Banco Bilbao Vizcaya Argentaria S.A.

Good morning and welcome everyone to BBVA second quarter 2023 results presentation. As in previous quarters, I'm joined today by Anur Ghent, 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. And now I turn it over to Anur.

Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining our second quarter 2023 results audio webcast. Before going into the presentation, as you already know, yesterday we have announced that Rafa, who's sitting next to me here, after more than three decades, three decades of a brilliant career at BBVA, he's going to be leaving his CFO position and executive responsibilities as of September the 1st. Rafa has been clearly one of the very important contributors to the success of BBVA. He will continue to be connected with the bank in non-executive responsibilities. But before we start, I want to extend my heartfelt congratulations to Rafa in his last results presentation. And I think that's a positive, no, Rafa? Very good. In terms of the results, let me start with slide number three. On the left-hand side of the slide, you can see our net attributable profit. reaching 2 billion 32 million euros. I would like to highlight that we are posting another record of quarterly results, passing for the first time the 2 billion euro mark that is also 11% above the results of the same quarter of last year. These results bring our earnings per share up to 33 euro cents, 13% year-over-year growth, a higher growth rate than the one of net attributable profit due to the share buyback programs that we have been executing. The graph on the right-hand side of the slide, it shows our capital ratio at 1299 above our target range and well above our regulatory requirements. Page number four, our tangible book value per share plus dividends. It continues the outstanding evolution of previous quarters with a 15% increase year over year and 2.3% growth in the quarter only. And regarding profitability, on the right-hand side, we continue to improve our excellent profitability metrics, reaching in the first half of the year 16.9% in Rote and 16.2% in Roe. These are being the highest figures of the last 10 years. With these figures, we remain clearly one of the most profitable European banks, and we keep advancing on this every quarter. Moving to slide number five and focusing on the second quarter results, this is the summarized P&L, and you see the year-over-year comparisons here, especially the second column from the left in the table. What stands out is the impressive 38.8% year-over-year increase in gross income and 54.6% growth in operating income, which then obviously explained the net attributable profit growth of 35.3% in constant euros, excluding the non-recurring impacts. In terms of the quarterly evolution, on the right most columns on the table, net attributable profit increased both in constant and current terms, 30.5% and 10% respectively versus the first quarter of this year, quarter over quarter evolution. Slide number six, this is the first half, the six months. Again, comparing 2023 versus the same period of last year. Once again, I would highlight positive gross income evolution, 35.2% growth in constant euros, led by the increase in NII, 39%. Also, great fee income performance, different from our competitors, growing 13%. All in, the strong gross income growth coupled with the positive jaws and also the solid underlying risk metrics, it leads to an outstanding recurrent net attributable profit of 3.9 billion euros and excluding non-recurring impacts, this implies 35% growth in constant euros and 23% in current euros the first six months. Slide number seven. Some light into the revenues breakdown and quarterly evolution. We very much like the trends here. We call them the chimeneas in Spanish. They are good trends, very good trends. And as you can see, net interest income growing strongly 38% versus last year, 9.4% compared to last quarter. Solid activity growth, clearly, but also to a larger extent, customer spread improvements. Second, the positive evolution of net fees and commissions, increasing 11% year-on-year and 7.9% versus last quarter. Again, payments, asset management, transactional businesses, all of them helping here in a major way. Net trading income is driven by the evolution in global markets and the FX hedges that we do. All in all, excellent growth in gross income. The one at the bottom on the right, 39% year-over-year growth and 15.6% quarter-over-quarter growth in gross income. Moving to slide number eight, let me focus a bit more on Spain and Mexico, also highlighting our conviction of continued revenue growth in the coming quarters in those two core geographies. On the left side of the slide, you can see the strong long growth in the most profitable segments in both Spain and Mexico. In both Spain and Mexico, you see very healthy growth in the key portfolios that we have. Then on the second block from the left, You see the ongoing improvement in the customer spreads for both countries. In the case of Spain, it has increased during the last year to 312 now. And for Mexico, customer spreads, they continue to increase in a gradual but very consistent manner, reaching 1193 this last quarter. As a result, you can see the strong NII growth year-over-year in both countries. Second block from the right, you see that 51% growth year-over-year in Spain and 24% growth in Mexico in constant euros. Regarding the slide, Quarter over quarter NII decline in Mexico. I also saw some notes from some of you on this. It's a reflection of two things, basically. It's a very deliberate thing that we have been doing. But first, we are promoting off-balance sheet customer funds as an alternative to time deposits. As such, boosting fee income while containing the deposit costs. And second, as again you can see in the appendix of our presentation as well, we do have a larger ALCO book in Mexico, locking in higher rates for longer in anticipation of a lower rates scenario. So we have been doing this. As a result, this strategy... which we believe has brought a lot of value to us in the quarter and beyond. But this strategy implied higher wholesale funding costs in the quarter. But having said all of this, as you can see in the slide, sound underlying trends in core drivers for Mexico's NAI activity and customer spread. And as a result, we expect to continue growing NAI and our core revenues in the coming quarters in Mexico. Finally, on the right-hand side of the slide, coupled also with the strong underlying trends in payments, and as I just mentioned, net positive inflows to off-balance sheet products in both countries, it is leading to higher asset management fees. And as a result, you can see the fee revenue growth quarter over quarter very healthy in both countries. Slide number nine, we continue showing positive jobs at the group level. Good performance of gross income obviously is helping, 35.2%, as we mentioned, while the costs are growing 21.6%, mainly due to the impact of high inflation countries. On the right-hand side of the slide, you can see our efficiency ratio, which shows an outstanding, in our view, outstanding improvement to 42% from 46.7% of last year. And we clearly remain as one of the most efficient European banks out there. Slide number 10. In this page, you can see that the set quality metrics, they are within guidance and they show stability in a context of sound activity growth and higher interest rates. First, on the left-hand side of the page, our cost of risk, it decreases slightly to 104 basis points and remains in line with our expectations of cost of risk around 100 points in 2023. Our MPL ratio is at 3.4% on the right-hand side, slightly higher quarter over quarter, while decreasing, obviously, versus the same period of last year. And the coverage ratio on the same chart remains at 80%. Slide number 11, on capital, our CET1, as of June, remains at a very sound level and well above our SREP requirement and our own internal target. And turning to the waterfall in the page, the main impacts of the quarter are, first, very obvious on the page, but 58 basis points on the results generation. Second, again on the waterfall, I'm running from left to right, the dividend accrual and the 81 coupon payments all end attracting 31 basis points. Third, 26 basis points due to RWA's growth. More than half of this, 14 basis points, was in Mexico. All of this growth, as you can imagine, will result in even more capital generation in the coming quarters. And lastly, a bucket of others of minus 15 basis points. This bucket is more negative than usual this quarter, mainly due to the exceptional Turkish lira devaluation. The direct impact from the significant is 26% quarterly depreciation of Turkish lira. As we have guided you last time, the direct impact was limited for basis points. Why? Because we have done a significant hedging here before the elections. That strategy worked and we did save capital as compared to an otherwise very low hedge scenario. However, these hedges, they come at a cost and which in the last months has been particularly high and volatile in Turkey, as you can imagine. The cost of the hedges Plus, the reversal of the mark-to-market gains of those hedges that we have booked in the first quarter has led in total to 13 basis points, rather idiosyncratic, I would call, quarterly impact in our CET1 ratio. Combined with the direct impact, the total 17 basis points total impact due to Turkish Lira devaluation, basically. Having passed this significant devaluation, we now returned back to normal hedging levels in July. And as you can see, beyond this, apart from this, the rest of the impacts of this bucket roughly offset each other. Finally, at the bottom of the page, as we announced this morning, you see our plan to do an extraordinary share buyback program of 1 billion euros, subject to regulatory approvals, obviously. In the last two years, in the form of dividends and share buybacks, we have already returned 8.2 billion euros to our shareholders. We have underscored our commitment many times in these calls and beyond to profitable growth and attractive remuneration to our shareholders, again, many, many times before. In our view, this is yet again another representation of our delivery and of our consistency in delivering our messages as well. This program, as the name says, is an extraordinary distribution and is therefore not included in the scope of the ordinary distribution policy, and we will start the execution as soon as we receive the supervisory approvals. As you have seen in the previous pages, we are already a 17% Rota bank, 15% year-over-year growth in tangible book value per share. With such metrics, you can be sure that we will continue to create value and we will continue to share that value with our shareholders. Page number 12, some pieces around our strategic progress, new customer acquisition. Again, we discussed it many times before, but we believe that the most healthy way of growing the balance sheet is through growing our franchise of clients, customers. In the first half of 2023, another record, we have acquired 5.4 million customers, doubling the client acquisition that we had five years ago. And even more impressive in this page is the share of those acquired through digital channels, which increased to 65% in the first six months. It was 11% in 2018. And we do think that this is the key difference versus most of our competitors out there. Slide number 13, our commitment to sustainability. We are accompanying our clients and supporting their sustainable transition. We have reached a new record this quarter, channeling 19 billion euros in sustainable business, a total of 169 billion since 2018. Therefore, we remain committed with our increased target of channeling cumulative 300 billion euros to sustainability by 2025. On the right side of the page, you can see the results of our effort to extend this business of sustainability to all of our customer segments. We are starting to see the results of our specialist teams, of our expansion in the sustainable products catalog, and we are seeing the growth not only in a certain segment, but in all segments, especially in enterprises and retail segments, you see a very significant growth this quarter, this quarter and this half of the year. Slide number 14, as I did last quarter, I would like to highlight, this is an important page, I would like to highlight our positive impact on society. And it's our core business. With our primary activity of lending, we continue to help our clients achieve their life and financial goals. In the last year, we have increased our loan book by 8.4%. This implies, it's a very high level number, but this implies, for example, that we have put some examples there. In the first six months of the year, we have helped more than 70,000 families buy their homes. We have financed the growth of more than 263,000 SMEs and self-employed individuals, and more than 70,000 larger corporates, and through this, promoting employment, promoting investment, and promoting welfare in the society. Year-to-date, you also see on the right-hand side of the page, we have also mobilized 7.4 billion euros to finance inclusive growth, as we call it, initiatives, including social infrastructures, social mortgages, or financing entrepreneurs. And finally, slide number 15, regarding our long-term targets announced on the investor day. First good news to note here is that on all the metrics, all the metrics, we are well on track to realize them. Second, as mentioned in our previous quarterly call and as we are in the mid-period of our three-year strategic plan, We wanted to give you a better guidance on how we expect to fare at the end of the planning period with an upgrade of our expectations. So on the page, from left to right, from top to bottom. So from cost to income, a slight improvement is expected versus the original goal of 42%, as you see in the page. For Rote, we believe that we will reach high teens as compared to our original goal of 14% in 2024. For tangible book value per share plus dividends, we expect to reach mid-teens versus our original goal of 9% average annual growth between 2021 and 2024. Target customers, we expect to be 40% to 50% above the original goal. And for sustainable business, where we have already improved our goal twice, we expect our performance to be aligned with the latest upgraded goal. Therefore, according to our current best estimate, and in the absence of a very exceptional situation, the key message in this page is that we expect to comfortably beat all of our original goals. And now for the business update, I turn to Rafa. Rafa? Rafa?

Thank you. Thank you, Honor. Good morning, everyone. As Honor anticipated, we are very pleased to share with you a very good set of results. We are delivering very solid operating trends across the board and excellent progress in the different goals of the business units. Our organic profitable growth strategy remains well on track in all the geographies, with some momentum in those products and segments where we see the greatest value. Starting with Spain, slide number 17, we continue seeing very positive dynamics. In terms of activity, loan growth continues to be driven by sound dynamics in the most profitable segments, consumer and SMEs, where we are consistently gaining market share. In the mortgage portfolio, early repayments remain high, leveraging the portfolio despite the sound new lending inflows. In terms of P&L, we are showing a very strong pre-provision profit growth with core revenues as the main drivers of the P&L. NIA growth step up in Q2, leverage on improving customer spread. The repricing of the loan portfolio continues while the deposits pass through in the retail segment is non-material, keeping the cost of deposit well contained. As of today, we are not facing much pressure on deposit remuneration, which leads us to upgrade our NII guidance for 2023 to grow between 40 to 45%. Also, I would like to highlight the positive underlying dynamics on fees. Some contribution from the asset management business backed by strong net inflows and higher credit card fees. Efficiency ratio continues to improve to 41.8% as of June, given the highly positive jaws of the geography. And finally, on the asset quality side, underlying trends remain stable and within our expectation. Year-to-day cost of risks stand at 27 basis points with no major changes in the quarter. Overall, another very positive quarter for BBVA Spain, increasing, I would say, normalizing history of contribution to the group results. Slide 18, Mexico. The economy in Mexico is performing better than expected, showing a very strong employment momentum, supporting activity growth and asset quality metrics. The loan portfolios continue to show a very positive evolution in the quarter, worth mentioning the 5% quarter-on-quarter growth in most profitable segments, consumer loans, credit cards, and SME. On the P&L components, once again, a very strong quarter in Mexico. Net attributable profit at record levels exceeds the 1.3 billion euros mark, with core revenues reaching plus 26% year-on-year growth. Solid trends on NII are maintained leverage on productivity growth above 11% year-on-year and the further improvement of customer spread. As you know, activity and effective pricing policies are the main drivers of our Mexico NII. These trends make us much more confident about our NII guidance to grow at high teens. I would say even close to 20s in 2023. outstanding fee growings above 20% year-on-year with sound growth across the board, highlighting credit cards and payment fees, and the increasing contribution from the asset management and insurance businesses. Efficiency ratio stands at very low levels of 30.4% as of June, as revenues continue to grow well above the expenses. Finally, asset quality trends remain in line with expectations and with our portfolio growth strategy. Cost of risk remains stable at 286 basis points. NPR ratio stands at very low levels in the quarter of 2.5%. and with a sound coverage ratio close to 130%. All in, Mexico continues delivering extraordinary results quarter over quarter. Regarding Turkey, in slide 19, after the election in May, we are seeing steps toward more orthodox economic policies. Rates hiked by 900 basis points. We have seen some easing of regulatory measures in the banking sector, and currency interventions have decreased. In anticipation of this change in policies, we have continued decreasing the duration gap of our total balance sheet in Turkey's lira to only two months, 61 days. In the first half of the year, net income in Turkey reached 525 million euros, that represents or implies a 10% decline in the quarter, negatively impacted by a strong currency depreciation since March 23. Beyond the FX evolution and looking at the key operating trends in the quarter, we can see that the customer spreads in Turkey and Lira remain under pressure as regulations in place continue to stress deposit rates while maintaining caps on lending yields. In this context, guarantees managing to offset the pressure on customer spread with a strong performance in fees, especially from payments and credit cards, and also very strong net trading income. Asset quality continued to improve in the second quarter of 2023, thanks to strong recoveries in the commercial segment and still limited NPL entries in retail. As a result, the cost of risk in the first half of 2023 stands at a very low level of 23 basis points. And finally, South America. The region continues showing positive activity trends supported by growth geared towards retail portfolios. Positive trends in core revenues and the higher contribution from net trading income drive net income growth. This is partially offset by inflationary pressures on expenses and higher impairments. Nevertheless, efficiency continues to improve to 44.8%. Higher provisioning needs coming from the retail performance in all the euro fees lead us to review our cost of risk guidance for the region to around 225 basis points in 23 from the previous guidance of 200. All in, net profit in the region almost reached 370 million euros in the first half of the year. And now, back to the owner who is going to highlight the main takeaways of the quarter.