Banco Bilbao Vizcaya Argentaria S.A.

Good morning, everyone, and welcome to BBVA Fourth Quarter 2019 Results Presentation. I'm Gloria Cauceiro, Head of Investor Relations, and here with me today is Onur Genç, Chief Executive Officer of the Group, and Jaime Sáenz Tejada, BBVA Group CFO. As in previous quarters, Onur will begin with a presentation of group's results, then Jaime will review the business areas, and then Onur will update on the strategy before moving to the live Q&A session. So now I'll turn it over to Onur to start with the presentation.

Thank you, Gloria. Good morning to everyone. Welcome, and thank you for joining our fourth quarter results audio webcast. So let's just jump into it, starting with slide number three. We are once again reporting an excellent quarter in our view in terms of results, value creation, and capital generation. As all of you know, we highlight three numbers on this first page. The first one, net individual profit for the fourth quarter was 1,163,000,000 euros. excluding the 1 billion 318 million euros from the BBVA USA goodwill impairment, as we announced in the relevant event of December 2019. Excluding the impairment, this represents a growth of 15% versus the same quarter of 2018. So there are two other very important messages to highlight on the slide. In the middle of the page, you can see that we continue to deliver outstanding value for our shareholders. So the year-on-year evolution of our tangible book value per share plus dividends is extraordinary, growing 11.5%. And on the right-hand side of the page, I need to highlight our strong capacity to generate capital. In this regard, our fully loaded CET1, it has increased 40 BIPs, 40 BIPs in the year, to 1174. And as you all know, this is after absorbing 25 BIPs due to regulatory impacts, namely the TRIM and IFRS 16. It is also worth mentioning that the quarterly improvement was 18 BIBs, so one of the best quarter of 2019 for sure. So we ended the year in the middle of our target range. As you all know, our range is 11.5 to 12, so we ended the year in the middle of that range. Moving on to slide number four. I would like to emphasize that we are delivering these strong results despite a very challenging and a complicated external environment. Obviously, our business is affected by these external drivers. And on the one hand, on the left-hand side of the page, you see the macro development. So the global macro growth has been highly affected by the well-known global challenges and uncertainties. So during 2019, we have revised our growth estimations downwards for all the countries of our footprint throughout the year. And on the other hand, on the right-hand side of the page, what you see is the evolution of the interest rates, the rates that we are most sensitive to. And as you all know, in developed markets, namely Spain and USA, we are very sensitive to interest rates. And in these markets, we have been surprised to the downside, obviously, as compared to the expectations at the beginning of the year. So 12 months URIBOR at the end of 2019 was approximately 30 BIPs lower than our expectations at the beginning of the year. And in the case of US, this gap was even higher. So more than 113 BIPs below expectations. In this challenging context, our diversified business footprint, our diversified business model, as we keep saying, proved its resilience once again, and we still managed to improve our underlying financials. So going on to the key highlights, to be more specific, on page number five. We would like to underscore the evolution of some of our core performance metrics. So for comparison purposes in this page and beyond, the year-over-year variations, we excluded BBVA Chile related figures in 2018 and the BBVA USA Goodwill impairment in 2019. So the main highlights of the quarter. Number one, first. we would like to highlight that our core revenue year-over-year growth is very robust i mean net interest income growing 5.6 percent in constant euros despite the the the aforementioned challenging macro and low rates environments in some of our core countries and we are also showing a very strong in our view fee income generation growing 4.2 year-over-year in constant euros second The good performance at the top part of the P&L, coupled with our constant focus on efficiency, helped us to post a significant improvement in the cost-to-income. Cost-to-income ratio improved 92 BIPs in the year, reaching 48.5. And we are continuing the multi-year trend of positive operating jobs. Third, risk indicators. They continue to be very strong. With the good trend in the MPL, the MPL ratio has been reduced by 15 bps, now standing at 3.79. And also our coverage ratio, we improved our coverage ratio by 349 bps, reaching 77%. And this coverage ratio is the highest in the last 10 years. Our cost of risk has remained stable despite all the macro dynamics that we have seen in different countries, but our cost of risk for 2019 is now standing at 104 bps in accumulated terms, which is completely in line with our expectations. Capital, I've already mentioned our solid capital position, one of the clear highlights of the quarter. Fully loaded CET1 stands at 1174, increasing 18 bps in the quarter, and as I mentioned, 40 bps in the year. Next, we remain focused on creating value for our shareholders. I already mentioned it in the first page. But in terms of profitability and return metrics, once again, BBVA continues to be at the top of the European banking industry. Return on tangible equity remains strong at 11.9%. And as mentioned in the previous page, tangible book value per share plus dividends grew exceptionally well at 11.5%. Finally, in terms of digital transformation, we are progressing ahead of expectations in digital transformation. Digital sales increased 59% of the total units sold in the year. And as you remember, and we keep repeating it, but two years ago, just two years ago, the same number was 35%. And the digitization of our customer base, 57% of our customer base now interacts with the bank through digital channels. And similarly, 51% of our customers interact with us actively through their mobile phones, through our mobile app, exceeding the 50% target that we have established for ourselves for the end of 2019. Profit and loss. Moving to slide number six. Summarized P&L. Again, strength at the core business drivers. The key message on this page is the fact that core business drivers all standing out to be strong. As mentioned, net interest income is up 5.6%. Fees and commissions up 4.2%. And net trading income is showing a strong performance, growing 18.9%. This was partially offset by the lower other income. negatively impacted mainly by the hyperinflation adjustment in Argentina. But all of this results in gross income growing 5.4%. On costs, we also continue to show great cost control, operating expenses growing 3.5% despite the inflation in our geography, and all of this leading to 7.4% growth in operating income in constant euros. Operating income growth is partially offset by impairments and provisions evolution, mostly due to 2018, some provision releases and capital gains we have recorded in those line items in 2018. So looking at the bottom line, obviously affected by the goodwill impairment of BBVA USA, but in comparable terms, the net attributable profit grows 2% in constant euros and 2.7% in current euros versus the same period last year. If we exclude all the extraordinary one-off items from our P&L, I am very happy to report that this is the highest, highest net attributable profit we are posting in the past 10 years. Moving to the quarter, slide number seven. The key messages for the top lines that we have highlighted for the full year, they hold for the fourth quarter results as well. But to be more specific, net interest income increasing 2.1% in constant euros, fees and commissions 5.7% growth, and net trading income is up by 63.2%. This is partially offset by more negative other income in Argentina, as we mentioned. All this is leading to gross income increasing 5.8% and operating income increasing 6.8% in constant euros. Good news on the impairments line as we go back to more normalized levels in Turkey due to the macro environment improvement and lower requirements from the wholesale portfolio in that specific country. But on the other hand, the provisions and other gains, they were negatively affected by higher contingency risks in Turkey. All in all, net attributable profit grew 14.9% in the quarter. and in current euros, and 14.5% in constant euros. Moving on to page number eight, the revenue slide. Again, excellent quarter, as we mentioned. Net interest income, 2.1% growth, 5.2%. 6% versus 12 month 18%. So very, very positive. It is important to note that this growth has been achieved despite the lower CPI linkers contribution in Turkey. And as compared to last year, we recorded 482 million euros less in the CPI linkers. But despite that, net interest income showing very, very decent growth. On the top right chart, you see the net fees and commissions, clear growth across the board, up 5.7% versus the same quarter last year, and 4.2% on an accumulated basis. Net trading income, up, as I mentioned, 63.2% versus a year ago. It was a great performance of NTI in the fourth quarter, even excluding some gains from some portfolio sales that we did. All in all, total revenues are up 5.8% versus the fourth quarter of 2018, and on an accumulated basis, 5.4% growth again. Moving on to slide number nine, efficiency. We continue to show positive operating jobs. This is a very important management discipline at BBVA. And we are showing, once again, year after year, positive operating jobs, creating operating leverage. So our expense is growing at 3.5%, well below the growth rate in core revenues of 5.3%, and well below, obviously, the blended inflation in our footprint. In the middle of the page, we show the strong evolution of operating income. 7.4% growth in operating income, and on the right-hand side of the page, the efficiency ratio keeps improving, so showing a 92 bps decrease to 48.5, a figure that you all know, significantly better than the European peer group average as you see on the page. Moving on to slide number 10 on risk, asset quality. Continue to see sound risk indicators. I would like to highlight this quarter that the decrease on the impairments of minus 9.9%, mainly driven by Turkey, which compares to very high for quarter 18, as you know, due to macro update and some provisioning that we did at the last quarter of last year. So compared to that improvement. Regarding other risk metrics, so MPLs were reduced by 400 million euros versus last year, 0.4 billion euros, mainly due to portfolio sales in Spain and partially offset by some increases in Turkey. But cost of risk is now at 104 bps year-to-date, completely in line with previous quarters. The NPL ratio, after all of these changes, decreases 15 bps this quarter versus the same period last year, and now stands at 3.8. And finally, the coverage ratio, as I mentioned before, significant improvement in coverage ratio, an increase of 349 bps, and now we are standing at 77%. So overall, risk has been a key highlight for 2019. We maintain a very sound and good risk profile. Slide number 11, capital. On slide 11, we are showing the quarterly capital evolution. And as previously mentioned, CT1 now stands at 1174, 18 bps increase in the quarter. I would say that these numbers underscore once again our strong organic capital generation capacity. This is well above the regulatory requirement of 927% and continues to progress towards the high end of our target range, 11.5 to 12%. It is important for us to also point out the high quality of our capital ratio. We keep putting this into this page every quarter, but we think it's important. Our capacity to absorb losses It's clearly showing here. We continue to lead the ranking of our European peers in terms of the leverage ratio, which stands at 6.7% on a fully loaded basis. AT1 and Tier 2 buckets, we maintain both buckets fulfilled in both fully loaded and phased-in basis. I would highlight this very recently. It's also noteworthy to mention that earlier this month, We have successfully reinforced our Tier 2 bucket through this issuance of 1 billion Tier 2 instrument. Very good reaction from the markets. Slide number 12, shareholder value creation. Very important page for us. We put shareholder value creation and tangible book value per share plus dividends as a management performance metric to everyone actually in the bank. And we are seeing the results. As you can see on the left-hand side of the page, our tangible book value per share, including dividends, an outstanding increase of 11.5% versus a year ago. And then every quarter you see that there has been improvement. And we remain leading the European banking industry in terms of profitability. Our return on tangible equity stands very high as compared to our peers in Europe. Finally, on slide number 13, regarding our dividend, we will submit a proposal to the competent governing bodies to distribute a cash dividend of 16 euro cents per share to be paid in April of this year. Obviously, once approved by our annual general meeting, it represents a dividend yield of 5.52%. And in case of approval, this would result in a 36% cash payout. obviously excluding the BVA USA goodwill impairment in line with our shareholder remuneration policy. It is also important to remind you that going forward, there will continue to be two cash payments per year, and tentatively we do it in October and April. So with this slide, I'm finishing this section. I'll now turn it over to Jaime for an overview of the business areas. Jaime. Thank you.

Thank you, Honor. And good morning, everybody. Let me begin with Spain. The Spanish economy remains strong with no change in estimates. After growing by roughly 2 percent in 2019, GDP expected to grow at 1.6 percent in 2020, maintaining a gap of nearly 1 percent above the eurozone. BBVA in Spain had a very solid performance in 2019, with net attributable profit remaining almost flat versus last year. The main P&L highlights would be, first of all, a very good performance of fees, growing by 5%, quarter on quarter, and above our expectations of a low single-digit growth for the year, thanks to higher asset management fees, higher contribution from the CIB business, and a good performance of credit cards. Operating expenses continue to decrease one more year, this time by minus 2.4 percent, thanks to our good transformation efforts. Cost of risk remains at low levels and in line with guidance at around 23 basis points, and that is excluding the provision release from the mortgage portfolio sale that took place in Q2. NII grew quarter-on-quarter by 1.3% and finished the year in line with our guidance, as the positive evolution of the commercial activity was more than offset by the lower contribution from the ALCO portfolio and the IFRS 16 impact. NT net trading income behaved well in the quarter but is down by almost 300 million in 2019 due to lower portfolio sales and global market results. All in all, strong Q4 in Spain with both a good evolution of activity and core revenues. Let's now turn to the U.S. Macro prospects for the Sun Belt continue to be solid, with a GDP growth estimate of 2.8% for 2020, also outperforming the U.S. average by 1%. Despite the rate environment, the operating income of BBVA in the U.S. in 2019 is up by almost 6% versus last year in constant euros, and over 11% in current, mainly driven by a very positive evolution of the trading income, supported by both portfolio sales and higher results from the global market division. but also due to positive operating jobs as expenses remain flat while gross income keeps growing. Growth in the operating income line is more than offset by higher impairments due to a base effect. Remember that in 2018 we had relevant provision releases. But also by higher provisioning needs in both the retail and commercial portfolios. And also a negative macro adjustment. Cost of risk ended the year at 88 basis points. That is within the range of our guidance of between 80 and 90 basis points. For 2020, we expect cost of risk to be better than in 2019 at around 80 basis points. Let's now move to Mexico. In Mexico, the macro environment has proven to be more challenging than anticipated in 2019, with no GDP growth versus the 2% initially expected. In 2020, GDP will recover to levels around 1.5%, supported by lower uncertainties and a new trade agreement with the U.S., But once again, BBVA in Mexico continues to deliver an outstanding performance, proving the resiliency of its business model. Net attributable profit in 2019 rose by 14% in current terms, and it's over 8% in constant, again in line with our guidance. After a strong Q4, NII was up by almost 6 percent year-on-year in constant terms and continues to be the main P&L driver, supported by long growth around 7 percent. We expect these dynamics to remain in 2020, with NII growing at high single digits and aligned with activity growth. Net trade and income increased by over 30%, explained by positive results from portfolio sales and also a higher contribution from global markets. Positive jobs are maintained, despite the increased contribution to the BBVA Foundation, allowing the best-in-class efficiency to reach 32.9%. Impermanence remain contained, growing below activity, with cost of risk at 300 basis points in line with guidance being the lowest of the last decade. For 2020, we expect cost of risk to remain around these levels. These results reflect once again BBVA's Mexico leadership position, both in terms of market share and profitability, proving its resilience in low GDP growth scenarios, and supports our view that BBVA in Mexico in 2020 will continue to increase its net attributable profit at high single digits. Let's now focus in Turkey. GDP continues to recover from levels slightly below 1% in 2019, should go around 4% in 2020, maybe even higher, with interest rates falling significantly as inflation continues to trend down. 2019 numbers prove once again guarantees BBBA's earnings resilience and best-in-class performance. Net attributable profit was almost flat in constant terms, showing a significant acceleration quarter-on-quarter. net attributable profit being up by over 30%. This has been possible thanks to a strong core revenue growth and our focus on efficiency. NII remained flat in 2019 in constant euros, despite the lower contribution from the CPA linkers portfolio, supported by the increase in customer spreads, TL lending up by 10% year-on-year, and lower wholesale funding costs. It is worth highlighting the improvement in Q4, with NII up by 18% quarter-on-quarter, thanks to the increase in TL customer spreads, up 300 basis points in the quarter, and acceleration of TL loan demand up by 6.6% in the quarter. Fees behave well, up by over 16% year-on-year, with good performance across the board. Expenses grew by 8.6%, significantly below the 12-month average inflation that stands above 15%, bringing the efficiency ratio to 33.8%. Impairments decreased by 16% year-on-year due to less provisioning needs in the commercial portfolio and lower macro adjustments. 2019 cost of risk ends the year at 207 basis points, beating our year-end guidance of a cost of risk below 250. The provisions and other results increases explained by contingent liabilities and a base effect, as 2018 included capital gains from the sale of a real estate asset. For 2020, we expect guaranteed BBBA earnings recovery to continue on the back of TL loans growing at high teens, NII growing above activity, and cost of risk below 300, sorry, 200 basis points. And finally, South America. In Colombia, we expect the solid GDP growth to continue in 2020. In Peru, it will improve further to reach levels above 3% in both countries. In Argentina, news on the debt restructuring and further policy measures are needed to have a better picture. Turning to the performance of the businesses, Colombia's net attributable profit grows by over 25% in 2019 in constant terms, supported by long growth up by 7% year-on-year, driven mainly by retail portfolios, positive jobs with expenses growing below inflation, and also lower impairments. Peru's net attributable profit increases by 1.9%, almost 6% in current terms, driven by revenue growing at high single digits, thanks to NAI growing above 7%, supported by long growth and net trading income. But partially offset by higher impairments due to a negative macro impact in 2019, and a base effect as we had some provision releases in 2018. And finally, Argentina, with a net attributable profit in 2019 of 133 million euros, thanks to the partial sale of our stake in Prisma and the revaluation of the remaining position, and a higher NII, driven by the contribution from the securities portfolio, being able to more than offset the hyperinflation adjustment, the depreciation of the currency, and the increasing cost of risk due to the macro and the sovereign rating downgrade. And now back to Honor.