Banco Bilbao Vizcaya Argentaria S.A.

Good morning, everyone, and welcome to BBVA's second quarter 21 results presentation. I am Patricia Bueno, head of investor relations, and here with me today is Anur Venk, chief executive officer of the group, and Jaime Saez de Tejada, BBVA group CFO. As in previous quarters, Anur will begin with the presentation of the 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 Anur to start with the presentation.

Thank you, Patricia. Good morning, everyone. Welcome and thank you for joining our second quarter results audio webcast. As always, I hope everyone is safe and sound. Let me just jump into it, starting with slide number three. So on slide number three, on the left-hand side of the slide, you can see our net attributable profits, excluding non-recurring impacts, which continues its upward trend. Very good, nice trend you see on these numbers. And now the number is up to 1,294,000,000 euros in the second quarter. It implies obviously doubling the results in the same period last year when we had some obviously extraordinary provisions due to COVID. And as compared to the first quarter of 2021, net total profit is also growing very nicely by 25%. Earnings per share, we are going to be reporting this very vividly in all the presentations from now on. 18 cents, 18 euro cents, again, very nice growth. These numbers, they are two very important notes that I would like to do here. First of all, these numbers represent the all-time high quarterly results in the parameters that we have. And they have been achieved, very important, preserving all the accumulated 2020 extraordinary COVID reserves intact. So we are not releasing anything from the reserves that we built for COVID in 2020. Let me note for comparison purposes that all these figures, they exclude the non-recurring impacts. More specifically, the results from our U.S. business sold to PNC and the one-off from the restructuring costs of the collective layoff process in Spain. Including all these concepts, the final reported profits amount to $701 million. The graph on the right-hand side of the slide shows our capital position with the CET1 up to 14.17 now, including the impact from the U.S. sale and also including the restructuring process in Spain. This obviously represents a new level of capital strength, providing ample strategic optionality for us. Even considering the targeted 10% share buyback, our capital position will still remain at a very high level, 12.89%. well above our target range and well above our minimum requirements. This CET1 ratio pro forma, the 1289 that I was telling you about, it has been calculated with the share price of July 22nd, which implies an amount of the share buyback of $3.5 billion. I'm very happy to report right up front that following the ECB's announcement last week, we have already initiated the necessary steps to start the program in the fourth quarter of 2021, as we have been sharing with you before. Slide number four. We keep advancing in our commitment to value creation. We keep putting this page right up front, tangible book value per share. And as you can see, we have closed at 640, a strong increase of 9% year-over-year and 4% quarter-over-quarter. And also, North 40, the increase in profitability metrics on the right-hand side of the page, double-digit ROE, double-digit return on tangible equity, 10.4% and 11% respectively, despite the excess capital that we accumulated after the U.S. sale. Slide number five. So what stands out? Some key highlights of the quarter. First, strong core revenue evolution, 9.7% growth versus the second quarter of last year. This is explained by both of NII and NFI, but on NII, recovery, 4.1% increase. And on the fee income, excellent performance, 30.8%, 31% increase year over year. Second point of the quarter, leading efficiency ratio, we closed at 44.8%. As a result of these two items, excellent performance of operating income, number three, growing at double-digit 11% growth in operating income versus same quarter last year. Fourth, solid risk indicators. Our cost of risk continues its decreasing trend to 100 basis points. better than our expectations. And as we will share with you in a second, we are upgrading our cost of risk guidance to all of you today. Fifth, as mentioned, our great capital position after the sale of U.S. And lastly, our outstanding progress in key areas of our strategy, which ensures the success of our bank in the mid to long term on multiple dimensions that we have put into our strategic plan. We are advancing very positively and we are very happy with that. So our differential digital capabilities Again, creating very good figures in new customer growth. And regarding sustainability, another of our strategic priorities, we have done so well that we decided to double our target of sustainable finance in the pledge that we have announced some years ago. Slide number six. To summarize P&L of the second quarter and focusing on the comparison with the first quarter of this year in constant euros, the first column from the right, you can clearly identify the excellent quarter-over-quarter evolution in almost all the P&L lines. I would highlight the positive performance of net interest income, fee income, and obviously impairments. In terms of the year-over-year comparison with the second quarter of last year, the second column from the left, the strong 11% increase in operating income supported by core revenues, especially the fee income, again, as I mentioned, 31% growth, and the NII growing 4.1%, coupled with the significant lower impairments and provisions, leading to an excellent net attributable profit growth. Including the results from the U.S. business sold to PNC, $103 billion in the second quarter, and the net cost, Related to the restructuring process in Spain of 696 million after-tax, the final reported results in the second, 701 million euros. Slide number seven, summarized P&L again, this time for the half. Again, as compared to the same period last year, similar messages, but I would again highlight the very positive core revenues evolution, increasing 5.1%. Obviously, despite the interest rate and environment complexity that we live in, but still very positive results there. Great fee income performance, growing nearly 20%, so very positive results on core revenues. We are also registering a positive evolution in gross income and operating income as a result. They are both growing close to 5%, as you see on the table. And the bottom line, the profit comparison is very positive, obviously affected by the extraordinary provisions that we did in 2020 for COVID-19. but still a very positive comparison. So net attributable profit for the first half of the year is €2,327,000,000, excluding the non-recurring impacts, and €1,911,000,000, including all the non-recurring impacts. Slide number eight, some more light on the quarterly revenues breakdown. Our net interest income increasing nicely, as we discussed, versus last year and versus last quarter. Driven by activity recovery and margin improvement in most of the countries, the recovery, which already started, you might remember, in the previous calls, already started towards the end of the first quarter, has accelerated during this quarter and is expected to continue throughout the rest of the year. In the following slides, I will elaborate more on this, but the second half positiveness is creating very good vibes in our management. Next, extraordinary evolution of net fees and commissions. You see this positive evolution across the board. The good news of this one is it's across the board in all the countries, in all the line items, in such a way that this fee income number is the highest quarterly figure reported over the past few years. Very good evolution of the net trading income, continuing with a solid performance in the second quarter and increasing 14% year-over-year. All in all, strong growth in gross income of 10% versus the same period last year. And also, it is worth noting that the positive quarter-over-quarter evolution is also there. Despite second quarters, as you might know, it's being affected by the single resolution fund contribution under other income. But despite that huge negative impact, quarter-over-quarter evolution is also positive. Slide number nine, maybe we can talk a little bit about the futures. On that one, on revenues, let me show you the economic development on this page. So very positive signals, and we do think that this is going to be reflected into the activity, into the risk parameters in the second half of the year. But on slide number nine, you can see how economic growth is strengthening. BBVA Research, they have revised upward their GDP forecast for practically all countries, but Peru, a slight reduction in Peru, But very positive upgrades in everywhere. Obviously, again, this will be helping us in the second half. Slide number 10, as a result of that economic development, we already see it, but again, we are even more positive for the second half. You can see how new loan production has continued its upward trend. You see in the bubbles the total loan growth in terms of new production, and you see very positive figures here in all the countries. So this is making us, again, quite optimistic about the second half. On slide number 11, the last slide of this section about the future, it reveals the NII improvement in all of our core markets and also, again, gives some indication for the rest. On the left-hand side of the slide, and linked to the previous slide, you can see how new loan production recovery is being translated into loan book growth, into the stock, in both segments, in both retail and wholesale. Additionally, in the center of the slide, the stabilizing interest rate environment and our good pricing management, we put so much focus on pricing management, it has led to stabilization and improvements in the margins. And in the bubbles, you see the latest month, June 21, month-only figures. So you see a clear improvement in all the markets. And if you combine them all, the activity and the margins on the right-hand side, you can see the improvement in the net interest income. And as I mentioned, we expect this trend to continue throughout the rest of the year, and Jaime will walk you through the different countries in a while. Slide number 12. After revenues on costs growing 5.1% versus the first half of the last year, where they were very low, as you can imagine, due to low accrual of variable compensation. Last year, variable compensation, we accrued it at a very low percentage. This year, variable compensation normalizing obviously has an impact on the figures. But despite that, despite the higher variable compensation accrual, we managed to keep the growth in costs below the blended inflation of 5.4% in our footprint. And on the left-hand side of the slide, you can see how our efficiency ratio, the lowest compared with our European peers, has improved since 2016, and now we are at 44.8% in the first half of 2021. Slide number 13. We continue. Although we are number one in terms of cost of income, although we have been improving on this for many years, we continue on our disciplined cost management approach. So on June 8th, we announced the restructuring process for BVA in Spain and in the corporate centers. As you can see on the left-hand side of the slide, there are many reasons for this, but this is a good reflection. Digital servicing transactions in Spain, they have more than doubled since 2019. Whereas the branch transactions, they have nearly halved. So as a result of this, we have to adjust. We have to do the restructuring. So the restructuring process responds to these trends and implies the closing of 480 branches and affects 2,935 employees. The one-off cost for this process is, as I mentioned, $696 million post-tax, $994, close to $1 billion before taxes. In the second quarter, we already recorded it in the corporate centers. And going forward, the total savings estimated from this is going to be slightly more than $250 million annually. Lastly, on this process, which has been a long process, but I would like to highlight that we are very satisfied with how the entire negotiation process has unfolded and that we have reached an agreement with the majority of the union representatives with volunteerism at the top of this process. Slide number 14, on risk. Total impairments for the quarter are now more aligned and even better than pre-COVID levels, and as I already mentioned, this level has been achieved with no change, no change, in the accumulated COVID-19 reserves. So we are not releasing from the accumulated prudential reserves to get to these figures. Year-to-date cost of risk continues its improving trend, closing the first quarter at 100 bps versus the 117 in the first quarter and versus the 155 bps in 2020. So with all these positive signals that we are seeing in the underlying portfolio, in the underlying metrics, risk metrics, we are upgrading our guidance. So now we expect to close the year for the group at around 110 bps. Regarding the rest of the asset quality indicators, we see a slight decrease in the NPL ratio in the quarter to 4.2%, mainly explained by the good dynamics of the underlying portfolios and some write-offs, especially in Spain. And our coverage ratio closed at 77%, again affected by the write-offs. But as you would see also in the backup of this presentation, our coverage level, as compared to our competitors in respective markets, is much better than the industry average. Slide number 15 on capital, on capital generation and the results. We basically have now left into a new level. Our CT1, 14-17 in the second quarter, including the impact from BVA USA, including the restructuring process. Regarding the quarterly evolution beyond that, excluding the non-recurring impacts, it is negatively affected by the inclusion of 14 BIPs from the SOCR that we have already updated you about in the previous calls, the counterparty risk implementation. So we have completed that process as well. So as a result, the good news is that after two quarters of important regulatory impacts, we don't expect any material impact from regulatory topics for the remainder of this year. Excluding this regulatory impact, we would have generated 8 BIPs in the quarters. You see the breakdown in the chart, but 38 BIPs in terms of results. Dividend accrual at 40%, deducting the 40% dividend accrual and 81 coupon payments, all in, they are detracting 11 BIPs, minus 6 BIPs from RWAs. Lastly, the bucket others of minus 13 BIPs, mainly explained by the lower minority interests, due to a transitional regulatory measure in Peru. In Peru, they have reduced the capital requirement, and as a result, it has affected negatively our numbers. But it's a transitional thing. It's going to be coming back in 2022. The market impact this quarter was basically negligible. Slide number 16, continuing on capital. Following ECB's announcement last week, and as we shared before, on top of resuming the ordinary distributions to shareholders, we expect to start the targeted 10% share buyback program in the fourth quarter of Obviously, subject to supervisory approvals. But as I mentioned at the beginning of the presentation, even considering this targeted 10% share buyback, the CET1 ratio will still remain at a very high level, 1289. And the CET1 ratio pro forma, obviously, is calculated by certain assumptions. We have used the July 22 share price, which implies an amount of 3.5 billion share buyback amount. As you know, the 2021 AGM already approved the steps required to be able to implement such buyback. And after last week's announcement, ECB announcement, not to extend the shareholder distribution limitation beyond September 30th, again, I would like to underscore that, as mentioned, we have already initiated the necessary steps so that we can start the program in the fourth quarter. Slide 17, on the evolution of our strategic initiatives, as I mentioned, we continue to do really well. Our focus on building end-to-end digital products and processes, it has proven to be differential during COVID and even now. in reaching more customers. So the graph on the left-hand side illustrates the growing trend of the new customers acquired digitally, which already represents, by the way, 37% of the total customers that we acquire in the first six months of the year. This is the digital customer acquisition. It's a 45% increase versus the same period a year before. And when you look into the profitability of these customers, it's also very good. And you see a clear reflection of that on the right-hand side of the page, where it basically says that after we acquire these customers, after a meaningful timeframe, we turn them into value customers. We refer to value customers as those customers that we want to grow, that we want to retain due to their balances, assets, and liabilities and transactionality with us. So very positive news are arriving on this front. And lastly, on slide number 18, another strategic priority for us is helping our clients transition to a more sustainable future, sustainability. And we have been doing really well here. We have made great strides in this front. As a result, we have recently announced doubling our target of sustainable finance, granted between 2018 and 2025, the original timeframe of our pledge. So we doubled that to $200 billion sustainable finance origination. And there's also, you might have seen from our announcement yesterday, we are elevating sustainability to the highest level of the organization. Javier Rodriguez-Soler, our current country manager in the U.S., will head this new area. It's a disruption to be managed, so there are risk implications as well, but this is a huge business opportunity for BBVA, and we are trying to become the reference bank on this topic in the global banking landscape. Having said all of this, I turn it to Jaime for the business area. Jaime.

Thank you. Thank you very much, Honor, and good morning, everybody. Let me start as usual with Spain. Again, economic growth is strengthening in the country. 2021 GDP growth estimates have been revised upwards by a full percentage point to 6.5%, and it remains at 7% for 2022, mainly thanks to better data in the first half of the year. Growth growing forward will also be supported by the next generation EU recovery fund, as you all know. New lending flows, as Anon has commented, have increased by 13% quarter-on-quarter. On top of a very solid loan demand in retail segments, credit is also steadily picking up in the commercial sector, except in CIB, where it's still lagging. This has allowed a quarter-on-quarter loan growth of 2.3%, with the consumer portfolio growing at over 4%, and the SMA book at 3.4% quarter-on-quarter. Even the mortgage book, For the full 2021, we expect the loan portfolio to remain broadly flat, with consumer lending growing at high single digits. Looking at the six-month P&L, BVA Spain delivered an outstanding pre-provision profit, growing by 13.2% versus last year. mainly driven by a very strong core revenue growth, up over 4%, supported mainly by the strong fee performance, up 16%, by activity recovery and a robust growth, particularly in banking fees, especially credit cards, asset management, but also insurance fees, as you know, positively impacted by the closing of the JV with Allianz in December of last year. This dynamism allows us to expect fee growing by mid-single digits for the whole 2021 versus our high single-digit guidance before. Another highlight of the half is clearly net trade and income, thanks to the strong global markets results, but particularly in Q1. Our continued cost control efforts, expenses decreasing by 2.2%. resulting in a significant improvement of our efficiency ratio, now at 49% in the first half of 2021, versus 55%, almost 55% at the end of 2020. For the whole 2021, and including the savings from the restructuring plan recently announced, expenses are expected to go down by around 3%. Net attributable profit year-to-date was also positively impacted by the significant reduction of impairments, mainly explained by the front loading of COVID-related provisions set aside last year and the very good dynamics of NPL net entries. As a result, the cost of risk of the first half of 21 stands at 45 basis points, better than expected. For the entire 21, we now expect cost of risk to stand below 40 basis points, clearly better than the original guidance. All in all, a very good set of results in Spain, with the first half net attributable profit reaching pre-COVID levels of 745 million euros. Let's now move to Mexico. In Mexico, we have once again improved our GDP growth forecast for 21 to 6.3%, and also for 22 to 3%, driven by better investment and consumption, supported by the higher U.S. demand and record remittances, which should support activity and added quality trends in the second half of the year. Year-to-date, the loan portfolio is growing by 2.1%, driven by retail segments, as we've discussed before, up 3.3%, with wholesale segments also in positive territory. These loan growth levels have led to a 60 basis points market share gain in the 12 months to May, particularly supported by credit cards and the commercial segments. In short, very solid activity dynamics that make us even more confident on achieving our mid-single-digit growth guidance for 2021. In terms of P&L, BBVA Mexico's net attributable profit year-to-date increased by 75% compared to last year, driven by the reduction of impairments and the excellent core revenue performance. Core revenues as of June are improving by 5.8% year-on-year thanks to the strong fee performance up over 15% due to the higher activity and transactionality. NII is also up, increasing 3.9% due to a better customer spread and our efforts to reduce customer funding costs, which have clearly paid off. Also lower wholesale funding costs and also helped, of course, by the base effect, as remember that we did not accrue interest on some loan deferrals granted in 2020. For 2021, we expect NAGAI to grow at mid-single-digit, levered on activity growth and margins improvements. Expenses have increased year-on-year by 7.4%, driven by higher inflation and valuable remuneration normalizing, ending June with a very strong cost-to-income ratio of 35.2%. The cost of risk stands at 283 basis points, thanks to the good dynamics in retail segments and lower impermanence in commercial. The good asset quality trends during the first six months make us revise our estimates for the year in Mexico, and we now believe that we will end 2021 with a cost of risk around 300 basis points. Let's now turn to Turkey. On the macro, GDP growth estimates for 21 have been significantly revised upwards also in Turkey, to 9% versus 5% previously, thanks to the strong momentum and upward global growth forecast as the economy reopens. For 2022, we expect a 4% GDP growth in line with what we could consider to be the long-term structural growth rate for the country. In terms of activity, the TL loan portfolio grew by over 23% year-on-year, with double-digit growth in both the retail and the commercial segments, while foreign currency loans continue decreasing by 11% year-on-year, in line with our strategy in this segment. This is strong TL loan growth continuous in Q2, which is up 6.7% quarter-on-quarter, with similar growth rates both in retail and commercial segments. For the full 2021, we maintain our expectations for tier long growth at mid-teens, but now with an upward bias. The foreign currency portfolio will continue decreasing. In terms of P&L, gross income in the half of the year grew by 6.9% year-on-year, supported by the excellent performance of fees and also net trading income. while NII was negatively impacted by the strong compression of the customer spread in Turkish Lira after the sharp increase in rates. Having said this, NII grew by over 9% quarter-on-quarter, thanks to strong TL non-growth, the improvement in customer spread both in TL and foreign currency, and the higher contribution from the CPI linkers portfolio as inflation expectations increased. We expect spreads to continue improving after reaching the bottom in Q1, higher new loan rates, which will support NII going forward. Net fees and commissions grew by almost 50% year-on-year in the first half, mainly driven by payment systems due to the significant higher levels of activity, but also to brokerage fees in CIB. We had an excellent net traded income, up almost 90% year-on-year, and due to FX results, Higher contributions from global markets, but also to gains in the ALCO portfolio. Expenses grew by 18% year-to-year, above inflation, above the 12-month inflation, which stands at 14.5, negatively impacted by the TL depreciation and by higher personal expenses due, as we've discussed previously, to variable remuneration normalizing. The cost-to-income ratio remains very strong at 31.7%. Impermanence declined significantly, down almost 64%, impacted by the high provisions books in the first half of last year, and to a better underlying performance, resulting in a cost of risk of 97 basis points in the first half of 21, and clearly exceeding expectations. As a result, we are also improving our cost of risk guidance in Turkey, and now we expect to end the year below 150 basis points. Also, a very strong set of results in Turkey with net achievable profit in the first half up by 92% year-on-year in constant and 44% in current. And finally, South America. BBVA Research has also revised its macro prospect for the region in 2021 and now expects a stronger recovery in Colombia. with a 7.5 GDP growth rate for the year. In Peru, we expect GDP to grow at 9% and 6.5% in Argentina. Let me give you some color on the three main countries. In Colombia, loan growth is up 1.7% year-on-year, but accelerating quarter-on-quarter to 2.2%, with positive trends both in retail and commercial, supported by the reopening of the economy. Operating income grew by 5.2% year-on-year, thanks to core revenue growth and positive jobs. Additionally, impermanence decreased 33%, driving net attributable profit to €106 million in the first six months of the year. In Peru, loan growth is up over 12% year-on-year, supported by the state's guaranteed programs. Operating income increased by almost 16% on the back of fee growth, up over 37%, and an excellent net trade and income evolution. This, together with a reduction of in-impermanence, drove net attributable profit to $55 million as of June. And finally, Argentina, that was able to deliver a positive net attributable profit of 15 million euros in the first half of the year, even after a high inflation adjustment. And now, back to you, Honor.