Banco Bilbao Vizcaya Argentaria S.A.

Good afternoon, everyone, and welcome to BBVA First Quarter 2019 Results Presentation. I'm Gloria Cousero, Head of Investor Relations, and here with me today is Onur Geng, Chief Executive Officer of the group, and Jaime Sánchez-Tejada, BBVA Group CFO. As in previous quarter, Onur will begin with a presentation of group results, and then Jaime will review the business area. We will move straight to the live Q&A session after that. As always, let me remind you that we would appreciate all the participants to try to make the calls from the landlines and avoid using the speakerphone. And now I will turn it over to Onur to start with the presentation.

Thank you, Gloria. Good afternoon to everyone and welcome to the presentation of EVVA's 2019 first quarter results. As Gloria mentioned, I would comment on the group's evolution and Jaime will focus on the separate business areas. So, starting with slide number three. We have started the year with net attributable profit of €1,164,000,000. This represents a 9.8% decline versus the first quarter of last year, given the sale of BBVA Chile in July 2018, though. If we exclude BBVA Chile recurrent operations, the decline would have been 7.7%. With respect to the previous quarter, though, namely the fourth quarter of 2018, the net attributable profit, it grew at 16.2%. Two other key messages to highlight on this slide, as we have started a few quarters ago. First, in the middle of the page, you see that we maintain our clear focus on creating value for our shareholders. In the quarter, that's why we have this metric in this documentation, and that's why we have it even in our management scorecards. In the quarter, we increased our tangible book value per share plus dividends by 4%. And this increase this quarter is the highest since the second quarter of 2014. The evolution on a year-over-year basis is also very strong and impressive with a double-digit growth rate of 11%, as you see on the page. On the right-hand side of the page, as you see, what we also would like to highlight is our capital position. Despite recognizing the full negative impact of 11 BIPs due to IFRS 16 in this quarter, our capital position inched up slightly by 1 BIP towards our goal of 11.50 to 12%. So net-net 12 BIPs increase in capital position in the first quarter of 2019. Moving on to slide number four, and to be more specific on the quarter, on slide number four, we would like to highlight the evolution of some of our core performance metrics. So the year-over-year variations, starting from this page, they will exclude BBVA Chile. As you all know, as I said, we sold our Chilean operations, the banking operations, in July 2018. So there were recurrent operations in the first quarter and the second quarter of 2018 in the numbers. So if you exclude that to be able to have a more apples-to-apples comparison, There are a few messages coming out very clearly. The first message, number one, we would like to highlight the very strong growth in core revenues. Net interest income plus fees, they have grown by 8% in constant euros year over year. Second, number two, the good performance on the top part of the P&L, on the core revenue side, coupled with our continued focus on efficiency, has led us to show a double-digit growth on operating income. Double-digit growth in operating income by 10.2%, and this helped us reduce the cost-to-income ratio by 118 BIPs to 48.1. This CNI ratio, cost-to-income ratio, it represents the lowest quarterly cost-to-income ratio since the third quarter of 2012. Number three on the page, the risk indicators, they continue to be sound. With the good trend in the MPL ratio reduction, MPL ratio now stands at 3.94, dropping 53 bps versus first quarter last year. And another positive message, an increase of 110 bps in our coverage ratio, and our coverage ratio now stands at 74%. Although we have seen some pickup in our cost of risk versus the same period last year, and same period last year was an exceptionally low cost of risk quarter, it remains better than our expectations. And for 2019, we expect cost of risk to remain around this number at the aggregated level. Number four, on the same page, on slide number four, the resilient capital position. I mentioned it also in the first opening page. Our capital position, CT1 fully loaded, stands at 1135. It's an increase of one BIP in the quarter, absorbing the full 11 BIPs negative impact from IFRS 16. Number five on the page, again, as partially mentioned on the opening page, we remained focused on creating value for our shareholders. In terms of profitability and return metrics, UVA is a leader in the European banking industry, and our return on tangible equity remains very strong at 11.9%. A very strong number to note also, again, this quarter is a tangible book value per share plus dividends. It grew 11% versus March 2018. And again, as mentioned, the best value creation quarter since the second quarter of 2014. Finally, on this page, number six, listed in the page, the trend in digital sales and digitalization of our customers. It is, once again, in our view, very strong digital sales. It has risen to 57% of the total units sold in the year. Digital customers, it's up by 17%, now at 28.4 million customers. Similarly, the number of mobile customers reached 24.4 million, with a yearly growth rate of 25% and a 45% penetration, closer to our 50% target for the end of the year. Looking at the summarized P&L on slide number five, you can clearly identify the positive evolution on the core business drivers. If you look into the right-hand column, the most right-hand column, the net interest income is up 9.5%. Gross income is up 7%. And operating income is up, as I mentioned, 10.2%. On this slide, though, you also see some line items negatively affecting the bottom line. Two numbers to note, the provisions, the first one. Regarding the increase in provisions, it's again worth to note that first quarter 1918, last year first quarter, was one of our exceptionally low provision quarters. As compared to that very low base in this quarter, given the slowing global growth and its implications on the macro fundamentals of our footprint countries, we have registered some negative IFRS 9 macro prudential adjustment impact. And to be specific, versus last year first quarter, there is an additional €130 million of macro-related provisioning. And also on provisioning line item, we should also mention USA. Again, there is a macro prudential adjustment in USA, which is affecting the numbers. But there is also some higher provisioning in the commercial and the unsecured consumer lending portfolios. But in terms of expectations, cost of risk in the U.S. this quarter shouldn't be extrapolated for the rest of the year. And then the second one to note on this page in terms of factors affecting the bottom line, underlying net trading income was negatively impacted by the muted markets activity in the first quarter this year in comparison with the same period last year. You don't see it in the numbers, but as we will discuss it in the next page, there is a one-off impact. If we exclude those, that one-off impact, it was a relatively soft quarter in terms of net trading income. Going to slide number six. To talk more about this, as you can see on page, slide number six, page number six, net interest income growing nearly double digit at 9.5% versus a year ago. The comparison with the fourth quarter 18, excluding the contribution of CPI linkers in Turkey, which you all know has an inherent seasonality, is also positive with an increase of 2.2% even as compared to the last quarter of 2018. Positive evolution on the right-hand side at the top, positive evolution in net fees and commissions, 2.6% versus the same quarter last year. Net trading income in the quarter is growing actually 13.5%, but as I just mentioned, this figure is impacted by the PRISMA stake sale in Argentina, which is 107 million euros at the revenue line. If you exclude the PRISMA proceeds, the underlying NTI, as I mentioned, was relatively soft given the market conditions as you have seen in the announcements of other banks as well. So given the muted global markets activity, it was a relatively soft NTI quarter. But all in all, all in all, total revenues, they are up 7% versus the first quarter of last year. Slide number seven, page number seven, this is the page that I like the most. One more quarter, one more quarter, we continue to show positive operating jobs. It is once again very satisfying to see that our expenses are growing 3.7%, well below the growth rate in core revenues, which was 8%. And this has been happening for so many quarters now, and the increase in costs obviously is, as compared to the very high inflation in some of our countries in our footprint, is very favorable. In the middle of the page, we show the very strong evolution at double-digit growth of the operating income, which we discussed before. And finally, on the right part of the slide, the efficiency ratio keeps improving. Year-to-date improvement is 118 bps, so our new cost-income ratio stands at 48.1%. If you go to slide number eight, talking about risk, moving on to asset quality, Sound risk indicators, as we mentioned, this quarter we have seen impairments growing at 31% versus the first quarter of 2018. But as I said before, it's driven mostly by the low base of the first quarter of 2018 and due to broader macro-related provisioning and some higher impairments in the U.S. But on the other side, if we compare this quarter's impairments with the previous one, we see a 24% decrease. On other risk metrics, MPLs were significantly reduced by 1.8 billion euros versus last year, and the MPL ratio decreases by 53 bps to 3.9%. And again, as I mentioned, the coverage ratio increases 110 bps year-over-year to 74%. Moving on to slide number nine, one of our clear bright spots in the quarter regarding year-to-date capital evolution, CET1 full loaded ratio, it has increased by one BIP to 1135. It is once again important to highlight that in the first quarter this year, we have fully absorbed the IFRS 16 impact, which was, again, 11 BIPs on the capital ratio. This implies, again, if you combine the two, a robust capital generation in the quarter of 12 BIPs. All in all, our CT1 ratio stands well above the regulatory requirement of 926, and additionally, we still maintain our guidance that we will be within our capital target range of 11.50 to 12 by the end of this year. I also would like to highlight at the bottom of this page the quality of our capital. You can see that we continue to lead the ranking in our European peer group in terms of the leverage ratio, which stands at 6.4% versus an average of 5% for our peers. And regarding the AT1 and AT2 buckets, which have been actively managed during the quarter, you might have seen some of our issuances. Both buckets remain completely endowed, both on a phased-in and also on a fully loaded market. Slide number 10, to conclude this section on financials and the numbers, I would like to reconfirm our focus on shareholder value. Our tangible value per share increased by 11% year-over-year, including dividends. And we, again, remain at the forefront group of the European banking industry in terms of profitability. Our return on tangible equity standing at 11.9% versus the average European peer group number of 7.7%, which is, again, a very favorable comparison. Moving on to digital transformation, we would like to highlight some tangible metrics around value creation here that we also believe that will ensure the sustainability of our positive results going forward. So how does digital transformation help our numbers in terms of some tangible value metrics? First, on growth. On the top right-hand side of the page, top left-hand side of the page, you see the growth numbers. As you can see, active client base has increased 4.6 million customers eight percent number in the past two years we believe it's now right the right time to boost activity and grow our customer base further leveraging also our digital levers second on engagement and transactionality again at the top and side of the page digital tools they help us engage with our clients better and faster i mean we put here the peru example in peru Our digital engagement tools, they help us improve our interface with the clients to better identify their needs. I mean, they tailor the product offer based on those needs. This obviously then results in higher cross-sell, and you see it in the numbers there. So number of clients with more than one product, it has been multiplied by 2.4 times three months after onboarding through a new digital engagement process that we put in place in Peru. Then network productivity on the left right, very important driver. We want to optimize our branch network and we want to devote more time in our branches to advice and sales. And with the help of digitized processes and tools, as you can see on the graph, the products sold per branch per month in the United States, it has increased by 42% as compared to two years ago. And finally, efficiency. We maintain our commitment to improve efficiency. Reducing transaction cost is another good example of how digitalization is helping us to create value. Transactions are migrating to digital channels. I mean, like mobile, online, ATM. And those channels now account 61% of our overall transactions. And in this context, we have reduced the cost of a transaction by 31% in three years. As a result of the channel mix of the transactions, as well as the measures that we have taken to increase the efficiency of our platforms. If you move to slide number 12. And again, as we have commented in the last quarters, underpinning the growth in digital business is the continued digitization of our customer base. Digital customers, they are up 17%, and they now represent 53% of our customers. In the middle of the slide, you can see the same perspective with our mobile customers, mobile channel. And our mobile customers, it grew almost by 5 million, up by 25%, reaching a 45% penetration. This accelerated adoption is also expected to reach the tipping point of the 50% that we committed in the last quarterly presentation, and we are on our way to reach that goal by the end of the year. And finally, on the graph at the right-hand side of the page, you can see the continued outstanding trend in digital sales. Finally, on page number 13, before I hand it over to Jaime, on digital transformation, we would like to highlight and how different we are from competitors in pushing through this transformation. And one way to exemplify that, there are many other methods, but it's the availability of our products and services in digital channels. So this is a Spain example. In Spain, a recent market report done by an independent firm, it shows how BBVA's availability of products, services, and advice features is leading the market. I mean, 83% of the features are that are available in traditional channels, they are also available digitally for BVA customers. And the closest competitor to us is 65%. And it takes a while, proven by experience, it takes a while to close that gap. And this gives us a differentiating edge as we serve our customers through our digital channels. Having said all of this, let me now turn it over to Hayme for an overview of the business areas.

So the floor is yours, Hayme. Thank you very much, Honor, and good evening, everyone. Beginning with Spain, let me start by explaining the evolution of the NII, down minus 4.9% on a year-on-year basis. On the one hand, the commercial activity with clients showed a positive performance in the quarter. We had a good start of the year in loan growth, 1.8% year-on-year, together with a slight improvement in the customer spread. The loan mix is improving. It's more profitable, and it's also being supported by higher arrival rates. But on the other hand, the positive evolution of the commercial activity is more than offset by a lower contribution from the ALCO portfolios, the IFRS 16 impact, and the cost of excess liquidity we hold in the ECB portfolio. In this sense, and giving ECBs a more dovish tone in its last meeting, we now expect a lower for longer interest rate environment, and as a result, NII might decrease slightly, around 2% in 2019. In any case, the Q1 decrease should not be extrapolated. The main drivers of the P&L in Spain continue to be the reduction in operating expenses and the low cost of risk. Costs continue to go down, minus 3.5% on a year-on-year basis, with efficiency improving to 54.4% as of March. That is 1.5% better than in December. Then we also had a better than expected evolution of impairments, down 38% versus Q1 2018, drove cost of risk to 18 basis points in Q1. As a result of this very good number, we now think that the 2019 cost of risk could be around 20 basis points, improving on our previous guidance of mid-20s. Let's move now to the U.S. Top-line growth continues in line with our expectations. NII increases at high single digits, 8% versus last year, mainly supported by long growth, especially in the consumer portfolio, growing at 22%, and the improvement in customer spread, up by 10 basis points in the quarter. Operating jaws are widening as OPEX remained nearly flat versus last year, and gross revenues are up by over 6%, driven by NII and net trading income. All this makes operating income grow by over 15% year on year. In terms of asset quality, and as Sonur has already mentioned, the cost of risk reached 106 basis points in Q1, due to three reasons, a negative IFRS 9 macro impact, higher provisions for large tickets in the commercial portfolio, and write-offs in the consumer segment, where the BAT performance was focused on specific segments and channels, and as you can imagine, we've already adjusted underwriting standards. It is also worth mentioning, as Honor also said, that impermanence in Q1 of last year were extremely low due to provision releases and positive IFRS 9 macro impact. Regarding cost of risk expectations for the full year, Q1 numbers should not be extrapolated. But now we believe that the cost of risk at the end of the year would be around 80 or 90 basis points below Q1 levels. as we expect consumer write-offs to decrease in the second half of the year. Let's now turn to Mexico. Mexico continues to deliver very strong results, with net attributable profit increasing by over 10% in current euros versus last year, supported by NII and the good evolution of impairments. NII is up around 8% in constant euros, supported mainly by activity. Loans are up by 8.6% versus last year, showing a well-balanced growth between wholesale and retail portfolios. Probably worth highlighting the sound growth in consumer loans at 12% and mortgages at 8.5%, where we've gained market share in both products in the last quarter. Mexico, again, delivers positive operating jobs with core revenues up by 6.6%. and costs up by 4.8 on a year-on-year basis. The cost evolution is affected by a larger contribution to the BBBA Foundation in Mexico. Including these OPEX would have grown by 3.8%. All asset quality indicators improve. The MPL ratio stands at 2%. Coverage increases 5 percentage points to 159%. And cost of risk stays at 293 basis points in line with our guidance for the year of around 300 basis points. These solid results continue to reflect BBBA's leadership position in Mexico, both in terms of market share and profitability. Let's focus now on Turkey. Guarantee had a strong start of the year with better than expected performance. Compared to the last quarter, net attributable profit increased by 55%, mainly due to lower provisioning needs, and to a lesser extent, strong fee growth and lower expenses. Loan loss provisions decreased by 63% versus Q4, becoming the main P&L driver in the quarter. due to mainly a significant lower provision in needs in the foreign currency book and a limited IFRS 9 macro impact. As a result, cost of risk is down to 182 basis points, better than expected, and significantly below last year. If the trend continues like this, we think we could beat our 2019 cost of risk guidance which is below 300 basis points. Regarding NII, the quarterly decline, 26%, is fully explained by the lower CPI linkage contribution. Very high in Q4, as inflation, you will remember, picked at 25%. Excluding these, NII is up by 41%. mainly due to the significant reduction in TL funding costs and the TL loan portfolio growing by over 7% in the quarter. Regarding the year-on-year comparison, core revenues show a very strong performance with NII up 20%, thanks to the higher CPI linkage contribution versus last year. Remember that we started accruing an 8% inflation level. And also to the increase in TL loans. while fees are up by 26%. However, these positive numbers have been offset by the increase in impermanence, all these versus the first quarter of 2018. And let me finalize with South America. Let me provide some color on the evolution of the three main countries in the region, starting with Colombia. Operating income increased by 8% versus last year in constant euros, mainly supported by net trading income and flat expenses. The decrease at the net attributable profit level is explained by the increase in impairments related to a single large ticket now fully written off. Peru enjoyed a very good first quarter with the bottom line up by 15% year on year. NII continues to be the main P&L driver, growing also at 15% on a year-on-year basis and above activity thanks to lower funding costs. The loan book is up by 6.5% thanks to a dynamic retail market and improving growth in commercial. Argentina reported a net attributable profit of 60 million euros this quarter, and that's versus minus 23 million last year in constant euros. Q1 results include a hyperinflation impact of minus 49 million that is fully offset by the 50 million euros positive result coming from the Prisma sale, also at net attributable level. NII is once again the main P&L driver in the country, driven by the contribution from the high-yielding bond portfolio. And now back to Onur for some final remarks.