Banco Bilbao Vizcaya Argentaria S.A.

Good morning. Welcome and thank you for joining BBVA's fourth quarter earnings conference call. With us today are Anur Ghent, our CEO, and Luisa Gomet Bravo, the group CFO. After the speaker's remarks on the group's results and our expectations for 2024, we will open a live Q&A session. Now, I turn the call over to Anur.

Thank you, Patricia. Good morning to everyone. I'll jump into it right away, starting with page number three. By highlighting the acceleration of our profitable growth strategy in the year, as the title says. First, I want to highlight that the best way that we can contribute to our stakeholders and the society in general is through our activity of lending, our activity of banking business, and through growing our business. In that sense, We have increased our loan portfolio by 7.6% this year, and we have acquired more than 11 million new customers. Second, from the top, the financial results that we see today are the outcome of the significant progress in the execution of our strategy. In 2023, 79%, obviously, a record of our unit sales were done digitally. And we also continue at the front line of the industry in sustainability. In 2023, we channeled 70 billion euros in sustainable business, again, an all-time high. Third, we have achieved the highest annual net attributable profit ever, over 8 billion euros, an increase of 22% versus 2022, which translates into a 27% increase in earnings per share. Fourth, we continue delivering on our commitment to value creation for our shareholders with return on tangible equity at 17% and an exceptional 20.2% increase of tangible book value per share plus dividends. All of this is allowing us to significantly increase distributions to our shareholders for a total amount of €4 billion, which is equivalent to 68 euro cents per share, increasing payout while at the same time our CET1 ratio remains comfortably above our target. These highlights are what I would be expanding upon in the coming pages, but just to reiterate the common theme in my view of all the numbers in this page is that we continue growing and we are growing in a profitable way. Moving to slide number four, our positive impact on society. We continue to help our customers achieve their life and financial goals. We have increased our loan book, as I mentioned, by 7.6% in the last year. It's a very high level number at the top, but this implies, for example, that during 2023, We have helped more than 140,000 families buy their homes. We have supported more than 550,000 SMEs, self-employed individuals, and around 70,000 larger corporates in financing their growth, financing their business. In terms of transactionality, we have more than 20 million payrolls collected by our clients on a monthly basis. As we grow our activity, we promote employment, we promote investment, and we promote welfare in the society. Moving to page number five, new customer acquisition, one of our important pages. And as we keep reiterating, expanding our customer base will allow us to continue growing our business in a healthy way, in a profitable and healthy way. And with 11 million gross new active clients in 2023, We have grown to more than 71 million active clients in 2023. And even more impressive is the share of those customers acquired through digital channels, which increased to a new record of 65% in 2023. And I do think that this is our key difference. The way that we acquire customers through digital channels is our key difference versus most of our competitors out there. On slide number six, our leadership in digital, it has proven to be essential and differential in serving our customer base as well. On the left hand side of the slide, we have surpassed 52 million mobile customers. a figure more than twice of that in 2018, and a record high 74% penetration rate. At the same time, our digital sales, it has reached 79% in terms of units and 63% in terms of value. Again, one of the best, if not the best, in our industry. This leadership in digital, it has also translated into a higher client satisfaction. As you can see in the right-hand side of the slide, the Net Promoter Score, it continues improving in the group with clear leadership positions across the main countries of our footprint. Slide number seven, a message that again defines 2023. We continue growing, outperforming our peers. Our competitive advantages like our digital strategy and our globality, it has supported our long growth as you see on this page. And as you see in the bubbled numbers, In every single country, we have gained market share in total loans. And if you observe the trends of the last few years, because you have five years in this chart, we are gaining market share, especially in those highly profitable segments that we wanted to grow. I mean, consumer credit cards and businesses, private businesses across our footprint. Turning to slide number eight, sustainability, as I said many times in the past, it's an incredible, sustainability is an incredible business opportunity, and we are trendsetters in this area. As you can see in this page, we accelerated in mobilizing sustainable business volumes across segments, and we set a new record with more than 70 billion euros channeled in 2023, and a total of 206 billion euros since 2018. We maintain the top-ranked European Bank position in the Dow Jones Sustainability Index as well for the fourth year in a row now. Moving to slide number nine, as you can see on the left-hand side of the page, we have established clear portfolio alignment targets in key CO2-intensive industries for 2030. so that we get to net zero by 2050. This last quarter, we have included targets in two more sectors in the list, aviation and shipping, as you can see. And during 2023, we have started tracking our performance against these targets and included the degree of portfolio alignment as part of the compensation of those employees who have long-term variable remuneration. And as you can see in the chart on the right hand, starting from 2022, the baseline, we have already managed to reduce the emissions in the top six sectors by 19%. Slide number 10. From this slide on, I'm going to walk you through the financials. First, net attributable profit. As I mentioned, it set a new record. In the bars at the center of the slide, you can see the upward evolution of our annual results. Wonderful trend in my view. 2023 has been an outstanding year, with profits at 8 billion 19 millions, 22% higher than the 6.6 billion recurring net profit of 2022, which was already an exceptional figure. These results bring our earnings per share up to €1.32, an increase of 27% year-over-year, higher than the growth of the net attributable profit, thanks to the share buyback programs that we have been executing. Moving to slide 11, our tangible value per share plus dividends, it continues to show an outstanding evolution. Beyond the excellent figure of 20.2% year-over-year growth in tangible value per share plus dividends, We wanted to remark that in the last five years, our tangible book value per share plus dividends increased by 68% despite COVID. Despite COVID, 68%. This growth, in my view, is one of the most impressive figures in this presentation. And regarding profitability, we continue to improve our excellent profitability metrics, reaching 17% in ROTE and 16.2% in return on equity. Moving to slide number 12, the best measure of our performance is the one where we compare ourselves to competitors. Obviously, this is how we live with it in the bank. We breathe this competitive success. In all the key financial metrics, we have done better than our competitors. One more year, we remain clearly one of the most value-creating, most profitable, and most efficient European banks out there. Moving to slide number 13, this is a summary of the pages to follow where I will talk to you about the P&L. I will talk to you about revenue growth, costs, asset quality, and capital. So let me jump into it on page number 14 on P&L. I would like to highlight the excellent evolution of gross and operating income, growing 19% and 20% in current euros, respectively. Slide number 15, the P&L for the fourth quarter. I will not stop long here, as the strong depreciation of the Argentinian peso in December has affected the comparisons for the quarter in both current and constant euros. However, all in all, in the fourth quarter, Despite the negative seasonality of the fourth quarter marked by the annual deposit guarantee scheme contributions, as you know, especially in Spain, we have reported once again at the bottom line a net attributable profit above the 2 billion mark in current euros. Slide number 16, let me focus a bit more on the revenue growth in our two core markets of Spain and Mexico. On the left-hand side of the slide, you can see the strong long growth in the most profitable segments in both countries, especially Mexico. In the center of the slide, you can see the evolution of customer spreads. In the case of Spain, the improvement continued in the last quarter of the year, with spread reaching 342. And for Mexico, customer spread is at 1167, a solid year-over-year increase, although reducing versus last quarter, explained by two reasons, two very straightforward reasons. First... Lower yields on loans due to some seasonality with the impact of the holiday period campaigns at the end of the year, especially obviously in credit cards. And second, switching from expensive wholesale funding, expensive market funding, to grow volumes in deposits from customers. This is financially neutral on NIM, but it obviously affects the customer spread. The result of all, you can see on the right-hand side of the slide, the core revenue growth year over year in both countries, 32% growth in Spain and 12% growth in Mexico in constant, and also the growth on a quarterly basis in both countries. In core revenues, some of you have been asking about the peak. When are we going to reach the peak? As we have been commenting in the past, and as this page also shows, Due to the continued spread improvement in Spain and the strong volume growth in Mexico, we believe we will continue to post healthy core revenue growth in 2024. Slide number 17, on costs, I would highlight the fact that, once again, we end the year with positive jaws, with gross income growing about 30%, clearly more than the costs, at 19.7%, which is affected mainly by the high inflation rate in some of the countries of our footprint. Also, you can see on the right side of the page, our efficiency ratio, one of the best among our European peers. It further improved to 41.7%. Slide number 18. In this page, you can see that the evolution of our asset quality metrics, it remains in line with our expectations in the context of the activity growth in the most profitable segments, as we have been saying, and also the higher interest rates. First of all, on the left-hand side of the page at the bottom, you see the standalone cost of risk in the fourth quarter remained at the same level as the ratio in third quarter. And this derives accumulated cost of risk to 115 basis points year to date, so some stability quarter over quarter. And the yearly number is 115 basis points, as we have guided you in the last quarterly call. As such, this is in line with our expectations. And there are two trends here that we anticipated to you last quarter. Once again, the mixed effect. as activity growth is biased to highly profitable but higher cost of risk retail segments and emerging market geographies. And second, a gradual deterioration of the macro environment in South America. Then, on the page, the MPL ratio on the right, it remains stable in the year-over-year comparison at 3.4%, and our coverage ratio slightly reduces to 77%. Slide number 19, on capital, our CET1 fully loaded ratio as of December 23 remains at a very strong level, 1267. Needless to say, this level is well above our target range of 11.5 to 12%. Following the waterfall, main impacts of the quarter are First, our strong results generation that contributes 57 basis points. Second, the dividend accrual and the 81 coupon payments all in, attracting 32 basis points. Third, 36 basis points for RWA growth, a figure that embeds some annual catch-up this quarter for operational risk, as capital for operational risk is a function of the gross income, which showed a better-than-expected performance, as you all know. And last, the bucket others of five basis points, positively impacted by the credit in OCs coming from the hyperinflationary countries and the good performance of the hold to collect and sale bond portfolios. The combined effect, more than offsetting the negative postings, to highlight the Argentinian peso devaluation this quarter and some higher than usual model update impact. At this point, and in a full year view, let me stress that, once again, our ability to generate organic capital has allowed us to keep financing the desirable profitable growth, to significantly remunerate our shareholders with an increasing momentum, and an extraordinary share buyback of 32 basis points, as you know, 1 billion euros, and still showed a year-end C to 1 ratio well above the upper part of our target range. Regarding shareholder compensation, next slide, slide 20, As we have again repeatedly stated, we have a clear focus, clear focus on value creation for our shareholders. which guides all of our decisions, everything in the bank. In this regard, and in line with our payout policy, I'm very happy to announce that the proposal to be sent to the next annual general meeting, it contemplates the distribution of a total amount of 4 billion euros for 2023, equivalent to a 50% payout at the maximum end of our distribution policy, and obviously above the 47% payout of last year. This payout is equivalent to a total shareholder remuneration of 68 cents per share. It's split into two, a total cash dividend of 55 euro cents, which is 28% higher than last year in cash dividends, which implies 39 euro cents per share to be paid in April, April 24, complementing the 16 euro cents per share interim cash dividend that we already distributed last October, October 23. In addition to the cash dividend, we will be proposing a new share buyback program of 781 million euros, equivalent to 1.6% of BBVA's market cap, including this new payout. In total, the shareholder distribution would be 13.2 billion since 2021, 5 billion of that from the results of 2023, including the 1 billion extraordinary share buyback that we did in 2023, And in terms of share buyback programs, and assuming yesterday's market price for the execution of the 781 million of the share buyback, we would have reduced BBVA's total outstanding shares since 2021 by 14%. And finally, slide 21 regarding our long-term targets announced on the investor day. Let me not go into each one of them for time purposes. But on all the metrics, we are well on track to realize our upgraded expectations, clearly, clearly beating all of our original goals. And now for the business areas update, I turn it to Louisa. Louisa?

Thank you very much, Honor, and good morning, everyone. Starting in slide 23 with Spain, in 2023, we truly believe we have delivered an outstanding year in Spain. In a context of strong competition, we have demonstrated our commercial strength and digital lead, with loan origination growing by 10% year-on-year, achieving important market share gains in all portfolios. As such, despite lower demand from credit in the system, our loan book deleverage remained contained, stable over the last two quarters. In terms of P&L, NII stands as the main engine for revenue growth. NII accelerated throughout the year, achieving a 48.9% growth levered on high rates, effective price management, and ultimately ongoing customer spread improvement, increasing 128 basis points year-on-year. In a context of higher rates, we have successfully managed to limit the rate pass-through on deposit costs thanks to an effective customer funds management. This was achieved primarily by offering our customers seeking higher returns, mutual funds, which as you see grow 12% year-on-year, while benefiting from a highly transactional deposit mix supported by the acquisition of new customers, close to 900,000 in the year. In the last quarter of 2023, these trends remained. We continued benefiting from loan book repricing and from our sound deposit mix, with deposit costs well contained. In terms of fees, very sound dynamics in the fourth quarter across the board, but I would like to highlight the contribution from asset management, supported by strong net inflows in the year. In this particular quarter, this heading also includes the success fees coming from the portfolio's performance in the year. Turning to operating expenses, the increase in the quarter is explained by the final adjustment in annual variable compensation accrual, as earnings have exceeded expectations. All in, strong revenues in the year lead to an outstanding efficiency ratio below 40%, more than 7 percentage points below 2022. On the asset quality side, impairments in cost of risk evolution are aligned with our guidance. In short, another very positive quarter for BBVA Spain, leading to a record net profit close to 2.8 billion euros, the highest figure in the last 15 years. Looking forward, we remain very positive on Spain's performance for 2024. We expect NII to grow at mid-single-digit in 2024, as there is still some repricing on the loan book to come, and we expect a contained deterioration on the deposit costs. Expenses growth will slow down to close to 5 percent, as we still carry over 2023 effects, maintaining the efficiency ratio below 40 percent also in this year. Finally, our expectation for cost of risk in Spain is for it to stand at around 40 basis points, a quite contained level in the context of a still high interest rate environment. The start of the easing cycle will be supportive as the year progresses in terms of MPL entries. Moving on to Mexico in slide 24, I'd like to emphasize that we feel extremely positive about this franchise. The economy continues to outperform expectations with a strong labor market, resilient consumer demand, and positive news coming from nearshoring. Thus, the loan portfolio is benefiting from this momentum, growing close to 11% year on year. In the quarter, also positive dynamics have unfolded with retail portfolios remaining, while the wholesale segment is also gaining some pace, balancing a little bit the growth in the book. All in, one more year, we have outpaced the market, being able also to further strengthen our leadership position. As you know, we are the number one franchise in the country across the different loan segments. in the country. On the income statement, we continue to deliver on top line with core revenues growing by 20% year-on-year, bringing net profit to $5.3 billion in the full year 2023. Positive NII dynamics remain in the fourth quarter, supported by sound activity close to 3% growth geared towards retail. And looking forward, as we have been anticipating, loan growth will be the main driver for NII growth. high fees increasing by 24% year on year. To note, as in the previous quarters, the growth in credit cards and payment fees, along with an increase in contribution from asset management and higher fees from CIB. On the expense side, our main focus is to maintain an efficient operation while continue to invest to establish the basis for future growth. As it has been the case in Spain, expenses quarterly evolution is also affected by the final adjustment in the annual variable compensation accrual. All in, operating jobs remain positive in the year, leading to further improvement of the cost-to-income ratio to an extraordinary level of 30.7%. Finally, asset quality has performed within expectations, being consistent both with our strategy in the most profitable segments and with the tightening monetary cycle. All in all, the cumulative cost of risk stands below 300 basis points in alignment with our guidance. To sum up, Mexico continues delivering outstanding results quarter on quarter on the back of its indisputable leadership and structural strengths. These will allow us to maintain growing earnings going forward and continue outperforming our peers. More specifically for 2024, we expect the loan momentum to continue and the loan book to grow at double-digit pace. Based on this sound loan growth and our proven capacity to preserve spreads, we expect NII to grow at high single digits in 2024, slightly below activity growth. With regards to expenses, growth will slow down to high single-digit, preserving positive jaws. And on the asset quality side, we expect a moderate increase of cost of risk to around 325 basis points, consistent with our growth strategy in a context of still high rates, especially in the first part of the year. Moving on now to Turkey on slide 25. Turkey, with the gradual transition to orthodox policies, has started to surprise on the positive side, and particularly in monetary policy, a sign of the country's commitment to tackling inflation. Last week, we saw the policy rate reach 45%, still relatively low given high inflation, but already favoring capital inflows, international reserve buildups, and the Turkish lira. Looking at the performance of our franchise in the full year 2023, the net profit reached €528 million, in line with 2022, despite the very challenging environment we have been facing. The magnitude of the rate hikes during the year and the regulatory measures in place have put pressure on deposit costs and ultimately on spreads and NII. However, our franchise managed to offset these headwinds on the P&L through higher fees, mainly coming from payment services, brokerage and asset management, and higher net trading income thanks to a strong performance from global markets. Very low cost of risk as just 25 basis points due to low and net MPL entries in a negative real rate environment and strong recoveries and repayments in the commercial segments also unfolded. In 2024, Turkey's earnings contribution to the group could be similar to that of 2023 in a still challenging environment. This guidance includes an expected increase in the cost of risk to around 110 basis points in 2024 after an abnormally low level in 2023. Overall, we expect 2024 to be a transition year in which the basis for a more healthy, a more sustainable growth model is implemented in Turkey. Without a doubt, Guaranty is the best bank in the country with proven capacity to overcome short-term challenges and take advantage of opportunities going forward. Moving on to South America, on page 26, Finally, net profit amounts to more than 600 million euros in 2023. The region maintains a strong performance in total revenues. NII growth remains as the main driver for the P&L in 2023 in a context of long growth and the most profitable segments and improving spreads. Higher fees also and strong NTI supported the gross income growth of the year. Despite expenses being pressured by inflation, pre-provision profit growth more than offsets the increase in impairments due to higher provisioning in a quite challenging macro environment. All in, cost of risk ends up at around 250 basis points in line with guidance. For 2024, in an improving macro scenario in the region, we expect loan growth to be somewhat higher than 2023, and cost of risk to be around 280 basis points. Although we expect some inertia in the NPL influence in the retail segment, especially in the first half of the year, the easing monetary cycle across the geographies will be an important supportive factor for S-equality trends going forward. And now, back to Onur, who will highlight the main takeaways of the quarter and the outlook for 2024. Onur?