Banco Bilbao Vizcaya Argentaria S.A.

Good morning, everyone, and welcome to BBVA First Quarter 2021 Resource Presentation. I am Patricia Bueno, Head of Investor Relations. It's my pleasure taking on this new responsibility within the group, and I'm looking forward to getting to know you soon. Here with me today is Sonor Heng, Chief Executive Officer of the group, and Jaime Saez de Tejada, BBVA Chief Financial Officer. As in previous quarters, Onur will begin with the presentation of group results, and then Jaime will review the business areas. We will move straight to the live Q&A session after that. And now I will turn it over to Onur to start with the presentation.

Thank you very much. I'm glad to have you here today in your first earnings presentation as the new head of investor relations. I'm sure the audience will treat us really well because it's your first. Good morning, everyone, and welcome and thank you for joining our call today. I would be saying it for more than a year now, but I really hope. that you and your families and friends are all healthy and safe in this continued pandemia. Let me start with slide number three by presenting the positive evolution of our results in the first quarter of this year. On the left-hand side of the page, you can see our net attributable profit, which continues its upward trend, obviously, because we have taken all these provisions last year quarterly. But this quarter, 1,210,000,000 euros. up from obviously a year ago, the year ago was 292 million, as you all know, because we have done this again, front loading in the provisions. As compared to the last quarter of 2020, it also grew 19%. Even more remarkable in our view, we have already reached pre-COVID profit levels. So if you compare to the first quarter, 19%, it's up 2.4%. Our earnings per share closed at 0.17, 17 cents, euro cents, one of the highest first quarter figures that we had in the past few years. I need to emphasize the fact that these numbers are achieved without any release in the extraordinary COVID provisioning of 2020. So no release is factored in here, although we clearly see improvement in the underlying this perspective, which we will discuss in a second. There has been that improvement. We have not released from the provisions of last year. The graph on the right-hand side of the slide, it shows the capital generation in the quarter, 15 bps, even absorbing some regulatory impacts, which we will discuss. If we include the impact from the sale of BBVA USA The CET1 pro forma stands at 1458, and after the targeted 10% share buyback, it will still remain at a very high level, 1355, well above our target range and minimum requirements. Slide number four, moving to slide number four, we keep advancing in our commitment to value creation to our shareholders. That's why we put this page right up front all the time. Our tangible book value per share, it closed 615, a 6.5% increase year over year. And regarding profitability, on the right-hand side, we have gained double digits in our profitability metrics, regained our position, 10% in ROE, 11% in return on tangible equity. Moving on to slide number five, key messages of the quarter. First, positive core revenue evolution, growing 0.5% versus the first quarter of last year. It's a complex environment still, especially in this rate environment. We will discuss it in a second. But in this context of complex environment, double-digit growth in fee income is very good. And as we will see in a second, the NII perspectives are very positive going forward. Second. Good management of our operating expenses, which increased 1.8% despite a 4.7% blended inflation in our footprint. Third, our solid risk indicators, our cost of risk continues its decreasing trend to 117 in the quarter, better than our expectations. Again, we will discuss it by geography in a second. Fourth, as mentioned, strong capital generation in the quarter and great capital position after the sale of U.S., And lastly, our outstanding progress in key areas of our strategy. This is the area which will ensure the sustainability of our results in the mid to long term, and we are doing really well. Our differential digital capabilities, it led to new customer growth. customers acquired through digital channels are 64% higher than a year ago. And regarding sustainability, one of our strategic pillars, in just three years, we have already mobilized more than half of the 100 billion euros in sustainable financing committed in BBVA's 2025 pledge. Slide number six. The summarized P&L, first I should highlight the new convention here, where in the discontinued operations line, we are registering the results from BBVA USA sale perimeter until it's expected to close mid-year. So we will have that line until then. As such, the operational P&L line items that you see in this page, they do exclude the BBVA USA sale perimeter. We'll talk about most of them in a second, but if you ask me, the highlight, the very good points of the quarter looking at the summarized P&L, great performance in fee income, great performance in trading income, and also a wonderful progression in my view as compared to our expectations, obviously, in the impairments. Slide number seven. So some light into the quarterly revenues breakdown. Our net interest income decreased 2.3% versus last year, mainly affected by the significant rate rises in Turkey. So most of the difference versus a regular quarter is Turkey, which we will discuss in a second. But in short, the banks deposits in the country, they reprice much faster than the assets. And as a result, that has been an impact on Turkey, which is in the recovery mode, as we will discuss. Outstanding evolution in our view in net fees and commissions, one of our core focuses since many years, but we are yielding the results. Net fees and commissions increasing 10% year over year. Across the board, positive evolution in all the countries in most of the fee line items, and this is the highest quarterly figure reported over the past few years. Very good performance on the net trading income in the quarter, even better than the exceptional quarters that we had a year ago, mainly explained by the positive contribution from global markets in CIB. Finally, gross income grew nicely from the last quarter, 9.4%. Only slight growth year over year. The year over year evolution had a negative impact from other income and expenses, which is not depicted on this page. And it's mainly due to Argentina. Argentina had a very high hyperinflation adjustment. And there were some tax policy changes in the country affecting the other income line. Excluding other income, the year-on-year growth in the gross income would have been 2%. Moving to slide number eight. In order to shed some light on the evolution of the revenues going forward, a few pages. A few pages very quickly on slide number eight. No need to dwell on this page too much, but you see the economic development perspectives. We are expecting the growth to accelerate, especially starting this quarter in the second half of 2021 as well. So there is a positive economic backdrop here. More importantly, in my view, if you go to slide number nine, you can see how new retail loan production is picking up and reaching pre-COVID levels in all of our markets already. So with the positive economic backdrop, this trend is going to continue to pick up. And this is the area, especially the consumer loans, as you know, where we have high margins and high returns. We are very glad that this activity pickup is happening. Slide number 10, an important page. You see some positive signals indicating the future recovery of customer spreads because the interest rates are stabilizing in our core markets. You have the three core markets here. So for asset-sensitive countries, there is a positive correlation between the NII and the rates. And this is the case in Spain and Mexico. Interest rates are significantly lower, as you all know, than a year ago, but now they're stable. With the stabilization of the spreads, we do think that the customer spreads are also going to be benefiting tremendously from this. So in the case of Spain, most of the Euribor repricing has already happened. As you all know, 85% of our mortgages are variable rate. They're all indexed to Euribor, one sort or another. Typically, Euribor 12 months. But the repricing frequency is very important. So two-thirds of our mortgage portfolio, it reprices every six months. And one third reprices every year. Given the curve that you see on the left hand side of the page, the remaining mortgage repricing impact will be very minimal. That's why you see some sort of a stabilization in the customer spreads. In Mexico, a similar story where we are also asset sensitive. The cost of funding reduction has already caught up with time after the rate declines. And it will offset the negative impact coming from the lending yield contraction. Also, with the increased production of higher margin retail loans, as you have just seen in the previous page, we do think that there is a clear upward trend for customer spreads going forward. And finally, in the case of Turkey, where banks deposits, as I mentioned, reprice much faster than the loans. As you all know, the ones who know Turkey well, the typical deposit is a 32-day deposit. So very short-term repricing happening. So there is a negative correlation of NII with increasing rates, especially in the timeframes of the three months and the six months, with neutral impact in 12 months as the repricing of the loans catch up. That is why the NII has been negatively affected in the first quarter, because there has been significant policy rate rises in the country. But this is a short-term repricing impact that we see in the customer spread. And as you would see on the bottom right, The Turkish tera spreads have already started to improve and are expected to improve even more in the coming quarters, in the coming months. Again, in April, we see the same trend continuing. Moving to slide number 11, risk indicators. Total impairments for the quarter are now more aligned with pre-COVID levels. Year-to-date cost of risk, as I mentioned, 117 BIPs versus 155 of 2020. We see a slight increase in the MPL ratio in the quarter to 4.3% due to some prudential staging in Spain and Turkey, but nothing relevant. And our coverage ratio, it is still very high at 81%. Page 12, on the capital generation, I would like to break down the 15 BIPs that I mentioned, the CET1 capital accumulation over the quarter. So following the waterfall on the page, main impacts. First, our result generation contributes 34 BIPs. Dividend accrual at 40% payout, we are accruing at 40%. And the CET1 coupon payments, we detract them, 17 BIPs impact. Third, two BIPs impact from the RWA's bucket, which includes 11 BIPs due to RWA evolution in the constant euros terms, so positive 11 BIPs, deducted nine BIPs, minus nine BIPs coming from trim on the low default portfolio. So the net impact from the trim on low default portfolios, Plus 11, minus 9, 2 bps impact in that third tier. And lastly, the last bucket, others, minus 4 bps, including among others, the market impact and also the sale of BBVA Paraguay, which is 6 bps. Moving to slide number 13, continuing on capital. After the BVA USA sale, our performance CET1, as of the first quarter, at the end of first quarter 2021, it stands at 1458, 600 pips above the minimum requirement that we have, and well above, obviously, our target range of 11.5 to 12. So how will we use this capital buffer? First, deploying capital in our markets in an efficient way through profitable growth. through cost reduction, strengthening the leadership position that we have in the markets that we are in. And second, increasing distributions to shareholders. You all know these plans. We have already announced them. But we are targeting a buyback of 10% of the shares after the sale of the BVA USA, obviously subject to market conditions and the required approvals. But after the targeted 10% buyback program, our CET1 pro forma stands at 1355, still representing an ample buffer and giving us strategic optionality. And also, I reiterate again the fact that once these ECB restrictions on distributions to shareholders are lifted, our plan is to recover our traditional dividend policy of 35% to 40% payout, all paid in cash. Slide number 14, moving to slide 14, we also continue to advance in key elements of our strategy, as I mentioned up front. You all know our sector is in the midst of a profound transformation. I mean, needless to say, but substantial competitive pressure with new entrants coming in, very low interest rates, even negative rates in developed economies, as you all know, and customers accelerated adoption of digital channels. As you can see from the two graphs on the right-hand side of the slide, this adoption of digital channels, digital customer transactions have more than doubled in just two years, while branch transactions at the same time have decreased substantially. So in the last two years, you see that the branch transactions have declined 25% in the group and 50% in Spain. And also given our focus to go beyond servicing and execute sales through remote channels, our digital sales, it continues to break records. It now reached 70%, close to 70%, as shown on the right-hand side of the page. Slide 15, this is an important page. This is an important page that we like a lot, that we have a clear KPI on this in the management team to track. Providing a better service and selling our products through digital channels is the first step in digital. But beyond that, one of the challenges that we face as an industry is to acquire new customers through digital. And regarding this, our focus on building end-to-end digital products, end-to-end, It is proving to be differential in reaching more customers, as you know, one of our strategic priorities. The graph on the left-hand side of the page, it illustrates the growing trend of the new customers acquired digitally. Each already represents 35% of total new customer acquisition in the first quarter, and it is a 64% increase versus the same quarter of last year, an all-time record in digital customer acquisition. And on the right, you see a very quick example of customer acquisition through new innovative solutions. In a mature market like Spain, we have issued in just six months 500,000 aqua cards, as we call them. 50% are credit cards of the sales. It's a new line of cards improving the payment experience and the safety perception of the customer. For example, with no numbers back and front, no numbers printed on the card. And slide number 16, to close, another key trend that has accelerated in our strategy is the transformation towards a more sustainable world, obviously, which involve important investments that at the same time represents a huge business opportunity for the society and for the banks. We always talk about the risk perspective around sustainability. No, it's a huge business opportunity as well, and you see that on this page. We have already mobilized 59 billion euros in sustainable financing. We have our pledge of 100 billion until 2025. We have already done that much faster than the pace required for the pledge. And in the first quarter of this year, we have already done 8 billion euros, 8 billion euros of sustainable financing. So a huge business opportunity as well. And as you might have seen, BBVA has been recognized as the most sustainable bank in Europe and the second most sustainable bank in the world, according to Dow Jones Sustainability Index. And as you might have also seen, we have also announced our commitment to net zero emissions by 2050. All of these is indicating the fact that this is a topic that we embraced like no other, one of our strategic pillars, and we are progressing really well on this strategic priority as well. And now for the business areas update, I turn it to Jaime.

Thank you. Thank you very much, Honor. Good morning, everybody. And of course, Patricia, welcome to your first results presentation. Let me begin with Spain. BBB Research, it's maintaining its GDP growth forecast for Spain. GDP is expected to grow by 5.5% in 2021 and by 7% in 2022, supported by the Next Generation European Recovery Fund. Having said so, the very good reading today, better than expected on Q1, probably means that these numbers, especially 21, has an upward bias. The loans have slightly decreased 1.4% year-on-year in Q1, as you see in the presentation, impacted mainly by the leveraging in the mortgage portfolio, although at a lower level than before, thanks to the very strong new production that we're seeing, especially in the last six months. and also the public sector portfolio. However, it's worth highlighting the strong performance of very small businesses and SMEs supported by state guarantees. For 21, we expect the positive dynamics in new retail lending to continue. And all in all, the portfolio is expected to remain broadly flat, but dependent on demand from commercial segments. Moving to the P&L, the operating income increased by 22% versus a year ago, mainly driven by first higher core revenues, up 2%, supported by the very strong fee performance, thanks to credit card, banking services, but also insurance. A significant increase in net trading income, thanks to strong global market results, but also higher fixed income portfolio sales. and also our continued cost control efforts with operating expenses improving by 3.5%. And net attributable profit was further supported in the quarter by the significant reductions of impairments, many explained, as Honor mentioned before, by the front-loading of COVID-related provisions in Q1 of last year. So cost of risk stands at 45 basis points in the quarter for the full year. We now think that our cost of risk guidance of around 50 basis points has a positive bias. All in all, I think good results with net attributable profit reaching pre-COVID levels at 380 million euros. For 21, I would like to highlight the main trends that we expect on our core revenues. A slight decrease in NII between 1% and 2%, negatively impacted by the arrival of pricing and the lower contribution from the ALCO portfolios. And in terms of fees, we expect a high single-digit increase. Let me now move to Mexico on page 25. We have improved our 21 GDP growth forecast for the country to 4.7%, mainly explained by the milder regional lockdowns and the positive effects from the U.S. fiscal stimulus. Our estimates have an upper bias due to the positive industrial activity figures that we've seen in Mexico lately. and also by the U.S. GDP growth potential that we think could go even higher, all of which will support demand for credit in upcoming quarters. Year-in-year, the long portfolio was down 6.5%, explained mainly by the significant drawdowns by commercial clients in Q1 of last year. In the first three months of 2021, we're seeing a positive evolution of the long portfolio. It's up 1.5%, with positive growth figures both in retail segments, where we gain again market share, and also in commercial segments. So for 21, we expect long growth to grow by, I would say, mid-single digits, supported by the good economic situation. Moving to the P&L, BBVA's Mexico net attributable profit is up 47%, 32% in current euros. explained by lowering permits while gross income remained quite resilient. NII is down 1.8% due to long volumes but also yields, partly offset by the lower deposit prices and also wholesale funding costs. For 2021, we maintain our guidance of mid-single-digit growth in NII. supported by both activity in retail segments and customer spreads, which will evolve positively and will be above 2020 levels. Fees are up 5.8% year-on-year, thanks mainly to credit cards, but also to investment funds and a very good CID activity. The cost of risk stands in the first quarter at 355 basis points. That is below guidance with a positive performance of retail portfolios. but also a limited deterioration of commercial clients. For 2021, we maintain our cost of risk guidance. It should improve versus 2020 levels to around 380 basis points, but now clearly with a positive bias. The RBL ratio improved as expected, 37 basis points, quarter-on-quarter, to 296, thanks to the positive payment performance and the strong recoveries in retail portfolios, but also some write-offs. Let's now focus on Turkey. On the macro, Turkey was one of the few countries, as you know, in the world that grew in 2020. It showed a positive GDP growth of 1.8%. For 21, we maintain our GDP growth expectation at around 5%. The TL loan portfolio grew by over 35% year-on-year due to very high loan demand, while the foreign currency portfolio continued decreasing at 12% as expected. This strong TL loan growth continues in the first three months of 2021. It's up 6% quarter-on-quarter. especially with retail clients, thanks to the good economic activity that we've seen in Q1. For 2021, for the whole year, we expect TL loan growth at mid-teens and a shrinkage in the foreign currency loan book to continue. Regarding gross income, it grew by almost 3% year-on-year, supported by the excellent net trading income and commissions, while NII was negatively impacted by the interest rate environment. NII was down 14% year-on-year due to this more strict monetary policy that the central bank has been applying, which translated into higher deposit costs and spread compression, both in TL and foreign currency. that the remarkable TL loan growth was not able to offset. We expect the spreads to have bottom already in this first quarter, and we'll recover along the year, thanks to the higher loan yields. For the full 21, we maintain our expectation of a high single-digit NII increase below loan growth, though, due to these lower customer spreads. Net fee and commissions are up over 23% thanks to both payments and brokerage fees. Excellent net traded income. Very good gains from security sales, but also from FX results and a very good performance in the global markets area. Expenses grew 13%, spot on in terms of inflation. That brings the efficiency ratio to a very strong 31.8%. Impairments declined significantly year on year, 60%. resulting in a cost of risk of 134 basis points, and that is significantly below 2020 levels, but also below our guidance. Having said so, for 21, we maintain our guidance and expect cost of risk to be around 180 basis points, but now again, with a clearly positive bias. All in all, a good set of results in Turkey with net attributable profit up 96% in constant terms and 48% in current. And then in slide 27, some data points on South America. BBVA research slightly improved also in Latin America. It's macro prospect for 21 with GDP recoveries of 10% in Peru, 7% in Argentina, and 5.5% in Colombia. Let me give you some color on the two countries. Colombia increased its operating income by over 13% year-on-year. Thanks to gross income growing by over 7% and expenses going down by 2.5. Impairments also decreased significantly, over 40%, driving net attributable profit to 48 million euros in the quarter. In the case of Peru, loan growth is up significantly, 16% year-on-year, supported by state guarantees, but, of course, with lower spreads. Gross income increased 1.7% on the back of fees, while the reduction in expenses also in Peru and in permits drove net achievable profit up 10% in constant to $28 million in the first quarter. And Argentina was able to deliver a positive net equitable profit, €6 million in the quarter, even after a quite high inflation adjustment. And that's all on my side. Now back to Anand.