Banco Bilbao Vizcaya Argentaria S.A.

Good morning, and welcome everyone to BBVA's conference call to discuss the first quarter 2023 results. I'm joined today by Onur Genç, our CEO, and Rafael Salinas, BBVA CFO. They will discuss quarterly figures, and then we will open the line to receive your questions. Thank you very much for your participation. Now, I hand it over to Onur.

Thank you. Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining our first quarter 2023 results audio webcast. I'm going to run you through, as I always do, through the presentation by indicating the page numbers. So let me start with slide number three. On the left-hand side of the slide, you see our net attributable profit reaching 1,846,000,000 euros. One more quarter, in our view, we are posting very strong results, 39% above the results of the same quarter of last year. I should remind you that these numbers already include the 225 million euros of extraordinary tax in Spain. If the extraordinary tax was not there, obviously, we would have passed the 2 billion euro mark. These results bring our earnings per share at the bottom of the page on the left-hand side again. Earnings per share up to 29 euro cents, 53% year-over-year growth, a higher growth rate than the net attributable profit due to the share buyback program that, as you all know, we have been executing. The graph on the right-hand side of the slide shows our capital ratio, 13-13, above our target range and well above our regulatory requirements, 52 basis points higher than our December 2022 reported capital ratio. Moving to slide number four, our tangible value per share plus dividends, continued outstanding evolution of previous quarters, 22% increase year over year, and 7.1% in the quarter. This number obviously is a number that we treasure a lot, that we pay a lot of attention to, and it's one of the most impressive figures in my view in this presentation. Regarding profitability, on the right-hand side, we continue to improve our excellent profitability metrics, reaching this quarter 16.3% in return on tangible equity and 15.5% in ROE, being the highest figures of the last 10 years, these numbers. We remain clearly one of the most profitable European banks. In fact, we were the first bank among the 15 largest European peers at the end of the fourth quarter, and we keep advancing on this. Not all the banks have announced their results yet, but our expectation is we will maintain our leading position here among the peer group of 15. Moving to slide number five, what stands out in terms of the key messages for the first quarter? First, outstanding, outstanding core revenues evolution, 36.7% growth year over year, supported by both the strong loan growth, 9.8% at the group level, and obviously by the clear improvement of customer spreads in our core geographies. Second, our leading efficiency ratio improving 43.3% in the first quarter of the year with positive jobs. Third, asset quality metrics remain stable and within guidance, with cost of risk at 105 basis points year to date. Fourth, our capital position is comfortably above our targets, as I mentioned. And last, the continued great progress in key areas of our strategy, with 2.6 million new customers acquired in the first quarter and 14 billion sustainable business channeled in the first quarter also. Slide number six. Focusing on the first quarter results, this is the simplified P&L, and the year-over-year comparisons, the year-over-year comparisons, the second column from the left, what stands out is the impressive 38.6% year-on-year increase in operating income, driven by the strong core revenues growth and positive jaws, which explain the net attributable profit growth of 40.5% in constant euros. In terms of quarterly evolution, on the rightmost columns of the table, Net attributable profit increased both in constant and current terms 4.6% and 18.1% respectively versus the fourth quarter, despite being negatively affected again by the 225 million euros of extraordinary banking tax in Spain. Some light into the revenues breakdown and the evolution on slide number seven. First, our net interest income. This is left at the top. It increased strongly, 43% versus last year, driven by the solid activity growth and customer spreads improvements, as I mentioned. The quarter over quarter evolution is negatively affected by Turkey. Excluding Turkey, the group's net interest income grows 3% versus the last quarter, with very strong readings, especially in Spain and Mexico, which I will delve upon a bit in a second. Second, the positive evolution of net fees and commissions, right at the top, increasing 16% year-over-year and consolidating the high figures of the last quarters, basically, mainly because of payments and the transactional businesses. Third, the performance of net trading income, left bottom. It's driven by global markets and hedges. All in all, excellent growth in gross income. At the right, at the bottom, 33% year-over-year, thanks to the outstanding growth in core revenues, while the quarterly comparison is negatively affected, especially by the extraordinary banking tax in Spain that we registered under other income and expenses. The 225 million euros we registered under other income and expenses. As such, it affects the gross income figures. On slide number eight, a deep dive on the net interest income evolution of Spain and Mexico, which shows impressive growth in our view in the first quarter of the year. The same page also talks to our underlying optimism regarding the following quarters to come, because the spreads especially, they keep going up. These are quarterly averages. The month-only figures obviously show even a better number in terms of customer spread. So very positive outlook also going forward. But on the left-hand side of the slide, you see the strong long growth for the group, reaching 9.8%, nearly 10%. In the center of the slide, you see the improvement in the customer spreads for Spain and Mexico. In the case of Spain, it has strongly increased during the first quarter to 275%. obviously in a context of higher interest rates. But in Mexico, the interest rates have been higher for more quarters. Lending yields and the customer spreads, they continue to increase in a very consistent manner, reaching 11.72 in the quarter. As a result of all of this, on the right-hand side of the slide, you can see the strong NII growth, both quarter over quarter and year over year in both countries. Year over year, 38% growth in Spain and 29% growth in Mexico. Slide number nine. We want to give you in this page a sense of our highly diversified and transactional deposit base, very important phenomenons in these times, as well as we want to show you our ample liquidity metrics with a deep dive, especially in our two core geographies of Spain and Mexico. First, in the upper part of the page, regarding the evolution of our deposits in the first quarter of the year, The slight decrease, quarter over quarter, is explained by seasonality and also by a higher preference for off-balance sheet products, mutual funds, in a context of higher interest rates. Having said this, the graphs show an increasing trend both in Spain and Mexico in the last two years, and we have gained market share, deposit market share, in both countries in the last year. Also in the middle of the page, you can see that we have a very stable funding structure. Our deposit base, it consists mostly of retail and SME deposits, 69% in Spain, 77% in Mexico, and over 50% in both cases of our deposits are insured in both countries. Finally, we are very comfortable in terms of our liquidity coverage ratios and levels. LCR is 161% in Spain and 188% in Mexico. Moving to slide number 10, we continue showing positive jobs at the group level, thanks to the good performance of gross income, growing 32.7% in the first quarter. And the costs are growing 25.7%, mainly due to the impact of high inflation, hyperinflation countries. On the right side of the page, you see our efficiency ratio, the best compared with our European beers. It is further improving, 43.3%, from the point of 45.8% last year. Excluding the extraordinary banking tax, by the way, we highlighted in the page that if you exclude the extraordinary banking tax, the ratio would have improved to 42%. Slide number 11. In this page, you see the asset quality metrics. They remain stable and within guidance in an environment of high market volatility and in a context of sound activity growth. First, on the left-hand side of the page at the top, we see impairments decreased in the quarter and remained in line with the pre-pandemic levels. This results in a cost of risk of 105 basis points at the bottom of the page, again in line with our expectations of cost of risk around 100 basis points as we have guided you in the past in 2023. On the right-hand side at the bottom, NPL ratio, it continues to decline, fueled by recoveries and repayments, especially in Turkey and some write-offs in Spain. The coverage ratio on the same chart remains high, about 80%. Going to slide number 12 on capital, our CT1 as of March stands at an extraordinary level in our view of 1313, well above our SREP requirement. This figure represents an excess of capital versus the upper range of our target. As you know, our target is 11.5 to 12. If you take the upper end of 12%, this number implies that we have an excess capital of around 4 billion euros. First, on the left of the page, you can see the December 2022 CT1 pro forma at 1280. As we have anticipated to you when announcing 2022 results, there is a positive one-off in January 2023 due to a release generated by the reversal of the MPL backstop deduction, and that was 19 basis points. Now, turning to the waterfall, our results generation that contributes 54 basis points to the ratio. Second, the dividend accrual and the 81 coupon payments, which we do at 50% of the dividend accrual, all in detracting 29 basis points. Third, 23 basis points from the RWA's bucket. And fourth, the market impacts, they add 12 basis points to the ratio. And last, there's a bucket of others, 19 basis points, mainly due to the credit in the OCs that offsets the debit in the P&L bucket due to the net monetary position. for hyperinflationary accounting countries, higher minority interests, all in all, more than offsetting 20 basis points negative impact due to the various and all of the regulatory impacts that we were expecting for 2023. So all of the regulatory impacts that we were expecting, 20 basis points, is already factored in to these numbers. Then page number 13, new customer acquisition. We remain focused on profitable growth. And as I keep telling you, the most healthy way of growing the balance sheet is through growing our franchise of clients. In the first quarter of 2023, we have acquired 2.6 million customers, doubling the client acquisition that we had five years ago. Although you can see some flattening here, this is an impressive figure, taking into account this effort has been quite negatively impacted in Turkey due to earthquakes, which we basically paused our marketing efforts for a month and a half, and due to Peru and some of the problems, social problems that we were having there in the country. Even more impressive in my view in this page is the share of those acquired through digital channels, which increased to 64% versus the 11% in 2017. Turning to slide number 14, our commitment to sustainability. Basically, we are accompanying our clients and supporting their sustainable transition. We have already channeled 150 billion euros since 2018, and in this first quarter, almost 14 billion euros, continuing the strong trend of the recent quarters. Therefore, we remain aligned with our increased target of channeling cumulative 300 billion euros to sustainability by 2025. During the first quarter of 2023, we have continued to extend the business of sustainability to all the customer segments. On the right side of the page, you see some new functionalities in our retail banking app in Spain, such as the financing of the acquisition of hybrid or electrical vehicles, and also financing energy efficiency measures for buildings, which has grown by 26% and 50%, respectively, compared to the same quarter of the previous year. All in, we are trendsetters in sustainability. We maintain the top-ranked European bank position in the Dow Jones Sustainability Index. We see this as a business opportunity, and as you see in the numbers, we are delivering on that. Page number 15, I also would like to highlight our positive impact on society on this page. With our primary activity of lending, we continue to help our clients. We help them achieve their life and financial goals. As I mentioned before, in this first quarter, we have increased the total lending almost 10%, 9.8%, compared to the same period last year. This implied, so it sounds like a very high-level one figure, but this implied that we have helped more than 34,000 families buy their homes. We have financed the growth of more than 130,000 SMEs and self-employed individuals, and more than 70,000 larger corporates. Thus, we are promoting employment, investment, and welfare in the society with our core function. This quarter, we have also mobilized 3.3 billion euros to finance inclusive growth initiatives, including social infrastructures or social mortgages. And finally, slide number 16, on our long-term targets announced in the investor day. I will again choose to not go into each one of them for time purposes, but I can say that we are on the right path to achieve them all, as you can see on this slide. Also, very important, I would highlight on this page that given the excellent performance that we have been having, we are in the process of improving, upgrading some of our long-term goals. These goals were for a three-year planning period of 2021 to 2024. We will be in the middle of the planning period in June, June this year. So in the coming quarter, quarters, we will be announcing some improved targets for this planning period. And now for the business areas update, I turn it to Rafa. Rafa?

Thank you, Honor. Good morning, everyone. As Honor anticipated, we are pleased to share with you a very good start of the year with very solid operating trends across the board in activity, spreads, efficiency, results, and capital. Therefore, in a specially volatile quarter, we can say that the strength of our franchises and the soundness of our business model have been confirmed once again. Going to page 18, let's start with Spain, who is presenting an outstanding quarterly set of results. In loans, the total portfolio remains flat, affected by the leverage of the mortgage book due to early repayments. However, positive growth trend continue in consumer and commercial segments, despite quarter seasonality. As already mentioned by Honor, we have not seen any unusual trend in deposit behavior in the first quarter of the year. Quarterly evolution is driven by seasonality, the already mentioned debt repayments, and higher demand for off-balance sheet products. No meaningful transfer from site to time deposit has taken place in the quarter. In terms of P&L, very solid dynamics in core revenues lead to an outstanding recurrent pre-provision profit figure close to 1.2 billion euros after excluding the new tax banking tax in Spain. NII growth accelerated in the quarter, levering on a continued repricing of the loan portfolios. On the deposit side, pressure on deposit remuneration remains contained, and there is still an excess of liquid in the market, and loan growth is limited. In fact, in the retail segment, deposit beta remains very low. Given this performance, we feel confident and rise our NII growth forecast guidance for 2023 to around 30%. In fee income, also sound trends back up on positive growth across products and segments in the quarter. All-in efficiency ratio improved to 43.6% driven by revenue growth. On the asset quality side, underlying trends remain within our expectation. The cost of risk stands at 27 basis points in the quarter, which I would say reflects properly the underlying credit performance of our portfolios. Overall, a very strong quarter for Spain, slightly overshadowed by the deduction of the new banking tax. Slide 19, Mexico. Activity dynamics remain very solid, leading to sound loan growth bias towards segments in which we see more value, further improving our asset mix. Going forward, we expect the loan portfolio to continue growing nicely, driven by a sound labor market and a resilient manufacturing sector. Near-shoring is a phenomenon that we are following closely, and in fact, we believe it will continue being an additional source for demand for credit in the future. Moving to the P&L, fantastic quarter in Mexico, with net income close to 1.3 billion euros and core revenue being the main driver of the P&L. Very solid trends on NII are maintained, driven by long growth and successful customer spread management. In the coming quarters, in a context in which Banxico tightening cycle is about to come to an end, we should expect NII evolution to be increasingly driven by activity and effective pricing policies. Given that view, we have decided to review our NII guidance to grow at high teens. Regarding expenses, performance is driven by activity dynamism, inflationary pressures, and our commitment to continue investing in the country to take advantage of growth opportunities. In any case, here the key indicator for us is the operating jaws. We remain firmly committed to showing positive jaws, as has been the case so far. Finally, on risk metrics, a very solid evolution. NPL ratio improved to an all-time low of 2.3%, thanks to long growth and strong recoveries. Coverage level increased to 137%, while the cost of risk stands at 288 basis points in line with the figures of the first quarter of 2022 and within guidance. All in all, fantastic results from a leading franchise operating in a market with high growth potential where we will continue investing to further strengthen our leadership. Regarding Turkey, on page 20, in the current macro environment and given regulation, we are pursuing a prudent approach. The balance sheet management is our main priority. We expect to better position for a shift in the monetary and financial conditions, preserving ample liquidity and capital buffers. In this regard, we have been decreasing the duration of our loan portfolio in Tarkis Lira and have already sustainably reduced our exposure to foreign currency loans and our wholesale funding, being this foreign currency portfolio very well provisioned. Moving to the P&L, NII evolution is affected by the above-mentioned strategy and regulation in place, while contribution from fees and net trading income remains solid. In terms of asset quality, risk metrics continue to improve, significantly declining in the NPL ratio thanks to strong wholesale recoveries at low entries, and the cost of risk remains well contained while we continue increasing our coverage level. Going forward, as you know, the macro outlook in Turkey remains highly uncertain ahead of the elections in May. And finally, moving to South America, in page 21, the region maintains a solid performance in terms of revenue, driven by the NII as the main driver of the P&L in the first quarter of 2023, supported by positive activity trends, a better loan mix, and a higher customer respect in all geographies except Colombia. sound fees mainly related to credit cards and payment services, and efficiency continues improving to 45.4%. While risk metrics remain solid, broadly stable NPL ratio year-on-year at 4.3%, and sound coverage levels close to 100%. All in, net profit in the region exceeds 180 million euros in the quarter. And now back to Honor, that is going to highlight the main takeaways of the quarter.