Earnings call: BBVA posts record Q1 profit, sees growth in key markets

BBVA (BME:BBVA) has reported a record net attributable profit of EUR 2.2 billion for the first quarter of 2024, marking a 19% increase from the previous year. The bank's earnings per share (EPS) rose by 23% year-over-year to EUR 0.36. The positive financial results are underpinned by BBVA's robust core operating income, which exceeded EUR 4.8 billion for the quarter.

The bank's capital position remains strong with a CET1 ratio of 12.82%, surpassing regulatory requirements. BBVA's strategic initiatives have yielded a significant customer growth, with 2.8 million new customers acquired in the quarter, 67% of whom were gained through digital channels.

The bank has also made substantial strides in sustainable business, channeling EUR 20 billion into this area with a target of EUR 300 billion by 2025. BBVA's performance is particularly notable in Spain and Mexico, where it expects further economic growth and market share expansion.

Key Takeaways

• BBVA's net attributable profit for Q1 2024 reached a record EUR 2.2 billion, a 19% increase year-over-year.
• Earnings per share grew by 23% to EUR 0.36.
• The CET1 capital ratio stood at a robust 12.82%.
• Core operating income was over EUR 4.8 billion for the quarter.
• The bank acquired 2.8 million new customers, with 67% through digital channels.
• BBVA channeled EUR 20 billion into sustainable business, aiming for EUR 300 billion by 2025.
• Positive performance and growth prospects in Spain and Mexico.
• BBVA expects double-digit growth in net attributable profit and raised its 2024 core revenue outlook.

Company Outlook

• BBVA is on track to meet or exceed its 2021-2024 strategic goals.
• The bank anticipates continued loan book market share gains throughout the year.
• BBVA plans to generate 50 to 60 basis points of organic capital annually and continue share buybacks as long as the shares trade below intrinsic value.
• The bank is open to M&A opportunities but remains focused on organic growth.
• BBVA sees a strong outlook for 2025, expecting growth in profits and returns to continue beyond 2024.

Bearish Highlights

• In Spain, NII is expected to be flat or slightly declining in 2025.
• The NPL coverage has decreased due to portfolio sales, particularly in Spain.
• A 100 basis point decline in interest rates could lead to a 5% NII decline in Spain, equivalent to a €300 million impact.

Bullish Highlights

• BBVA experienced exceptional results in Mexico, with net profit reaching EUR 1.4 billion.
• The bank reported strong growth in consumer lending and mortgages in Spain.
• BBVA expects double-digit loan growth in Mexico and positive dynamics in Turkey and South America.

Misses

• No specific details were provided about NII evolution in Turkey.
• BBVA did not comment on tax rates for different divisions and units for 2024.

Q&A Highlights

• The cost of risk in Mexico aligns with expectations, with 60% of P&L coverage for the year.
• BBVA expects to maintain positive jaws next year through revenue growth exceeding cost growth.
• The bank respects competition in Mexico, having gained significant new customers through digital channels.
• In Turkey, the government's measures to reduce inflation are seen as positive, with BBVA Research expecting a decrease in inflation from 65% in 2023 to 45% this year.

BBVA's ticker (BME: BBVA) reflects the bank's strong performance in the first quarter, with investors closely monitoring the company's strategic progress and market expansion efforts. As BBVA continues to navigate the dynamic banking landscape, its focus on digital customer acquisition, sustainable business, and robust financial metrics positions the bank favorably for future growth.

InvestingPro Insights

BBVA's recent financial report showcases a robust start to 2024, with significant gains in net profit and customer acquisition. To provide additional context to these results, let's consider some key metrics and insights from InvestingPro.

InvestingPro Data indicates a strong market position for BBVA, with a market capitalization of $65.48 billion, highlighting the bank's substantial presence in the financial industry. The bank's Price to Earnings (P/E) ratio stands at an attractive 6.72 on a last twelve months basis as of Q4 2023, which suggests that the stock is trading at a low price relative to its near-term earnings growth potential.

This is further supported by a PEG Ratio of 0.25 for the same period, indicating a potentially undervalued stock in terms of growth.

BBVA's commitment to dividends is noteworthy, with the bank having maintained dividend payments for 34 consecutive years. This consistency is a positive signal for income-focused investors, especially considering the impressive dividend yield of 5.76% as of the beginning of 2024.

InvestingPro Tips highlight BBVA's strong performance over various time frames, with a remarkable 67.65% return over the last year and a 36.69% return over the last three months, demonstrating the stock's upward momentum. Moreover, BBVA is trading near its 52-week high, currently at 96.31% of this peak, reflecting investor confidence in the bank's strategic direction and operational strength.

For readers interested in deeper analysis and more InvestingPro Tips, including insights on BBVA's gross profit margins and analyst predictions for profitability, visit https://www.investing.com/pro/BBVA. There are 11 additional tips available, offering a comprehensive view of BBVA's financial health and market performance. To access these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript - Banco Bilbao (NYSE:BBVA) Viscaya Argentaria SA (BBVA) Q1 2024:

Patricia Bueno Olalla: Good morning. Welcome, and thank you for joining BBVA's First Quarter Earnings Conference Call. I'm joined today by Onur Genç, our CEO; and Luisa Gómez Bravo, the Group’s CFO. As in previous quarters, Onur and Luisa will firstly discuss quarterly figures and then we will open the line to receive your questions. Thank you very much for your participation. Now, I’ll turn the call over to Onur.

Onur Genç: Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining BBVA's first quarter 2024 earnings webcast. Let's jump into it, starting with slide number three. On the left-hand side, you can see our net attributable profit reaching EUR 2.200 billion, showing another quarter of record results, obviously continuing the positive trend that we have been having for the past years. This figure is 19% above the results of the same quarter of last year and almost 7% above last quarter. I should remind you that this quarter's number already includes the EUR 285 million of extraordinary tax in Spain. If the extraordinary tax was not there, the net attributable profit would have been obviously close to EUR 2.5 billion. Our results represent EUR 0.36 earnings per share, 23% year-over-year growth, a higher growth rate than the one of the net attributable profit due to the share buyback programs we have been executing. The graph on the right-hand side of the slide shows our CET1 ratio, CET1 ratio at 12.82%, reflecting a 15 basis points increase in the quarter and stands clearly above our target range and also the regulatory requirements. Moving to page number four, behind the excellent results we have been announcing lies, in our view, the strength of our franchises and our performance at the core operating income level, core operating income level. In that sense, and acknowledging here some inherent seasonality between the quarters of the year and so on, we are showing a very consistent growth in our operating income, more than EUR 4.8 billion in current year reported this quarter, very close now to the EUR 5 billion operating income line. Page number five, our tangible book value per share plus dividends. It continues the outstanding evolution of previous quarters with a 20% increase year-over-year and a 6.5% growth in the quarter. Regarding profitability, we continue to improve on our profitability metrics, reaching 17.7% in return on tangible equity and 16.9% in return on equity. These numbers in this page, in my view, are some of the most impressive figures of this presentation. Page number six, we talk about in this page, it sounds like a conceptual chart, but it is driven by numbers. We talk about the truly unique profile of BBVA within the European banking sector, combining growth and profitability at the same time. To be more specific, on this map, in the x-axis, we use return on tangible equity as a profitability metric, and in the y-axis, we show the loan growth in current Euros for comparability purposes during 2023. As a clear indication of potential future value creation, in our view, BBVA stands out, being in the top right corner, with one of the best profitability metrics and the highest loan growth among the European peers. Obviously, we will see how our competitors have evolved in this quarter, but in our case, when we update the slide with BBVA's first quarter 2024 figures, our positioning moves even further to the top right corner of the chart as we continue to increase our profitability and as our growth also has improved in the quarter, year-over-year growth. We are very much committed to maintaining this differential value creation profile, and some of this optimism is related to the potential evolution of our core markets. And with that, I move to page number seven, where we would like to show the positive prospects that we see in Spain going forward. On the left-hand side of the slide, you can see the GDP growth evolution in Spain versus the Eurozone in the last decade. Despite a stronger hit during COVID, there is a positive growth gap for Spain that we expect to widen during 2024 and 2025. Additionally, in the top right chart, Spain, after a very long period of deleveraging, shows in both households and companies, debt levels leverage lower than the Eurozone, in our view indicating a potential recovery to arrive when rates come down in Europe. Finally, moving to the bottom right chart, we want to highlight that we are one of the main banks in the country, as you all know, where we have seen a very good track record of increasing market share in recent years, especially in those most profitable segments, placing us in an excellent position to benefit from Spain's positive prospects. Moving to Mexico, on page number eight, on the left side of the slide, in a similar trend to Spain, Mexico has a GDP evolution with a positive growth gap versus its comparable countries in the region. Obviously, beyond the demographic dividend that Mexico has and obviously shares with the countries in the region, the clearly differential positioning due to the proximity to the U.S., the latest trends around nearshoring, increasing commercial and financial flows between the U.S. and Mexico, it's worth to highlight here. Coupled with the positive macro prospects, and as I have mentioned many times in the past, in the top right corner, Mexico also offers an even more impressive growth opportunity for banks like us, as it has a very low credit to private sector over GDP, a clear potential compared to its peer countries. Lastly, in the bottom right corner, in this context of a positive and healthy banking growth environment, we want to further reinforce our claim that we will be able to achieve double-digit loan growth going forward, as we have seen in the past. During the last decade, in pre-COVID and post-COVID years, with GDP growth around 2%, the average loan growth that BBVA has achieved in Mexico has always been around double digits, as our guidance to you for the coming quarters and years. Having talked about the perspectives for the future, on page number nine, I go back to the quarter. This page is a summary of the pages to follow, where I will talk to you about the P&L, the revenue growth, costs, asset quality and capital, and obviously the execution of our strategy. So please, rather than repeating the messages here, allow me to directly move to slide number 10, the summarized P&L. This slide focuses on the first quarter results and the quarterly comparisons, as you always have in this page. You can find the year-over-year quarterly evolution in the second column from the left, in constant, and the third from the left, in current terms. Basically, the P&L it continues its impressive evolution, thanks especially to core revenues, with an increase in gross income, gross income line, with an increase of 31% in constant and 18% in current Euros. As a result, the last line, net attributable profit, it grows 38% in constant and 19% in current Euros. Some light into the revenue breakdown and the quarterly evolution on slide number 11. We very much like the trends that we see in this page, as we continue to improve our revenue generation capacity quarter-after-quarter. First, our net interest income, it keeps increasing, 25% versus last year, 3.6% growth compared to last quarter, driven by the solid activity growth and also the good customer spread management. Second, clearly differential, this quarter clearly differential evolution of net fees and commissions, increasing with an outstanding 37% year-over-year and 3.5% versus last quarter, levered mainly on payments and asset management businesses. Third, another strong quarter in the net trading income heading, 124% year-over-year, driven mainly by the good evolution in global markets. All in all, excellent growth in gross income, 31% year-over-year, although it reduces minus 5.9% quarter-over-quarter due to hyperinflation impacts and the extraordinary banking tax in Spain that you all know that we record under other income, which then affects the gross income line. Moving to slide number 12, regarding costs, on the left side of the slide, we continue showing positive jaws at the group level. Thanks to the good performance of gross income, obviously, but as I mentioned before, growing 31% year-over-year. At the same time, when the revenue is growing 31%, costs are growing at 19.5%, slightly below inflation numbers. On the right side of the slide, you can see our efficiency ratio, which shows an outstanding improvement to 41.2%, 398 basis points lower than last year. I mean, with these numbers, we clearly remain as one of the most efficient European banks out there. Turning to slide number 13, asset quality. In this page, you can see our asset quality metrics. They remain in line with our expectation in the context of strong activity growth, especially in the most profitable segments and especially in the context of higher interest rates, completely aligned with our expectations that we have guided you. On the left-hand side of the slide, at the bottom, our cost of risk, it increases 14 basis points in the quarter to 139 basis points, slightly better, actually, than our guidance. The increase, quarter-over-quarter, is mainly explained by two factors. First, the aforementioned activity growth in highly profitable, but high cost of risk retail segments and the emerging market geography, so the mixed effect. And second, Turkey, that showed a gradual increase after abnormally low levels that we had in 2023. Then, MPL ratio on the right bottom remains fairly stable at 3.4%, and our coverage ratio is also broadly stable at 76%. Slide number 14, on capital. We have increased our CET1 ratio by 15 basis points in the quarter. The ratio now sits at a very strong level of 12.82%, as I mentioned before. Needless to say, this level is well above our target range of 11.5% to 12%. In terms of the changes in the quarter following the waterfall: First, our strong results generation that contributes 60 basis points to the ratio. Second, the dividend accrual and the 81 coupon payments, detracting 33 basis points. Third, 43 basis points due to RWA's growth, somewhat higher than a typical quarter because of the growth that we have seen in the quarter. But due to the profitable nature of such growth, this will result in even more organic capital generation in the coming quarters. Lastly, a bucket of others of 31 basis points, which includes all the market impact and deductions and so on, together with the credit and OCIs, that accounting-wise neutralizes the deductions in the P&L due to hyperinflationary accounting. Page number 15, our strategic progress. In this page, we have the new customer acquisition. As I said many times before, we believe that the most healthy way of growing the balance sheet is through growing our franchise of clients. In the first quarter of 2024, we acquired 2.8 million new customers, a record as compared to other first quarters of previous years. Even more positive, in our view, is the share of those acquired through digital channels, which comes at a lower cost, which increased to 67% in the first three months. Turning to slide 16, another pillar of our strategy, sustainability. It's an incredible business opportunity, as we keep saying, and we believe we are trendsetters in this area. This quarter, we have channeled EUR 20 billion in sustainable business, the second best quarterly figure ever, and the total of EUR 226 billion since 2018. Therefore, we remain committed to our increased target of channeling a cumulative EUR 300 billion to sustainability by 2025. Moving to slide number 17, I also would like to highlight our positive impact on society as a result of our activity in the first quarter. We continue to help our clients achieve their life and financial goals through our primary activity of lending. We have increased our loan book by 9.5% in the last year, and more specifically in the first quarter of this year, we have helped 35,000 families buy their homes. We have awarded more than 155,000 new loans to SMEs and self-employed individuals, and we continue to finance around 70,000 larger corporates in their growth. On the right-hand side of the slide, we also mobilized EUR 4.9 billion in financing for inclusive growth, such as social housing, social infrastructure, like hospitals. As we grow our activity, in our view, we promote employment, investment, and welfare in the society in the communities that we operate in. Finally, slide number 18, regarding our 2021, 2024 goals that we announced on the Investor Day in 2021. As always, I will choose to not go into each one of them for time purposes, but on all the metrics, we are once again well on track to realize our upgraded expectations and clearly beating our original goals. And now, for the business areas update, I turn it to Luisa. Luisa.

Luisa Gómez Bravo: Thank you very much, Onur, and good morning to all. Starting on slide 20 with Spain. Spain has begun the year with very strong numbers and a very positive outlook based on better-than-expected activity dynamics. We are seeing our loan book grow 0.8% year-on-year, 0.5% quarter-on-quarter on the back of strong new lending flows, and I would like to highlight consumer lending and mortgages, as well as the sound activity from CIB in the first quarter. Indeed, in mortgages, for three quarters in a row now, the stock remains flat on a quarterly basis, supported by strong new loan production, where we are one of the market leaders, and lower prepayments. This means that we continue to outperform our peers and the system keeps deleveraging. On the deposit side, the shift from demand to time deposits in the retail segment has been lower than expected, and this is one of the key star dynamics, I would say, of the quarter, keeping the cost of deposits well contained. At the same time, we continue to grow strongly on off-balance sheet funds above 10% year-on-year, 3.4% quarter-on-quarter. Supported by these solid activity trends, we are delivering outstanding results in first quarter of EUR 725 million at the bottom line, which would have been more than EUR 1 billion without the bank tax. Strong core revenues continue to drive earnings growth in Spain. NII is growing by 2% quarter-on-quarter, showing an impressive 35% growth on a year-on-year basis, driven by our superior customer spread management and loan growth in the most profitable segments. Along with outstanding performance of fees, supported by very sound dynamics in the asset management and insurance businesses, as well as an increasing contribution this quarter by CIB. Deficiency ratio therefore stands at 37.8%, showing an improving trend as the franchise continues to deliver wide operating jaws. Finally, we are seeing benign trends on asset quality. Both the NPL ratio and the cost of risk remain broadly stable and fully aligned with our guidance. All in, these impressive results in Spain support a more positive outlook for the year. Therefore, we are improving our guidance for NII to grow a double digit in 2024. As I mentioned, we are improving our guidance to grow a double digit in 2024 in NII on the back of excellent price management and higher commercial dynamism. We also have an optimistic perspective on the performance of our business in Spain beyond the NII. Moving on to Mexico and slide 21. In Mexico, we have delivered also exceptional results one more quarter, reaching EUR 1.4 billion net profit, supported by the undisputed leadership and structural strengths of our franchise. Outstanding core revenue growth, which is growing 9% year-on-year, supported by sound activity dynamics, means that NII continues to grow very soundly, driven by continued strong loan growth of 10%, excluding the impact of a very strong appreciation of the Mexican peso in the quarter, and as you see, 8.8% year-on-year. This growth is geared towards the most profitable portfolios, as you see, credit cards, consumer loans, and SMEs. On top of NII, we are delivering a solid performance in fees, mainly driven by payments and credit cards, but also with an increasing contribution from asset management. This is an under-penetrated business in Mexico and definitely represents a growth opportunity for BBVA. At the same time, we continue to invest in the country for future growth while maintaining outstanding efficiency levels at 30%. Finally, asset quality is performing in line with our expectations; risk metrics are consistent with our growth strategy in the retail segment, highly profitable, but with higher cost of risk. In short, we have once again delivered an extraordinary set of results in Mexico, where we expect our growth story to continue going forward. The country continues to benefit from solid GDP growth, a robust labor market, resilient consumer demand, and a very positive outlook linked to nearshoring. Moving on to Turkey on slide 22. In Turkey, further policy rate hikes during 2024, coupled with additional credit tightening measures, reinforced the Central Bank's commitment to orthodoxy in order to curb inflation. Additionally, the fiscal stance after local elections will become more restrictive, more likely. In a still challenging environment for banking, Guarantee BBVA achieved EUR 144 million of net profits in the first quarter of the year. Our franchise delivered a quarterly increase in gross income supported by strong fees on the back of very good dynamics in the credit card and payments, and higher net trading income. Finally, asset quality indicators remain contained despite the rate hikes. As expected, the cost of risk rose to 77 basis points in first quarter from an unusual low level in full year ‘23, and it remains within the guidance that we gave to the market for the year. And moving on to South America, in slide 23, net profit reached EUR 119 million in the first quarter of the year. Core revenues have been really the main driver of the P&L, supported by sound activity trends across the region and outstanding management of customer spreads. I would highlight that in this regard, Colombia is growing 14.8% year-on-year, the core revenues, and Peru is also growing around 14% year-on-year, the core revenues. On the asset quality front, impairments due to higher provisioning needs coming from the retail portfolios have been increasing and is still a very challenging macro environment. However, the easing monetary cycles across the geographies and the measures we have taken to adjust the risk appetite in some segments should be supportive for an improvement of risk metrics in the second half of the year. And now, back to Onur, who will highlight the main takeaways. Onur?

Onur Genç: Thank you, Luisa. So for the summary of the first quarter on page number 24, let me not take time by repeating the key messages listed on the left and the middle, as we have already underscored them throughout the presentation. But in short, this was one of the best quarters that we have ever had. That's how we feel about it. But rather, I would highlight the two key points regarding our outlook for the year in the box on the right-hand side. So two messages, basically, in short, we are raising our 2024 core revenue outlook for the Group on the back of the upgraded Spain NII guidance to double-digit growth, as mentioned by Luisa, and due to the broader rate environment. As a result, the second bullet point, the outlook for 2024, net attributable profit for the Group, it further improves to double-digit growth as well. Now, back to Patricia for the Q&A. Patricia?

Patricia Bueno Olalla: Thank you, Onur. So we are ready to start with the Q&A. So the first question, please.

Operator: Thank you. [Operator Instructions] And the first question goes to Maks Mishyn of JB Capital. Maks, please go ahead. Your line is open.

Maks Mishyn: Hi, good morning. Thank you very much for the presentation and taking our questions. I have three. The first one is on the outlook for loan book growth in Spain. You have been gaining market share in the last quarters, and I was wondering if you could tell us what's the reason your gain in the market share and what outlook do you see for the coming quarters. The second question is on the number of employees in Spain. You keep on increasing the headcount, and it would be very helpful if you could explain us why and what should we expect for the future. And then the final question is on capital. You keep on accumulating capital. When can we get an update on how you plan to deploy this? This would be very helpful. Thanks.

Onur Genç: Very good. Thank you, Maks. On all the three questions that stood quick. On outlook for loan growth for Spain, in the guidance that we have given to you at the beginning of the year, if you remember, we were saying that loan growth would be flattish. We do have a positive bias on this now, given also what we have seen in the first quarter numbers. Quarter-over-quarter also we have increased our loan book, and we have been gaining market share. We do expect that, that market share gain will be there for the rest of the year, and you are asking why is that happening. I don't know, Luisa, why is that happening? We are working hard, I believe. But in the segments that we are growing, when you look into the segments that we are growing, it's on the presentation for Spain page, you do see that we are growing very nicely in mid-size company segment. That's a segment that we like. We call it Banca de Empresas, BEC. We do have very clear plans to grow in that segment, very profitable high-work segment. Then the other one is consumer. You do see that year-over-year in that segment, we have grown 7.8%. This is mainly given to our payroll clients, loans digitally dispersed to payroll clients. As you have seen, we go through it very quickly in the presentation, but this 2.8 million new customers that we acquire in the quarter, it's the treasure for this growth in consumer and for the healthy growth of the consumer book. In the case of Spain, you are asking Spain specifically, the new customer acquisition, this is the derivative of the growth, know. I mean, the new customer acquisition has grown by 9% in the first quarter. So, as we acquire new customers and as we get the payroll of these clients, as we extend consumer lending to them, you see that growth of 7.8%. In the rest of the segments, mortgages, quarter-over-quarter, after a long while, quarter-over-quarter, you see also a growth in the mortgage book. As a result, all the line items, they are relatively strong, driven by our push, to be fair, to continue to gain market share. I showed it to you in the page for the prospects for Spain, page number seven, our market share gain in the last five years, 2018 versus 2023. In the consumer book, it used to be 12.3%, now it's 16.4%, so 410 basis points increase in market share. In the company segment, we also gained 130 basis points market share. So, in the segments that we wanted to grow, we are growing, that's the key reason for this growth. Number of employees in Spain, why is it going up? The core reason for the number of employees going up is basically technology. We are internalizing our technology employees. You see an increase in FTEs, but in the total costs, it's actually better for us. In the case of Spain, especially Spain, a large part of our IT, FTEs were external and we do have a strategy of internalizing that capacity, which has an implication on the FTE growth. But on the overall costs, it's actually better for us to internalize. So technology, a bit more in data and sustainability, obviously aligned with our strategic plan, but in general, the core reason is internalization, which actually has a positive impact on costs. The third question was capital. We are accumulating capital. What do we do with it? The same response as before. The same response as before. We do have this wonderful cycle of deliver, always deliver, deliver good results, invest in profitable growth, create excess capital even more, organic capital, and then continue to invest in growth and also rewarding shareholders. That's what we're going to be doing. We told you before that in a typical year, excluding any M&A or regulatory impacts that we cannot judge, on a core operating income level, core operating and organic capital generation level, beyond the payout, the regular payout that we have, we expect to generate 50 to 60 basis points every year. That's more than EUR 2 billion, again, beyond the regular payout. After our WA's growth, after market impact and so on, that's our expectation for the next three years and we are on that path. This quarter, we added another 15 basis points to our CET1 ratio, which is clearly in line with what I was saying before, 50 to 60 basis points, additional capital creation every year. And as we told before, we don't want to operate with excess capital. As long as we trade where we trade, we will continue to buy back our shares. We will continue to buy back our shares. Anything you want to add, Luisa?

Luisa Gómez Bravo: No, I think that was very clear.

Onur Genç: Very good.

Patricia Bueno Olalla: Thank you, Maks. Next question, please.

Operator: Thank you. The next question goes to Francisco Riquel of Alantra. Francisco, please go ahead. Your line is open.

Francisco Riquel: Yes. Hello. Thank you. My first question is about Mexico. The stock of deposits fell by over 5% quarter-on-quarter, which is a bigger decline than last year with a similar seasonality. The cost of deposits in Mexico is also trending up, whereas it is starting to fall for some local peers in these first quarters now that interest rates have started to fall. I also see the migration of the balance sheet has accelerated. So, I wonder if this is all the way you are reacting to the aggressive deposit offering launched by Nubank. So if you can give guidance on the cost of deposits, EBITDA, what, which are expected in Mexico for the coming quarters would be appreciated. Then my second question is a follow-up on capital allocation. Is your appetite for continuing buying back your own shares versus the appetite for M&A, for example, in the context in which Scotiabank (TSX:BNS) might be looking to sell some assets in South America? Thank you.

Onur Genç: Do you want to take the first one, Luisa, on Mexico?

Luisa Gómez Bravo: Yes, sure. Okay. So in Mexico, indeed, we saw the demand deposits specifically coming down quarter-on-quarter. But, I would highlight that this is also as a result of the seasonality of deposits. As typically in Mexico at the end of the year, we have a very strong growth in demand deposits coming from the double pay that the employees get and the accumulation of balances in deposits. So, we typically do understand that this quarterly trend is more based on the seasonality than otherwise. Year-on-year, we see a growth of 4.9% on demand deposits. I think that we are putting -- focusing the delivery of the cost management in deposits very significantly. As you know, we maintain, we continue to maintain a very solid advantage in terms of cost of deposits in Mexico versus our peers. Cost of deposits in the quarter are around 2.9% versus peers at around 4.75%. So still a very solid competitive advantage there. We're trying to ensure that we provide our clients with the best possible investment products. That's why you've seen the strong growth in assets under management and off-balance sheet funds growing 10% quarter-on-quarter and 25.6% year-on-year to be able to be, to delivering those clients the investment returns that they may require. But, also I would say that the increase in cost of deposits in the quarter is a continued strategy as well of migrating wholesale financing to wholesale customer deposits in the quarter. That's why you've seen a higher cost of deposits in that regard.

Onur Genç: Maybe Paco, one quick addition to this. I mean, it's quarterly you see this, but it's a switch between wholesale funding from the market versus wholesale deposits. It's more the description of the quarter than anything else. You would also see that in the first quarter, we have done some wholesale issuances in Mexican peso as well. That wholesale issuances from the market has helped us in the deposits. So as a result, if you look into the market shares, I mean the published market shares, you do see that our retail demand deposits in market share, we actually gained 17 basis points year-over-year. Some of the names that you mentioned, is it a competition topic and so on. We gained 17 basis points market share in retail demand deposits, which is the market where some of the players that you mentioned, again, are competing. The loss is on the wholesale deposit side. The wholesale deposits, in demand deposits, we basically lost 91 basis points. That's, again, basically the switch between the wholesale funding from the market versus wholesale deposits. So, if you want to acquire deposits in Mexico, we can do that. It's basically optimizing the cost through the market. Regarding your second question, continuing to buy back shares versus M&A, let's start with the buyback side of this. As I mentioned before in the previous question as well, I mean, we put this relatively conceptual, some like bubbles in one of the pages that we have in the presentation. Paco, we do believe that we have something unique. In this quarter, we are announcing 17%, 17.7% return on tangible equity. In a quarter where we have had a 285 million extraordinary tax, which is the tax in Spain. Despite that, 17.7%. On the growth, this quarter, year-over-year growth in current Euros, current Euros is 7%. So we are growing 7% our loan book. We are delivering 17.7% in a quarter where we have had some extraordinary one-off impact because of the Spanish tax. Despite that, we trade where we trade. Sometimes some of you mention it to me very closely and very nicely, but saying that we kind of complain about the market. No, no, we never complain about the market. Who are we to complain about the market? What we are saying is that 17.7% return on tangible equity, 7% growth in current euro lending book, our belief of the intrinsic value of BBVA is much higher than where we are. As a result, you can be -- it's very clear strategy that we have been applying since 2021. As long as we have the excess capital, we will continue to buy back those shares because our intrinsic value is, in our view, much higher. You asked about M&A, on the M&A, I get this question every quarter. I give the same response, so it will be a repetition. But as before, let me repeat it once again. We have 121,000 people working at the bank, 121,000 people. The overwhelming majority, we focus on organic growth. There is a small, small, small team who looks into opportunities all the time. We analyze opportunities, but obviously our focus for the majority of the organization is on organic growth, and we will always do capital decisions based on numbers, based on numbers. Given what I said, the share buyback is a wonderful opportunity to create a value creation for our shareholders.

Patricia Bueno Olalla: Thank you, Paco. Next question, please.

Operator: Thank you. The next question goes to Benjamin Toms of RBC (TSX:RY). Benjamin, please go ahead. Your line is open.

Benjamin Toms: Morning, both. Thank you for taking my question. I'll keep it to one in line with your guidance at the top of the call. It's a high-level conceptual one, please. You printed an ROTE this quarter of 17.7%. Global rates will likely come down from here. I'm just interested in your degree of confidence that 2024 isn't as good as it gets and you expect in the next couple of years that profits and returns will keep growing from 2024 levels. Thank you.

Onur Genç: Benjamin, very straight answer to a straight question. We don't think we have reached the peak. As I mentioned, 17.7% includes the Spanish extraordinary tax. It's the one of impact that will not be in the coming quarters. But, more importantly, and that's why we have had that little page and little bullet at the end of the document, basically saying that outlook for 2024 net attributable profit further improves to double-digit growth. That double-digit growth implies that we will continue to have even better return on tangible equities in the coming quarters. Why is that? Because we do see very positive dynamics in Mexico, very positive dynamics in Mexico. The 8.8% loan growth that you see year-over-year for the Mexican page, if you isolate for the appreciation of peso, for the appreciation of peso if you isolate for that, the number is 10% growth, even in this quarter. The first quarter of 2024 is, first quarter is in general, but especially this quarter, seasonally speaking, is very seasonal. First quarter, after the fourth quarter, and in this year, we also had Easter holidays falling into March rather than April, which had some impact. But we see very positive pipelines in Mexico, and we are confident that double-digit growth, double-digit loan growth in Mexico, as we have guided you, is very feasible. We maintain and reinforce that guidance point that we have had in the first quarter. As a result, Mexico is going to continue to do really well. Then you look into Spain, better than what we have been expecting. That's why Luisa has mentioned from mid-single digit to double-digit guidance update on NII. Then Turkey and South America, we do think that, especially in the second half of this year, we will see better numbers in both geographies. Looking into every single part of our footprint, we are positive on what we see. I think you're also asking for next year, or the guidance in general. That's the piece that we also continue to deviate significantly, actually, from the consensus. Looking into the underlying dynamics of our business, I see even a better 2025 versus 2024, in terms of underlying results, in terms of net attributable profit. We clearly see a growth in 2025 versus 2024, which also implies that the return on tangible equity that you would see is going to be very positive. To cut the long story short, we are quite positive on what we see. In all the geographies that we are in, we are quite positive.

Patricia Bueno Olalla: Thank you, Benjamin. Next question, please.

Operator: Thank you. The next question goes to Marta Sanchez Romero of Citi. Marta, please go ahead. Your line is open.

Marta Sanchez Romero: Thank you very much. My first question is on South America. Its contribution to the group remains subpar. Just 5% of earnings this quarter, but it consumes 14% of capital. What are you doing to close that gap, which keeps widening, by the way? And related to this, what is the rationale of sticking around in Argentina? Then my second question is on Mexico. Net NPL entries, they keep going up. When do you see a change in trend? And just a third quickly, what is your expectation for the Mexican peso and how much of your P&L have you covered? Thank you.

Onur Genç: Do you want to take the first one, Luisa, on South America?

Luisa Gómez Bravo: Yes. Well, in South America, I think that we are, showing a slower contribution that perhaps is the one that we would like. But primarily, this is because of the cycle that we're in. I think the challenging macro context in the region is still affecting the capacity to grow the results. However, I would say that the strength and resilience of our franchise is still there. When we look at Argentina, Argentina is, first, I think we need to talk about the macro perspectives in Argentina. The measurements and the measures announced by the new government are going in the right direction. The main problems that Argentine economy faces are still very relevant. The focus there is in the short term on lowering inflation, solving monetary fiscal imbalances. I think the first steps have been taken. There's been a strong devaluation of Argentine peso back in December. Gradual depreciation since, fiscal measures have been put in place. There's a monetary policy rate cut as well to improve BCRA's balance sheet. All these measures are, in the right direction, and in the medium to long term, there is a pro-growth agenda that needs to take place. So, obviously, it's a very challenging environment in Argentina. A lot of things need to be resolved, but the steps that are being taken are the right ones. In this regard, I think that we're managing our Argentinian business in a very solid way. The Argentina is well prepared to face a challenging macro environment. Despite the high quarter inflation, the fundamentals of the bank remain solid. The capital is very solid. 34.1% liquidity is also very good with loan to deposits at 79%. We are, doing very well in terms of gaining market share in the places where we want to gain market share, primarily, in the credit card business and some commercial businesses. I think this is a story that needs to play out on the back of the macro side. With regards to Colombia and Peru, there are different dynamics going on in the different countries, I would say starting with Colombia. The macro outlook was significantly affected by economy decelerating last year, significantly at 0.6%. We do expect the macro to improve this year, especially from the mid-2024 onwards with a 1.5% growth of GDP. Inflation continues to ease, and the central bank has started shyly to reduce interest rates. Again, this has to continue to play out. We need to see, the economy improve significantly. On the back of this improved growth, we have seen Colombia launching a strategic plan to strengthen its position in the country. It's gaining scale. It's improving its banks' business mix, and it's already delivering solid results in the past three years. We have increased market share by 90 basis points, and we're moving towards a profitable or more profitable loan mix. So we are trying to work in that way. In this regard, as I was mentioning before in the presentation, the P&L on a year-on-year basis has been negatively affected by higher expenses and impairments. But, I would say that NII growth remains solid, growing at 17.3%, supported by loan growth and customer spreads. I would say that in Argentina, I mean in Colombia, really the main impact this quarter has been lower NTI. This has happened also in Peru. Lower NTI coming from global markets as the rate volatility continues. I would say higher impairments. In Argentina, impairments have increased in a relevant fashion. On the back of worse retail dynamics, we have already addressed this in terms of the origination, particularly on the consumer side. And we think, as we mentioned before, that as the rate scenario eases, the asset quality dynamics will improve towards the end of the year. Peru, on the other hand, has been showing better macro dynamics. We've actually upgraded our GDP estimates for the year. We also are seeing very good positive growth in market shares and positive growth in activity. The P&L is very supported by the NII growth in the year at 15.4%. Again, this growth has been offset primarily with somewhat high still impairments, although we see the cost of risk decreasing year-on-year. So, we expect Peru also to be able to deliver improving results in the second half of the year with easing asset quality metrics.

Onur Genç: I would highlight just two very quick things that Luisa has mentioned. The asset quality, cost of risk, has been the story of the region in the past year, including this quarter. We have a clear expectation that in the second half of this year, the numbers will improve. The second thing that she said, especially in Colombia, but there is a rate. We are in general asset sensitive in all the geographies except Colombia. So, when rates start coming down, it will be positively affecting Colombia. But South America, it's a region that is a very critical part of BBVA. Our clients are there. We have to be supporting them throughout. We do think that the value creation will come along. Quarter-after-quarter, we might be deceived by the numbers that you see, but in the second half of this year, in the coming years, we are positive that we will deliver the value that is deployed in terms of capital in there. Then the NPL entries in the second question, NPL entries in Mexico. I think to comment, Marta, first, our guidance to all of you was 325 basis points in Mexico for the year, which is basically what we had in the first quarter, 327 which is very close. So, it's completely aligned with our expectation. But as you know, in Mexico, our monthly cost of risk provision numbers are reported to the Mexican regulators. So it's public, monthly numbers. You would see that in the month of March, you would see a slight jump in the cost of risk and NPL entries also. A big part of this in terms of cost of risk was basically the macro adjustment. You might have seen it. Our BBVA research team, they have reduced the macro growth from 2.9 to 2.5, slight decrease, but it did have an impact in the NPL, in the cost of risk number. If you isolate for that, 3.27 becomes 3.11, and that 3.11 versus 296 basis points that we had in the previous year is basically the mixed effect. If you look into the growth of the different Carteras, different loan buckets, it's mainly driven by the mix and the fact that we are growing much more in the high RORC, high capital return, but high cost of risk lending buckets. So, we are actually quite happy with what we are seeing in the cost of risk situation in Mexico. Then you ask about the coverage of the P&L. 60% of the P&L, 60% is already covered for this year.

Patricia Bueno Olalla: Thank you, Marta. Next question, please.

Operator: Thank you. The next question goes to Antonio Reale of Bank of America (NYSE:BAC). Antonio, please go ahead. Your line is open.

Antonio Reale: Good morning. It's Antonio from Bank of America. I have two questions, please. The first one is a follow-up on your outlook for NII growth in Spain. You guided to double-digit growth in NII this year, which is remarkable. You've talked about better 2025 trends for the group. Can you maybe just directionally tell us how you would expect NII in Spain to perform in 2025? That's my first question. My second question is about efficiency, and of course, partly related to the first. Efficiency ratio remains within your guided range for the year, below 42%. You've a strong track record in maintaining positive jaws, while you continue to invest in your IT digital infrastructure. Now, the market, at least when I look at consensus numbers, doesn't believe you can sustain this also in 2025. Can you talk about your expectations for operating jaws next year, and maybe remind us of the mitigates you have. Should growth be slower than you expect? Thank you.

Onur Genç: Thank you, Antonio, for the question. I said something about 2025, and now you are trying to get the jaws, guidance, and this and that for all the. Let me start for the first one, 2025, really in our planning, when we look into it, and we are not providing guidance today, obviously it's too early. But when we look into our planning, given the huge gap, relatively large gap, let’s not say huge, but relatively large gap, as I am telling you, we are expecting double-digit growth for the group in 2024 for net attributable profit. That's our guidance, that's our outlook, because we never provide guidance in that detail, but that's our outlook for 2024. We are also telling you that in 2025, our planning tells us that we will have even a better year in terms of net attributable profit. In terms of the breakdown of this by countries, we see relatively flat, slight decline or relatively flat in Spain at the bottom line level. Obviously we will be hurt from the rate declines that will be coming along, but we do think that given the strength that we also see in the underlying loan production dynamics, the loan growth might be coming in a bit, and the asset quality has been relatively high for Spain, for our business in Spain in the last year or two, and there might be some positive dynamics coming along there. I would also highlight that our fee income, quarter after quarter, at least, both in asset management, which is very core for us, in insurance and in the payments businesses has been positively surprising us. All combined, at the moment perspective for Spain would be relatively flattish, slight decline or relatively flattish bottom line. Then in all the other geographies, it's very tough to judge, obviously, Turkey and South America this early. We do see some positive dynamics, so 2025 will be better in our view in those geographies, and more importantly, and in our view most importantly, in Mexico, mainly driven by the loan growth, and we did share some ideas on why we think Mexico loan book will continue to grow in a healthy way. Mexico will do even better in 2005 versus 2004. So when you sum up all the components, it tells us that the bottom line for the group will be better in 2025 versus 2024. Regarding the jaws, let's not get into it, again, this early in the cycle, but to be able to deliver what I just said, the jaws situation would not be as bad as you see in the consensus.

Patricia Bueno Olalla: Thank you, Antonio. Next question, please.

Operator: Thank you. The next question goes to Sofie Peterzens of J.P. Morgan. Sofie, please go ahead. Your line is open.

Sofie Peterzens: Yes, hi. Here is Sofie from J.P. Morgan. Thanks for taking my question. So you are guiding for double-digit net interest income growth in Spain. Could you just elaborate what your underlying assumptions are, kind of in terms of what rates that you have assumed, what deposit beta you're expecting, where the deposit beta currently is, and I guess the volume of the remains unchanged flat, but if you could elaborate on this. Then a very short second question, kind of the countercyclical buffer in Spain, what are your thoughts here? Thank you.

Onur Genç: Double-digit NII growth for Spain. Luisa, do you want to take it?

Luisa Gómez Bravo: Yes. Well, as we mentioned during the presentation, the activity dynamics are quite positive. We have a guidance, maintained the guidance of flattish growth for the year, but as Onur mentioned before, we do have a positive bias. We're seeing, as we mentioned, mortgages pretty stable already in the third quarter in a row. Pre-payments are coming down around 23% year-on-year, 11% quarter-on-quarter, and we're making a lot of effort in the new loan origination, which is growing year-on-year, 4%, very solid dynamics, I would say across all the different segments, especially in those that interest us more from a profitability outlook. But, I would say that the main driver of the increase in the guidance has been really the price management, especially on the deposit side. We are expecting now a lower migration of sight deposits to term deposits. Term deposits increased their weight from 13% to 15% in the quarter. This is a slower trend than the one that we had forecasted, and the cost of deposits have also been quite contained at 91 basis points in the quarter. We think probably going forward, cost of deposits are going to be at around these levels. We're seeing new term deposits coming down at lower prices than we had at the beginning of the year. Overall, we are now looking at a beta that instead of being around between 25% and 30%, which is what we mentioned in our results presentation back in February, we're seeing those betas now at below 25% as the first quarter beta has ended up being around 20%, very similar to the one that we had in the end of last year. These are primarily the dynamics. Also, I would add that when we had given our guidance of mid-single digit growth this year, we were expecting Euribor 12-month average numbers at 3%. We are seeing now implicit in this guidance, Euribor 12-month average rates at around 3.35%. So that is also supporting the double-digit NII growth for the year.

Onur Genç: I mean, the BBVA Research still estimates the average Euribor 12-months to be 3.55%, but in the numbers that we are giving you today, the double-digit growth NII in Spain, it assumes as Luisa says 3.35%. Let's see where we end up. Then the second question on countercyclical buffer. Sofie, technically speaking, technically speaking there should not be a countercyclical buffer in Spain. Everyone says, well, all the other geographies has it and so on. No, no, technically speaking, it's about credit to GDP gap and whether credit is growing and so on. Given the fact that Spain has been deleveraging for so many years and still, I mean, we are showing a positive growth ourselves in the quarter, but the system is still deleveraging. So we are gaining market share. That's why we are positive. In this context, again, technically speaking, there should not be an increase in countercyclical buffer, but we are dependent on others and we respect, obviously, the decisions of our others, especially our supervisors and so on. If it happens, 100 basis points increase in the countercyclical buffer has a 32 basis points implication in the group CET1 requirement, 32. But given the fact that we do have this extensive buffer versus our requirement, we do not plan to increase our management reference if such a situation realizes.

Patricia Bueno Olalla: Thank you, Sofie. Next question, please.

Operator: Thank you. The next question goes to Alvaro Serrano of Morgan Stanley (NYSE:MS). Alvaro, please go ahead. Your line is open.

Alvaro Serrano: Good morning. I've got a couple of follow-up questions on NII. In Mexico, first, your guidance, if I remember correctly, was high single digit NII growth, which given the growth in Mexican pesos that I can see, implies a significant acceleration in the next few quarters. Is that correct? Could you maybe elaborate on what you expect on the next few quarters that's different from Q1? In Spain, just to follow up, Luisa, from the detail you've given, on the loan yields, they're up 7 basis points in the quarter. How much more sort of repricing from the mortgage book is left, or is that increase more driven by business mix? Just maybe a bit of color on that. Thank you.

Onur Genç: Let me take Mexico and then you follow up on Spain, Luisa. On Mexico, our guidance at the loan growth was double digit. We still maintain that. NII, to grow at high single digit, slightly below activity growth. That was the guidance that we have given to you at the end of the year, at the end of 2023, and we still maintain that. But what is the catch, or what do we see? Once again, we do think that the loan growth will be happening at double digit in Mexico. In the first quarter, quarter-over-quarter numbers are not leading into that. Year-over-year number is again 8.8, and the year-over-year number, when you adjust for Mexican peso appreciation, when you adjust for the divisa, the currency, it's again 8.8 becomes 10. So year-over-year we are there, but quarterly, quarter-over-quarter figure is not that strong to take us to that double digit. Once again, I highlight a few things. First quarter is traditionally seasonal. In this first quarter, the Easter was in March, unlike before, which it was in April and so on. It did have an impact. When we look in -- and then there are elections, which is not creating a major dent, but there is that topic in June the 2nd, there are elections, as you know, in Mexico. The level of rates, we see very strong pipelines, actually in Mexico, very strong pipelines. But it did take some of that pipeline to be realized. Given the strength of the pipelines, given again, what we have seen in the past and the seasonality of the first quarter, we still maintain loan growth at double digit. Then how come the NII still, we keep the guidance at high single digit growth in the NII for Mexico. Then we look into the spreads. Then we look into the NIMs, actually. NIM is even more important because we have been investing in making sure that we lock in the high rates. So, if you look into the NIM, the margin NIM we see basically flat, five to 10 basis points, a slight decline or flat in the NIM. As a result, NIM margin, the NIMS spread, as a result, that guidance still maintained. On Spain?

Luisa Gómez Bravo: Yes, well, in terms of the loan yields, actually, we don't expect further major repricing of the loan books as rates will start to come down. So, we probably have seen the peak in that regard. In that sense, we probably have seen also the peak in terms of -- in the customer spread. There could be, as a matter of fact, a certain mix effect as we grow more in the higher yielding loan books. But obviously, the weight of our book in terms of mortgages, etc., means that I think that that mix effect, is not going to be very, very material going forward.

Onur Genç: And I would focus once again on the NIM. The decline that we expect from here to the end of the year is less than 10 basis points. Given the fact that we have been locking in the sensitivity, the high rates, the NIM impact would be much lower. So, double digit, because the activity growth is relatively good, and then the spreads and the impact on the NIM is relatively capped.

Luisa Gómez Bravo: I would also add, because nobody is asking, but on the ALCO, we have, as you know, been locking in our rate sensitivity, and right now our sensitivity is still at around 5%. It's true that we manage this in a quite dynamic basis based on the rate outlook that we may have. But we see obviously the ALCO contributing, just like as we said earlier, in a positive fashion to supporting the NII this year. We do see with the current rate situation that there could be opportunities to increasing the size of the ALCO going forward if we see attractive rate levels. Therefore we will also try and maintain the rate sensitivity at these levels, considering the higher for longer rate environment and the rate environment coming down towards the second half of the year.

Patricia Bueno Olalla: Thank you, Alvaro. Next question, please.

Operator: Thank you. The next question goes to Ignacio Ulargui of BNP Paribas (OTC:BNPQY) Exane. Ignacio, please go ahead. Your line is open.

Ignacio Ulargui: Thanks very much. Thanks for taking my questions. I just have one question. Looking to Turkey, if you could provide a bit of color on the evolution of the Turkey’s NII, and how do we expect the customer spread evolving from here? And also if you could also help us to understand a bit better on the evolution of fees going forward, given the strong performance we have seen in the past quarters. Thank you.

Onur Genç: Thank you, Ignacio. We still expect spreads to be negative in the second quarter, but we do clearly expect that in the second half of the year, third and fourth quarter, that spread will be coming back to positive, as long as, again, the country continues on its path. We are actually quite positive on what we are seeing in Turkey for the coming quarters, and especially for the second half. You have highlighted it, fee income is coming very strong, and the trading income. The trading income here is not, it's really the customer franchise business. The trading income that you see for Turkey is basically buy and sell of dollar and euro, which is a main activity of the, especially the retail franchise, retail banking franchise, which is very consistent and very stable. Those two line items will be very strong, and NII will come back up, in our view, in the second half. As a result, again, we do have a positive bias also on what we have guided you for Turkish bottom line, which is going to be repeating 2023. But after hyperinflationary account, after accounting for everything, we do have a positive bias on that number as well.

Patricia Bueno Olalla: Thank you, Ignacio. Next question, please.

Operator: Thank you. The next question goes to Britta Schmidt of Autonomous Research. Britta, please go ahead. Your line is open.

Britta Schmidt: Yeah, thanks for taking my question. Two fairly quick ones. Could you perhaps comment on the Mexican rate outlook? What have you included for 2024 in your guidance? And what do you expect for 2025, given forwards have moved? And then secondly, just briefly on the profit guidance, double digit growth year-on-year after what would have been EUR 2.5 billion Q1 and the banking tax with the run rate then falling to, let's say, EUR 2.2 billion, while you're guiding to a better second half in many geographies. What are the main drivers that you see for that quarterly run rate to change in the second half? Thank you.

Onur Genç: On the 2024, the underlying assumption for the NII in Mexico is the TA, which is the core rate, as you know, in Mexico. We are assuming an average 10% rate for that one. But in terms of the Central Bank rate, the BBVA Research at the moment is assuming 9.25% at the end of the year and 7.25% at the end of 2025. They do have this, again, higher bias on these numbers. Probably it will be higher than these. But at the moment, BBVA Research estimates these figures. Beyond that, though, in our own NII calculation for this year, we are assuming, again, 10% average, 10% average TA. Regarding your second question, are we assuming a decline in the quarterly run rate of the profits, as I understand is the question, the answer is no, we are not assuming that. We are guiding double-digit growth in total net attributable profit for the year. If you remember, last year was 8 billion. At least 10% means 8.8 billion. We are saying double-digit. We are not precising what that perspective, what that number is. But we are quite positive on the coming quarters. So double-digit is double-digit, Britta. We are not precising what exactly is double-digit.

Patricia Bueno Olalla: Thank you, Britta. Next question, please.

Operator: The next question goes to Andrea Filtri of Mediobanca (OTC:MDIBY). Andrea, please go ahead, your line is open.

Andrea Filtri: Thank you. First question on trading results in Q1. If you could specify how much is from the FX hedges contribution. Second question is on your expectations on risk-weighted asset growth going forward, given the high print this quarter and your increased loan growth guidance. Finally, if you could just elaborate on your expectations and on your assumptions on the NII trajectory in Spain in 2025, given that you have given so much indications on the net profit. Thank you.

Onur Genç: Again, we don’t provide detailed guidance for 2025, but maybe you take, Luisa, the NII trajectory in Spain for 2025. On the first two, the trading results, we actually have in the holding, in the holding, minus EUR 265 million of negative results in NTI. Why is that? Because it's Mexican peso appreciation. Given the fact that Mexican peso is appreciated, the hedges deliver negative results. Also, we do have other currencies there as well, but it's mainly Mexican peso. The total is minus EUR 265 million recorded under holding in NTI. Risk-weighted assets, the question on this one, I couldn't get the full question, but are we expecting risk-weighted assets to grow or?

Luisa Gómez Bravo: Or is it aligned with loan growth?

Onur Genç: In terms of the capital consumption. The 43 basis points that you see in terms of the capital consumption for RWA growth, it's relatively on the high side, but it's good that we have that. Because if we have that, as long as it's profitable, and we clearly make sure that it is profitable, we do deliver better returns in the coming quarters. That 43 basis points was relatively high. If you look into the previous quarters, it's around 35, 30, 35, 35 to 40, but not passing 40. So maybe there's some slight decline in that in the coming quarters, but RWA growth will continue. There is an appendix page in the presentation that we share with all of you when you look into where the RWA growth is coming along. It's page 50, you do see that year over year, the RWA growth is coming from Mexico, 25% increase in RWAs. We love it, we do have 27% return on equity in Mexico. If you put more capital into a geography where you are delivering that return, again, it's going to ensure that you'll continue to deliver great results going forward. Then NII trajectory in 2025 for Spain? We don't do details.

Luisa Gómez Bravo: Well we don't give guidance in Spain, but we'll see. I mean, it depends obviously on the rate environment. If the rates come down as we are expecting them to come down, I think we're managing, we're incorporating 75 basis points or three -- decreases in the ECB rates this year. We'll see what the outlook is on activity. Maybe, it will start to be better next year. I would say that, again, depending on how we see the rates and the sensitivity that we have, if we maintain it at around 5%, that will have a negative or a slightly negative impact in NII. But, I think we have management levers as well. We've seen those management levers in action this quarter in terms of how we manage pricing, especially on the deposit side. And we'll see how those dynamics play out going forward into next year. But I think we have levers to compensate, just the pure sensitivity that we have to interest rates in our P&L.

Onur Genç: The baseline scenario that BBVA Research has, known Luisa, is three cuts this year, 25 basis points each, and four in 2025. We have been sharing this very openly with you for many quarters, but especially we have been talking about it in the last maybe three, four quarters. The NII sensitivity of Spain is 5%. So 100 basis points, step function decline, step function decline, 100 basis points, implies a 5% decline in NII. And as Luisa mentioned, we might be doing in the second quarter a bit more actions to manage that a bit lower, given where the rates are. But let's assume the 5% is the number. If that 5% is the number, we have EUR 6 billion of NII in Spain, roughly speaking, know? EUR 6 billion. 5% or EUR 6 billion, this is again 100 basis points, step function, but let's go with that number. It's EUR 300 million impact just because of the spread. EUR 300 million, we do believe, we do have the levers to compensate for this in the revenue line. That's why we are saying that relatively flat or slight decline for Spain in the coming year. But we will talk more about that in the coming quarters. Don't push us into 2025 this early. The only reason that we have given 2025 to you is that we are seeing, again, relatively large gap between what we see and what we are expecting for the coming year versus what the consensus is. We are struggling to understand the difference. That's why we have given you the overall guidance, but that’s not - let's go quarter-by-quarter. We will be updating you along the quarters.

Luisa Gómez Bravo: It's outlook, not guidance.

Onur Genç: It's outlook, not guidance. Very good.

Patricia Bueno Olalla: Thank you, Andrea. Next question, please.

Operator: Thank you. The next question goes to Carlos Peixoto of CaixaBank. Carlos, please go ahead. Your line is open.

Carlos Peixoto: Hi, good morning. Thank you for taking my call, my question, sorry. So actually, most of them have already been answered, but I wanted to discuss a bit on the fee income outlook, particularly in Spain, but also in Mexico. In Spain, you had guidance towards slight growth in 2024, looking at the first Q, you actually are up 6% year-on-year, and so basically, I wanted to understand here whether do you see this level as being a sort of a one-off and expect it to come down throughout the year, or should this actually be recurrent going forward? And therefore, you expect to beat the fee income guidance that you're providing. And also in Mexico, if you could give us some color as well on how do you see fees evolving throughout the year? That would be great. Thank you.

Onur Genç: Carlos, thank you for the question. I don't know what I was going to ask it, and I thought it would have been a waste, but fee income is really one of the, in our view, strong points of this quarter. We do think that the best thing about the fee income, in our view, it's more stable and consistent and so on. I'm looking into the key line items of the fee income. In Spain, asset management, year-over-year, is up 10%, 10%. Insurance, which we are pushing really hard, is up 18%, actually, no, 17.4% to be specific. So, we are seeing some clear push in Spain on the fee income. Mexico, asset management, and we have been discussing about the movement of deposits and so on. But we like this, we want this, we want to make sure that especially high income, private banking, affluent customers have some of their money in mutual funds that we manage for them, which is better for them, which is better for us. Asset management in Mexico, and now its quarterly number is EUR 105 million. It's up 30% year-over-year, 30%. Payment services, which is very important for us in Mexico, as you know. The cards and POS is up 22% year-over-year. You know the situation in Turkey. We are over proportionally better represented in the payments businesses in general, but also in Turkey, and also in Turkey, it's up significantly, which drives the results of Turkey. To cut the long story short, in our view, these trends, and given the numbers that I quoted to you, they are very positive, and it will be making sure that the consistency of the results will be there for the coming year as well.

Patricia Bueno Olalla: Thank you, Carlos. Next question, please.

Operator: Thank you. The next question goes to Chris Hallam of Goldman Sachs (NYSE:GS). Chris, please go ahead, your line is open.

Chris Hallam: Thank you for taking my question. It's just two on Mexico, two quick ones. So lots of color earlier on deposits. Thank you for that. But just thinking, is there a sort of a flaw in the loan to deposit ratio in terms of how far below 100% you'd be comfortable operating out in Mexico? I.e., is there any sort of risk that we're approaching a point at which some of the opportunities you see on the asset side aren't fully realizable due to funding constraints? And then second, on the peso, we saw a big move overnight a couple of weeks ago. I guess, first of all, does that have any distinct impact on the hedges you have in place there, when I think about net trading income for the second quarter. And then more medium term, does that general volatility change at all how you think about hedging out the FX risk? I think you're currently around 60% hedged on Euro-Mex. So just any update there would be helpful.

Onur Genç: So, on the first one, the loan-to-deposit ratio in Mexico is at the moment 99%, and as I mentioned at the beginning of the call, it's purely in the quarter we have chosen to fund ourselves on the wholesale side from the market rather than from the clients. If you want, we can, as we have done in the fourth quarter, when you look into the fourth quarter numbers, you would have seen that. We can do that from wholesale customers as well in terms of wholesale deposits. So we are far away from where you would feel uncomfortable with loan-to-deposit ratio. Given the strength of the franchise that we have in Mexico, we can manage this ratio basically, basically, Chris. In the second topic on the hedges, I think it was the hedges question. The line is not so good today, but if it's the hedges question, 60% is what we have currently at the moment. Do we have a clear strategy around this? Obviously, we do change this percentage from year-to-year a bit depending on the cost of carry. And the cost of carry would be coming down, for example, in Mexico. We do still have 60%, although it's relatively high carry. We keep the 60% on the P&L. And by the way, we also hedge 64% of capital in Mexico because we did think that there might be some devaluation of the currency this year. That's why we are relatively over-hedged. But independent of the levels, we do adjust some of the cost of carry. But we will maintain more or less these levels because we do think it's not only, it's a risk management tool for us. We keep these hedging, we will keep these hedging levels going forward, although there might be some fine tunings around it, let me say it that way.

Patricia Bueno Olalla: Thank you, Chris. Next question, please.

Operator: Thank you. The next question goes to Ignacio Cerezo of UBS. Ignacio, please go ahead, your line is open.

Ignacio Cerezo: Hi, good morning. I've got two quick follow-ups. One is on the deposit competition in Mexico. If you can you give us a little bit of color on the overlap in terms of the pipeline, the Fintech’s are capturing versus your natural client base, if there is a significant degree of overlap there or not? And then on the profit outlook, as you said on 2025, I mean is it logical to expect for you basically to expect that a hyperinflation and FX headwinds in Turkey are coming down quite quickly for next year? Is that embedded basically in the guidance? Thank you.

Onur Genç: Thank you, Nacho, for the questions. We mentioned it before, but once again, we did gain market share in retail demand deposits in Mexico in the year, year-over-year, February-versus-February. The latest announced market number is February. We gained 17 basis points market share in retail demand deposits. This is the area where Fintech’s compete. Are they creating a dent? Obviously, they are. I mean, at the end of the year, they have not announced their, we don't know their latest results, but at the end of the year, some dent has happened. But that dent is not happening on us, given the market share number. And why is that? Because we are really a great bank in Mexico. We keep saying this every quarter, and obviously, we are a bit subjective on this, but it's a wonderful bank that we have. We have 44% market share in payrolls. Once again, 44% of the amount of nominees, of the salaries that are paid by employers in Mexico goes through BBVA. That flow is there, and that flow protects us. We are gaining one, in the quarters, in the first quarter of 2024, we gained 1.2 million new customers in Mexico. 1.2 million, 85% of these customers we acquired through digital means. If you are looking for a Fintech in Mexico, we are, if Fintech implies better valuations and sexy names, we are one of those. 1.2 million new customers in Mexico in the first quarter. Last year, we gained more than 5 million new customers in Mexico, again, mainly through digital channels. In the context of who we are and what we do in Mexico, and in the context of market share gains in retail demand deposits, we respect them all, we respect them tremendously, but we are competing really well, in short. Regarding Turkey, the signals are very positive, Nacho. The signals are very positive. What is the watch? What is the key metric to watch, to see that Turkey is evolving in the right direction? It's the inflation figure. As you know, in January, it was more than 6%. In February, it was more than 4%. In March, it was 3.1%. In April, we are expecting around these levels, around 3%. Turkey seems to be doing the things that they need to do, and we passed a very important election. After the elections, the key messages of the government have been orthodoxy, our key focus, our key priority, our number one priority. This is coming from the President even himself, saying that it's inflation. As long as the country continues on its path to reduce inflation, and on this path of orthodoxy, we are quite positive. We are being asked this impact of hyperinflationary accounting on this. Hyperinflationary accounting will not disappear in our view, at least until 2027. Because the rule there, as you know, is the three-year cumulative inflation should be less than 100% to take you out of hyperinflation, and it probably will not happen until 2027. But, what matters is not hyperinflationary accounting, this and that. If inflation is contained, even though you apply hyperinflationary accounting, your P&L suddenly flourishes. Your P&L is not hit from the inflation impact. So, independent of the accounting standard, if the country keeps inflation under control, we will see much better figures coming from Turkey. This year, our expectation, BBVA Research expectation, is 45% inflation, which is going to be much better than the 65% of 2023. Next year, the government says around 15%,16% our team, probably it's going to be around 20%. And the year after, the government is putting a plan in place to say it's going to be single-digit inflation. If that path is relatively maintained, maybe there are some changes or there's a band around these figures and so on. But, if more or less this path is delivered, you will see very positive numbers coming from Turkey, from Guarantee BBVA to the BBVA consolidated figures.

Patricia Bueno Olalla: Thank you, Ignacio. Next question, please.

Operator: Thank you. The next question goes to Fernando Gil of Bestinver. Fernando, please go ahead, your line is open.

Fernando Gil: Hi, thank you very much for taking my question. Just two quick ones, please. One, on tax rates. I see Latin America tax rate being very low this quarter. Can you please comment on tax rate at the group divisions and units during 2024? Second is on NPL coverage. I see figures keep coming down quarter-on-quarter. Can you please comment on overlays and outlook going forward, please? Thank you very much.

Onur Genç: Let me take the NPL coverage and then you comment on the tax, Luisa, if that's okay. On the NPL coverage, basically two impacts. Number one, we did sell, especially in Spain, a few portfolios. If you are talking about year-over-year, throughout last year and also in the first quarter, that's number one. Number two, the main increase in NPLs in Spain has been the mortgage portfolio because unlike many of our peers, we do apply this new definition of default, which is if you restructure a client and if the NPV of that loan goes down by more than 1% and 1% is a very low figure, but that's the rule, then we put that loan into NPLs. Given that, given the fact that the NPL growth is mainly driven by mortgages and mortgages, given also the collateral value and so on, typically comes with lower provisioning, lower coverage, there is that mixed effect arriving mainly from Spain into the figure. If you take those two impacts aside, so the sale of the portfolios and also the mortgage impact in Spain, the number would not have been changing as you see in the figure. On the tax numbers?

Luisa Gómez Bravo: Yes, well the group effective tax rate in the quarter stands at 33%, 33.3% which is I think what we expect for the whole year, very much in line with last year. It's true that there are certain dynamics that compare, especially with the end of last year, with our, maybe a little bit complicated to understand, primarily with state in Peru. Remember at the end of last year, we had a significant, release of a provision that we had related to tax contingency in Peru. This was a significant amount and that's why you see a change in the quarter-on-quarter number in the tax amount in Peru. And in Colombia, the effective tax rates in the quarter is benefiting from the deductibility of the subordinated issuances that we've done and higher impact of tax exemptions coming from insurance business. So, I would say those are the main reasons in Latin America for the changes quarter-on-quarter or year-on-year in terms of tax rates.

Patricia Bueno Olalla: So thank you, Fernando. Thank you. This was the last question. Thank you for all your questions and for joining this first quarter results earnings call. As always, let me remind you that the entire IR team will be available to answer any questions you may have. Thank you very much.

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