Banco Bilbao Vizcaya Argentaria S.A.

Good morning, everyone, and welcome to VBVA third quarter 21 results presentation. Here with me today is Onur Heng, chief executive officer of the group, and Rafael Salinas, VBVA chief analyzer officer. As in previous quarters, Onur will start with the presentation of group results, and then Rafa will review the business areas. Then we will move straight forward to the live Q&A session, and now I will turn it over to Onur to begin with the presentation.

Thank you, Patricia. Good morning, everyone. Welcome and thank you for joining BBVA's third quarter results audio webcast. As Patricia said, I'm also very glad to have Rafa Salinas here today in his first earnings presentation. So please be gentle today. It's his first. The group's new CFO. As you know, Rafa was formerly our chief risk officer with more than 30 years experience in the group. So welcome, Rafa, to these meetings. Let me jump into it. Let me start with slide number three. On the left-hand side of the slide, you can see the performance of our net attributable profit, which continues its upward trend. I like the curve here, up to 1.4 billion euros now in the third quarter. This figure implies a 31% increase versus the same period last year. As compared to the second quarter of this year, net attributable profit also grows 8.2%. These numbers, they represent one of the highest quarterly results ever reported by the UVA, bringing also our earnings per share to 20 euro cents. Let me note here on this page that for comparison purposes, all these figures exclude non-recurring impacts, such as the sale of the U.S. business sold to PNC or the restructuring program in Spain, impacts which affect the baseline, which affect previous quarters, obviously no impact in this quarter. The graph on the right-hand side of the slide shows our capital strength, reinforced by the strong capital generation of 31 basis points in the quarter, bringing the CT1 to 1448. Again, a very powerful figure. Lastly, at the bottom of the page, I'm very happy to report that European Central Bank has authorized our share buyback plan with a maximum size of 3.5 billion euros, up to 10% of our shares. This is clearly, clearly one of the largest share buyback plans in Europe to date. The CET1 pro forma, considering this share buyback of 3.5 billion euros, if we deduct it all, it will still remain at a very high level of 13.18%, well above our target range and minimum requirements. Going to slide number four, shareholder value creation and returns, our tangible book value per share plus dividends closed at 6.55%, a strong increase of 12.3% year over year. We are very determined on this figure. That's why we put it right up front in all of our presentations. Tanju Book Valley per share, 12.3% is a very strong figure in our view. Also noteworthy, the continuous improvement in profitability metrics, double-digit ROE and ROTE, as you can see, 11.1% and 11.7% ROTE, despite the excess capital that we accumulated after the U.S. sale, very strong figures here as well. Slide number five, top messages of the quarter. Very quickly, first, strong core revenue evolution. This is the clear highlight of the quarter in my view, explained by the acceleration of the NII and the outstanding performance of fee income across the board. Second, our leading efficiency ratio with a wide margin versus our European peers, improving on cost of income as well. Third, cost of risk continues its decreasing trend. We will talk about it in a second, very positive trend there. Fourth, strong capital generation in the quarter and ample strategic buffer, as we just mentioned. Even after the share buyback, we do have a very strong CET1 ratio. And lastly, our outstanding progress in the key areas of strategy, excellent figures in new customer growth, something that we are obsessed with. We are growing profitably with new customers, helped by digital, which I will again explain in a second. And outperforming in our sustainable finance commitments, another clear differentiator for BBVA, one of our core pillars in terms of strategy. Slide number six, summarized P&L of the third quarter. Focusing on the year-over-year comparison with the third quarter of last year, the second column from the left, I would highlight the solid 5.5% increase in operating income, supported again by very strong core revenues, coupled with significant lower impairments, leading to an excellent profit growth of above 30%. Also, in terms of comparison with the previous quarter results, the first column from the right, You can clearly identify the solid quarter-over-quarter evolution in main P&L lines again, even considering the seasonality effect, which affects the third quarter, especially in Spain. But even with that, very strong figures also compared to the previous quarter. All in all, the third quarter reported net attributable profit is, as I mentioned, 1.4 billion euros. Slide number seven. Regarding the nine months of 2021 versus the same period last year, again, what stands out is the very positive evolution of gross income and operating income, improving 5.6% and 4.6% respectively. Net attributable profit for the first nine months of the year, 3.7 billion euros, excluding non-occurring items, and 3.3 billion euros, including all. Slide number eight. Some more light into the quarterly revenues breakdown and evolution. In my view, again, one of the clear, clear highlights of the quarter, our net interest income increased very nicely versus last year and last quarter, driven by activity recovery and margin improvements. The recovery, which already started throughout the year, which I have been trying to explain to you in the previous quarterly calls, it has accelerated this quarter with a significant increase of 6.1% versus the previous quarter. Again, I will deep dive a bit more on this in the next page because I think it's very important. Next, on the same page, extraordinary evolution of net fees and commissions. We see this positive evolution across the board in all of our geographies, so I'm very happy that this is very diverse and everywhere is contributing to this. This is, again, this number is the highest quarterly fee income figure reported over the past years. Net trading income continues with a solid performance in the third quarter. There is some seasonality here, as you all know. but it increased 12% year over year, slight decline in the quarter because of seasonality. All in all, strong growth in gross income of 7.2% versus the same period last year. On page number 9, I was showing different versions of this page to you before. So here we wanted to reveal the NII acceleration in the quarter, also shed some light maybe for the coming quarters. So on the page, new loan production recovery, it continues. It's being translated into loan growth in both segments, retail and wholesale, but especially in the higher margin retail portfolios, as you can see on the page. Activity increase in the year is especially strong in Mexico and in Turkey, and again, especially in higher margin retail portfolios. In Spain, year-to-date activity evolution is positive, growing 0.2% on aggregate. Again, biased. The good news is, again, biased towards a more profitable business mix. that we can discuss when we go through the countries. Additionally, in the center of the slide, which is very important to us, very important, our good pricing management, it has led to stabilization of spreads in Spain and clear improvements, clear improvements in Mexico and in Turkey, as we have been again guiding you in the previous quarters. All combined, on the right-hand side of the page, you can see significant improvements in net interest income in Mexico, in Turkey, year-over-year and quarter-over-quarter. NAI evolution in Spain is also clearly aligned with the guidance that we have been providing to you since the beginning of the year. Slide number 10. Costs are growing 6.5% versus the first nine months of last year, largely affected by the normalization in the variable compensation, which was especially low and even nonexistent, as you might remember, for certain roles in 2020 due to COVID. So we are going back to normalizing in this curve. Excluding the variable compensation effect, expenses would have increased 2.9%, obviously much lower than inflation. That said, the total cost increase in the first nine months is slightly above, aggregating all, above the 12 months average blended inflation of 6.1% in our footprint. despite the mentioned base effect in 2020, so slightly above inflation as I was referring to. But if you take a two-year time frame and considering the nine months of 2019 as a more normalized baseline, since then in the past two years, total costs increased 3.4% versus the 11.2% inflation rate over the same period. On the right-hand side of the slide, you can see our efficiency ratio. Again, the lowest compared with our European peers, but more importantly, down to 44.7 now in the first nine months of 2021, improving 83 basis points in the year. Slide number 11, risk indicators, total impairments for the quarter continue to decrease, and we are now more aligned and even better than pre-COVID levels. This is mainly explained by the positive evolution of the underlying risk performance. The underlying risk parameters are coming very strong. Year-to-date, the cost of risk, it continues to improve, closing the quarter 9 to 2 basis points versus 100 basis points in the second quarter, 150 basis points actually in 2020, and even comparing very positively with 2019 levels of 104 basis points. With all the positive signals that we are seeing, given the very strong underlying risk parameters, we are now upgrading our guidance. Today, we expect to close the year for the group below 100 basis points. Regarding the rest of the asset quality indicators on the page, you see a decrease in the MPL ratio in the quarter to 4%, explained by the aforementioned positive loan portfolio behavior, so less entries, but also significant recoveries in the wholesale segment, especially in Spain and Turkey. And lastly, our coverage ratio closed at 80%, again, due to this reduced MPL balance. Slide number 12 on capital, let me highlight again the strong generation in the quarter, 31 basis points in capital generation, leading to a CET1 ratio of 1448 as of September. This ratio is well above our SREP requirement of 860. As you all know, we have one of the lowest SREP requirements out there among our peer group. In the waterfall, you can see the development, our results generation, 45 basis points, dividend accrual and AT1 coupon, minus 21 basis points, minus three basis points explained by RWA's growth, and lastly, the bucket of others of nine basis points that includes a positive impact coming from credit risk parameters update, market-related impact, minority interest, and everything else. Lastly, let me note that we do not expect anything material on regulatory impact for the remainder of this year. Slide number 13, on the evolution of our strategic initiatives, we continue to do exceptionally well. Our focus on building end-to-end. End-to-end, it's a very high-level name, but very important. End-to-end digital products and processes, it has proven to be differential in getting to new customers, reaching more customers. The graph on the left-hand side of the page, it illustrates the growing trend of the new customers acquired digitally. which already represents 37% of total new customers. And this is like 48% increase in digital customer acquisition versus the same period a year ago. So we continue to beat our high marks, this quarter being once again an all-time record in digital customer acquisition. With this growth mindset, last week you might have seen it, we launched a fully digital bank in Italy. It's a differential value proposition in our view, distinctive customer experience based on our award-winning app in Spain. And as you know, our app in Spain, it's being rewarded as the best in Europe for five years in a row now. So very, very good developments there as well. And on the right-hand side of the page, you see that our digital capabilities are also helping us on sales. You see that in the first nine months of the year, digital sales is now close to 75% in terms of unit sales of our sales. In terms of relative value, which is the economic representation of the units sold, it's close to, it's more than actually 50% of total sales. Slide number 14, we are also trendsetters in sustainability. This is a huge, explosive, disruptive trend we want to pioneer as we have done in digitalization. We want to pioneer this development in the world. We are at the forefront of the industry in our view in sustainable finance commitments. We have made great strides on that one as well. We outpaced our recently doubled target of sustainable financing with the goal to achieve 200 billion by 2025. As of September, we have already channeled 75 billion, an incremental volume of 8 billion in the quarter. I'm giving you all these numbers because we do think that this is a risk to be managed for the world, but it's also a big opportunity for the banks, and we are tapping into that opportunity, that potential, by helping our clients transition to a more sustainable future. On that one, we continue to launch innovative solutions. On the right-hand side of the page, We have recently extended the carbon footprint calculator. Already developed for companies, already in 2020, we now extended it to individuals. BBVA was the first bank to offer this solution through an application included in the mobile app. In addition, we continue advancing in our commitment to net zero 2050. Last March, we announced our coal phase-out plan, you might remember. We are now advancing that by setting 2030 decarbonization goals in CO2-selected intensive industries. We will be sharing with the market our commitments on those next week in COP26. Finally, on page number 15, as mentioned before, I'm very happy to share with you that we are already ready to proceed with one of the largest share buybacks in Europe for an amount of 3.5 billion max, up to 10% of shares, to be executed in several tranches during a maximum period of 12 months. We will start by executing a first tranche for an amount of 1.5 billion euros. We estimate the execution will take three to four months, and we will start after the investor day. That said, specific terms and conditions will be announced before the effective start of the program in due time. And now for the recent areas, I turn it to Rafa. Rafa.

Thank you very much, Onur. Good morning, everyone. Starting with Spain on slide 17. Loans have increased by 1.1% year-on-year, driven by the strong growth in the most profitable segments. Strong performance on consumer, 8.9%, where we continue gaining market share, as well on SMEs, 8.5%, while mortgages devalue at a lower rate, thanks to a strong new loan production. Offsetting a bit is the leverage that we are seeing on the corporate and CID portfolios. Moving to P&L, in the first nine months in Spain, delivered an outstanding pre-provision profit of 2.3 billion euros, growing at 9.2% versus last year, mainly driven by a strong core revenue growth, 4.7%, supported by the strong free performance, up 18%, led by the recovery of activity and the robust growth in banking services, credit cards, asset management, and insurance fees. and a significant increase in net trading income thanks to the group performance of the global market unit in 2021. And expenses decreasing by 1.7% year on year back on our continued cost control efforts and despite comparing with an accessionary low 2020 figures significantly impacted by COVID resulting in a significant improvement in our efficiency ratio to 49.3% in the first nine months of 21 versus 54.6% of December 20. For the whole 2021, we foresee expenses to decrease at the same rate that we have seen in the first nine months of the year. Additionally, net residual profit is also positively impacted by the significant reduction of impairments, mainly explained by the good performance of the portfolio and the front-loading of COVID-related provision that we did in 2020. These growth underlying trends lead to a better than expected cost of risk that stand at 32 basis points for the first nine months of the year. And make us to believe that we could end the year at around 30 basis points cost of risk. All in all, very good results with nine months net total profit of 1.2 billion euros. Moving to Mexico, slide 18, looking into BBVA Mexico, and in terms of activity, the loan portfolio growth 1.3% quarter-on-quarter, achieving a 3.4 year-to-date growth rate. Thanks to the dynamism shown by retail segments, up 6.3% year-to-date, especially mortgages, credit cards, and SME. While commercial segments also stand in positive territory. For 2021, we continue to expect a mid-single-digit loan growth. In terms of P&L, BBVA Mexico net attributable profit increased by 47% year-to-date compared to last year, driven mainly by excellent core revenues and a significant reduction of impairments. Core revenues, as of September, are improving 5.9%, driven by solid growth both in NII and fees. NII increased 4.1% due to improving customer spreads, thanks to our effort to reduce funding costs, both in customer deposits and also lowers wholesale funding costs, and an improvement on the yield of loans favored by better loan mix, with new loan production bias to retail segments. For 2021, we feel confident on NII to grow at mid-single-digit. Fees continue showing a strong performance, increasing by 15.5% year-to-date, mainly due to higher activity and transactionality. Expenses have increased 9.5% due to a higher inflation environment and certain normalization of expenses on the back of the activity recovery. As of September, our cost to income remained very strong at 35.1%. Good dynamics on the asset quality side, as we mentioned before, both in the retail and wholesale segments, lead to a further improvement on the cost of risk, which stands at 270 basis points in the first nine months of the year. We now expect cost of risk to end 2021 at levels below 300 basis points. Talking slide 19. In terms of activity, the tiered loan portfolio grew close to 30% with double-digit growth in both retail and commercial segments, while foreign currency loan continued decreasing by more than 11% year-on-year in line with our strategy in this segment. In the third quarter, tiered loan growth remained strong, 8.3% quarter-on-quarter, and in this sense, we expect tiered loan to grow above 20% In terms of P&L, gross income in the first nine months of the year grew by 7.6%, supported by the excellent performance of fees and net trading incomes. Net NII continues to improve in trend and grew significantly by 19.7% thanks to a strong TL growth, the improvement in customer spread in TL and the higher contribution from the CPI-linked portfolio as inflation expectation increases. We expect the improving NII trend to continue in the fourth quarter ending 2021 with a high single-digit increase. Net fees and commissions grew by nearly 45% year-on-year in the first nine months of the year, with growth across the board. Wealth expenses grew by 18.5% year-on-year, above the 12-month average inflation of 16.4%, negatively impacted by the TL depreciation and by higher personal expenses. Deficiency ratio anyhow remains strong at 30.4%. Impairment declined significantly due to better underlying trends and singular recoveries in the wholesale portfolio, resulting in a cost of risk of 18 basis points in the first nine months of the year, exceeding clearly expectation. As a result, we are improving our cost of risk guidance, and we now expect to end the year at around 100 basis points. All in all, a strong set of results with net applicable profit in the first nine months of the year, up by 48.4% year-on-year in constant terms and 16.1% in current euros. And finally, South America, slide 23. In Colombia, loan growth is up 5.7% year-on-year after a strong quarter in both retail and commercial segments favored by improving economic conditions. Net acceptable profit increased by 65% to $159 million in the first nine months of the year thanks to higher core revenues, 6.1% up, and lower impairments. In Peru, loan growth is up 4.1% year-on-year with positive performance in both retail and commercial segments. Pre-provision profit increased by 10% thanks to a strong growth income and positive yields. This added to the reduction in impairments, minus 6.1%, drove net attributable profit growth of 22% to 79 million in the first nine months. And finally, Argentina delivered a positive net attributable profit of 42 million in the first nine months of the year, even after a high inflation adjustment. I'm now back on for the final remarks.