In our view, very good numbers, even when compared to normal times. This positive performance versus the previous quarter has been the result of three things. Resilient core revenue growth. I will talk to you about it in a second. Cost control continues to be very, very robust. And a better evolution on impairments. So the second graph at the middle of the page, it shows the capital generation, very solid capital generation in the quarter. We have improved our position 30 bps, leading to a fully loaded CET1 ratio of 11.52 as of September 2020, already obviously surpassing our capital target. And last, on the right-hand side of the page, it is also important to note that we have maintained our tangible book value per share, practically stable compared to the second quarter, despite strong market movements, very strong market movements, actually, in the third quarter. Now, let's jump into the page number four, slide number four. What are the top messages of the quarter? Five, first... Our robust and resilient pre-provision profit, growing at double digits. We keep saying it in every single results presentation because that's what the numbers are telling us. Very robust and resilient pre-provision profit once again. Second, a very strong cost control and efficiency. Third, significant improvement in our risk indicators, which evolve within our upgraded expectations, as we have shared with you a month ago. Fourth, once again, the strong capital generation. And fifth, our lead in digital gives us an edge in this environment. And I will talk to you about this also in this presentation. Slide number five. Looking at the summarized P&L, I would like to highlight the evolution of the net interest income, increasing 5.5% in constant euros in the quarter, and the good evolution of the net trading income as well. Fees and commissions remain almost stable, with a slight decrease of 0.08%. All this, when combined, explains the increase in gross income of 5% in constant euros. This evolution, together with the excellent performance of expenses, leading to an outstanding increase in our view in operating income, 13.5%. As I already explained, this quarter we have seen a more normalized level of impairments versus the first half of the year. And all combined net attributable profit for the quarter is, as I said, 1,141,000,000 euros, 4.1% year-over-year increase in constant euros. Slide number six, you see the evolution in the first nine months of the year versus the same period last year, so year to date. As you can see, we are registering a good evolution in net interest income, gross income, expenses, and operating income. So all the core revenue drivers and also expenses and operating income behaving really well. Our operating income, just pick one number, it has increased by 17.3% in constant euros. Again, in our view, a very strong reading, even in normal times. However, in terms of the nine-month results, when you look into the bottom line, the first quarter COVID-19 front-loaded provisions of 1.4 billion euros. You would remember we did an extraordinary provisioning for COVID of 1.4 billion in the first quarter. And another 0.6 billion in the second quarter. It leads to a negative impact, obviously, on the bottom line. So net attributable profit for the first nine months of the year is 2.069 billion euros. A 36.6% decrease year over year. If we exclude, obviously, the non-cash, the BBVA USA goodwill impairment that we recorded in the first quarter. If we include that goodwill impairment, which was 2.1 billion, if you remember, the final reported net attributable profit is minus 15 million euros. Moving to slide number seven to shed more light into the revenues breakdown. And here you can see the quarterly evolution as well, not just the year-over-year, but quarterly evolution. First thing to note is, again, the 5.5% growth in net interest income year-over-year and 4.9% growth in the quarter. This quarterly increase, it's supported by activity recovery in retail segments. The retail segments are coming back up slightly. And customer spread improvement in some countries. As you would see in some of the countries that we operate, we have improved especially on the cost of funding in a dramatic way. Net fees and commissions has remained almost flat with a slight decrease of 0.8% year over year, negatively affected by the pandemic with the lower economic activity, affecting our credit card and payment system revenues, basically. And also there was a new regulation in fees capping certain commissions in Turkey that also had played a role. Nevertheless, I mean, the good thing to note on the fee issue curve is the fact that there is a very robust 12.9 percent quarter-over-quarter growth in fees, again mainly explained by the retail activity recovering in most of our geographies. Good performance on net trading income. And all in all, robust revenue growth, as I said, of 5% versus the third quarter of 2019. Mainly driven by the good performance on AI, as I explained. But overall, this 5% growth, it was very important to post the growth in revenues in a year like this. So we are very happy with the evolution of that figure. Slide number eight, there are two pages here that we are sharing with you to also maybe indicate the evolution in the coming quarters. But on slide number eight, regarding core revenue evolution and also the impact on some of our other metrics. Let me show you a high-frequency indicator of card spending. These are BBVA figures, and we monitor them very, very closely. So they are the weekly credit and debit card consumption compared to the same week of last year in most of our markets, basically. You see it on the page. So in March and April timeframe, as you would see, the slump was significant. For example, the weekly card spending in Spain, it was falling 60%. Mexico, it was falling 35%. Since then, what you see in the curves in the charts is that there has been a gradual, gradual, yet consistent recovery everywhere. Obviously, we have to take these numbers in the context of uncertainty that we all live in. And as we all know, the second wave of the virus is sweeping through some of our countries. So we have to see the impact of the new measures taken by the authorities. But these numbers, again, in all the markets, what you see is we have caught up. with the level of spending a year ago, as it stands now in all the geographies, as of now, from a pure economical point of view at least, the spending has come back to its normal levels and we have started to learn to live with the virus. Similarly, on page number nine, very quickly, in our own business, new loan production of the retail segment is also recovering. Similar curve, again, bottoming out in April, May timeframe, and now coming back up in the last few months. And the latest readings is quite robust, as you would see in the page. Moving to slide number 10. Expenses, very good performance in expenses. If you compare the year-on-year evolution, expenses dropped by 3.8%. This is something that we have put a lot of attention this year, and we are getting the results, the fruits of that effort. We also maintain positive operating jobs. Our core revenues, they are increasing by 3.4% in the nine-month period, while at the same time the expenses are decreasing by 2.4%. And the blended inflation rate in our footprint is 4.4%. So our costs behaving much better than the inflation. And as a result, we maintain this nice jaw in our operating performance. And finally, on the right-hand side of the page, as a result of all of this, you can see an outstanding efficiency ratio, 45.6%. in the first nine months of the year, and it keeps improving. 438 pips improvement versus 2019. Again, this is much better than our European peer group, as you can imagine. Moving to slide number 11, risk and provisions. So total loan loss provisions for the quarter was 1 billion 39 million euros, clearly lower than the previous quarters, as we already guided, because we also have done a very strong upfront provisioning in the first and second quarters. But in fact, The third quarter figure is very much aligned with the pre-COVID level of impairments. Thanks to a better than expected performance of the portfolio in all the countries, mainly deferrals, deferrals in Mexico. I will go more in depth in the deferrals topic in the next page. But overall, the numbers are coming to be much better than our original expectations. As a result, our cost of risk improved significantly to 1.69 on a year-to-date basis versus 2.04 in the previous quarter. Also on the page, you can see the MPL and the coverage ratios. MPL and coverage ratios, they remain almost stable versus last quarter at 3.8% and 85%, respectively, which again shows that we don't see a deterioration in the underlying risk parameters at the moment. That said, I mean, we remain cautious, and the credit risk anticipatory management, as we call it, continues to be one of our key priorities in this environment for any potential deterioration going forward. So all in all, good evolution in terms of asset quality indicators during the quarter, and we maintain our recently improved 2020 cost of risk guidance to be in the range of 150 to 160 BIPs at the end of the year. If you go to slide number 12, I would like to give you a bit more detail on the evolution of deferrals, which is underlying the numbers in the previous page. As you can see on the left-hand side of the page, total deferrals granted represent 8.9% of total loans. Out of them, 66% are related to retail and 34% to the wholesale portfolio. And 70% of that total amount have already expired. So we are seeing clearly the results of that expired amount. And as I said, a very positive payment performance in our view, better than our original expectations. As you see at the center of the slide, almost 80% of this deferred portfolio, which has expired, have already resumed payments. Again, in that same chart, we gave a second deferral for 11% of the loans, of which more than half are related to high-quality mortgages, mostly in Spain. And you can see that at the top of the right-hand side. And at the right-button part of the page, a small graphic, but a very important one in my view, you see the resiliency of the delinquency buckets. With past dues on that in-progress portfolio and so on, they should be flowing through the delinquency buckets. When you look into the delinquency buckets, the past dues as a percentage of our portfolio is completely aligned with a year ago. Completely aligned with a year ago. So, again, good results overall. We have been able to obtain these results successfully. As we have put a lot of effort into this, we are applying an early and proactive collection management strategy, as I said, properly segmenting all the clients, tailoring the intensity of our collection efforts to every single segment. So, again, good results so far on the risk side. Moving to slide number 13, great news in terms of capital generation. 30 BIPs improvement in the quarter. You see in this page the breakdown. So following the waterfall, main impacts of the quarter. Result generation, net of 81 coupons contributes 29 BIPs to the ratio. Second, negative market-related impact this quarter, detracting 11 BIPs, mainly due to mark-to-market of our equity portfolio, together with some negative impact from some FX currency depreciation, 11 BIPs. And then the third, the last bucket, it explains plus 12 BIPs, and that's mostly due to credit RWA. So RWA impact is a positive one. Overall, 30 BIPs in the quarter, again, a very strong reading. So this number, our fully loaded CET1 ratio, 1152 is 293 BIPs above minimum requirements. We already surpassed our CET1 target range of 225 to 275 BIPs. Our target range has already passed. And we also obviously expect to continue to being above our target in the fourth quarter. There will be a positive impact from the software need treatment also of 19 BIPs in the quarter. So things look good. On a phased-in basis, by the way, our CT1 amounts to 1199, and this is the basis where distance to MDA is calculated, as you know. So the distance to MDA as it stands now is 340 bps. At the bottom of the page also you should see the high-quality nature of our capital ratio. We remain among the leaders in terms of the leverage ratio, 6.4% on a fully loaded basis, and AT1 and Tier 2 buckets, they continue to be fully endowed on a fully loaded and on a phased-in basis. Now, last two pages on digital. Page number 14, as we have shown in the previous quarters, COVID-19 lockdowns have accelerated pre-existing trends in digitalization and the adoption of new technologies. And a good part of this increased digitalization is here to stay. So leveraging digital capabilities has proven essential, and I would say differential, in serving our clients. So let me put some figures to this. So regarding the number of interactions with our customers, maybe only the middle part of the page, the interactions with our customers through our mobile app, it has gone up five times as compared to a year ago. Also, given our differential capabilities to go beyond servicing, which is very important, and execute sales through our remote channels, our digital sales have reached 64% in terms of units and 48% in terms of value. On slide number 15, the last page of my section, We keep talking about digital all the time because we really believe in it, that there is something big is happening in our industry. But do we have a competitive advantage in digital? That is a critical question in our view. And let me give you some examples from Spain and Mexico that show that we do have differential capabilities in digital. which is highlighted by an overproportional market share on areas that require strong digital capabilities. So on the left-hand side, BBVA is the number one in banking app usage market share in Spain. 22.2% of the banking app users in Spain have used BBVA app. We are also number one in what we call do-it-yourself availability of functions, so what you want to do and whether you can do that through the mobile app. It's 90% this quality score, and it is very far from the 68% peers average. And then on the right-hand side of the page, in Mexico, we have a leading 39% market share in e-commerce acquiring, leveraging our digital and payments capabilities. These are just some examples, but they prove in our view that BVA's advantage in digital capabilities and solutions is there. And we believe this is one of the reasons, at least, that constitute the good performance of this quarter and the quarters coming along. Now, I turn it over to Jaime for the business areas. Jaime.

Thank you very much, Onur, and good morning. Let me begin with Spain. In Spain, BBVA research, GDP growth expectations for 2020 remain unchanged at minus 11.5%. But 2021 forecast was adjusted to a 6% recovery, including now the initial positive impact from the European Recovery Fund. Loans have increased by almost 1% year-on-year, driven by the strong growth across commercial segments supported by state guarantees, mainly, as you remember, in Q2, offsetting the leverage in the mortgage and public sector portfolios. In Q3, new lending flows in retail recovered versus the previous quarter, especially in consumer loans. In the nine months to September, BBA Spain delivered a strong pre-provision profit, up over 16% versus last year, thanks to higher core revenues driven by the good performance of fees, thanks mainly to CIB asset management and banking services. The better-than-expected performance year-to-date leads us to improve our guidance, and we now expect fees to increase slightly in 2020. It was also supported by higher net trading income, mainly due to higher ALCO portfolio sales, and a remarkable improvement in operating expenses, down over 6% above expectations. We continue to expect costs to decrease by more than 5% by the end of the year. The mid-teens operating income growth has been more than offset by higher impairments versus last year, mainly explained, as you know, by the significant from loading of COVID-related provisions in the first half, but also by a base effect, as last year included provision releases from a mortgage portfolio sale. Looking at the quarter-on-quarter evolution, improvements continue to improve, aligned with our expectations, to 80 basis points in the nine months to September versus 100 basis points as of June. By year-end, we expect cost of risk to improve even further to around 70 basis points. And if our current macro forecast proves correct, 2021 cost of risk should be below 2020 levels. Let's now turn to the U.S. The faster-than-expected recovery has allowed us to revise the Sunbelt's GDP growth forecast upwards to minus 4 percent in 2020 and plus 3.4 percent in 2021. Loans are growing at a very healthy rate of over 6% year-on-year, driven by commercial segments which were supported by the drawdowns of credit lines in Q1 and the state-guaranteed loans under the Paycheck Protection Program in Q2. Lending growth slowed down in Q3, given the high amount of liquidity provided during the first half of the year. For 2020, we expect loans to grow in the mid-single-digit range. Turning now to the P&L, we had a very good performance of core revenues versus the previous quarter. On the one side, NII is up almost 5%. Thanks to an excellent deposit cost management and demand deposit increasing, they represent now over 85% of total deposits in the U.S., while deposit costs improved by 18 basis points quarter-on-quarter. NII was also supported by lower wholesale funding costs and a higher contribution from the ALCO portfolios. We expect NII in 2020 to decrease by low single digit, consolidating the improving trend of the previous quarters. On the other side, we also enjoyed a sound fee growth over 11 percent quarter on quarter, thanks to very strong fees in global markets and the pickup in activity after the Q2 lockdown. The guardian expenses, again, very good performance. It continues with a year-on-year decrease of almost minus 2.5% in Q3, a behavior we expect to be able to maintain until the end of the year. Impairments increased by 34% versus the previous quarter, mainly explained by a macro adjustment and the rating migration of some commercial customers. Having said this, cost of risk reached 169 basis points year-to-date out of September, in line with expectation, and we expect the improvement to continue reaching around 135 basis points by year-end. According to our current macro prospects, 2021 cost of risk should be below 2020 levels. Let's now move to Mexico. We have fine-tuned our GDP growth estimates for 2020, improving to minus 9.3% from 10% previously, thanks to the recovery in the manufacturing sector and the increased mobility after lockdowns. For 2021, we continue to expect GDP to grow by around 3.5%. Loans increased by almost 6% year-on-year, mainly driven by corporate clients during Q1, and the good evolution of the mortgage portfolio, supported by good dynamics in the housing markets. For 2020, we expect long growth in the mid-single-digit range. Moving to the P&L, Q3 shows a significant recovery versus the previous quarter, with net attributable profit increasing by 88% in constant euros, quarter over quarter. Operating income increases 10.5% in constant euros, driven by core revenue growth and cost controls. Regarding core revenues, NII grows by 11% quarter on quarter, as most deferrals in credit cards and SMEs have already expired in Q3. starting to accrue interest again. Let me remind you that we lost 104 million euros because of the lack of NII accrual in Q2, and we have recovered roughly 75 million in Q3. Moreover, wholesale and retail funding costs decreased in the quarter thanks to a very successful price management strategy. We continue to expect NII to be flat, slightly decreased in 2020. Fees improved 15%, 1.5% quarter-on-quarter, favored by the recovery in economic activity. As we have already anticipated, we expect core revenues in the second half of 2020 to be above the first half figure in constant euros. Costs remain under control, minus 2.3% better than Q3 last year. For the whole year, we continue to expect costs to grow well below inflation. And finally, on impairments, they decreased over 40 percent versus the previous quarter due to lower macro-related provisions and the good payment performance of expired moratorias, while Q2 included some provisions related to COVID-19. Therefore, cost of risk improves to 427 basis points from 495 as of June. And we expect the cost of risk to be in the low 400s by year end. Considering our current macro estimates, we think 2021 cost of risk would be below 2020 levels. Let's now focus on Turkey. Starting on the macro, we have improved our GDP growth expectations for 2020, back again to a flat growth, and maintain our projection for 2021 at plus 5.5%. Guaranteed BBVA delivered a significant growth in TL loans, almost 35% year-on-year, mainly explained by the commercial segment. Foreign currency loans declined 1%. 1.5% year-on-year, in line with our proactive strategy to reduce FX exposure. For 2020, we expect TL loans to grow around 25%, and the trend in FX loans to continue. Moving to the P&L, pre-provision profit in the nine months to September grew by 50% year-on-year in constant euros, supported by the strong revenue generation and the focus on efficiency. NII was up significantly, over 30% versus last year, mainly explained by the excellent commercial dynamics and a significant improvement in TL customer spreads. In the third quarter, TL spreads started to decrease versus Q2 as a consequence of the interest rate hikes that we're seeing in the country. But NII continued growing almost 8 percent quarter on quarter, thanks to lower wholesale funding costs and a higher contribution from the CPI linkers portfolio. For 2020, we expect NII to grow above 20 percent. We had actually a very good performance of NTI thanks to FX results, gains from security sales, and a higher contribution from the global markets unit. Expenses grew 7% in the first nine months. That's significantly better than the 12-month inflation, which is above 11%. Improving the efficiency ratio to an historic level of 27.6%. This very strong pre-provision profit has enabled us to front low provisions in these uncertain times. Given the effort done in the first half, improvements have improved significantly versus previous quarters in Q3. Thanks to higher recoveries and the allocation of some of the front-loaded COVID-19-related provisions set aside in the first half, especially to FX loans to commercial clients in this quarter. As a result, year-to-date cost of risk has improved sharply. It's down to 2% in the nine months to September. That's better than the 2.7% as of June and aligned with our expectations. For 2020, we expect cost of risk to be around 215 basis points. Actually, we expect a negative recalibration affecting in Q4. For 2021, and based on our current macro prospects, we expect cost of risk to also be below 2020 levels. All in all, as Honor mentioned, excellent results that continue to prove Guarantees BBVA's earning resilience, with net attributable profit increasing by over 30% in current euros in the first nine months of the year, and over 58% year-on-year in constant terms. And finally, South America. BBVA research has improved its macro prospects for the region, not only for 2020, but also for 2021. And that's mainly in the case of Peru. We now expect GDP to contract by minus 13% in Peru and to recover by 10% in 2021 versus the 8% that we had on our previous estimate. Now some color on the main countries. In general, Q3 net attributable profit recovers significantly versus the previous quarter in all countries. In Colombia, net attributable profit in Q3 increased 42% versus Q2 in constant euros, explained by core revenue growth, strong NTI, and a reduction in impairments favored by lower NPL entries and high recoveries. Reducing the year-to-date cost of risk to 298 basis points, unaligned with expectations. Peru also. Q3 net attributable profit recovers to 45 million euros, growing significantly versus Q2, thanks to a very sound growth in total revenues, positive jobs, and also better provisions, thanks to a positive macro adjustment this quarter. And finally, Argentina, that also increased its contribution this quarter, mainly to provision release in the securities portfolio. And now back to Onur for some final remarks.