BBVA Earnings: Five keys to understanding the Group's first quarter 2020 results
BBVA’s recurring revenues (net interest income and net fees and commissions) grew strongly during the first quarter and the operating income was the highest of the past ten years. Also, the attributable profit absorbed the provisions established to anticipate the impact of the COVID-19 crisis. According to BBVA Group Executive Chairman Carlos Torres Vila, “the recurrence of our profits before provisions and our solid capital and liquidity position allow us to face the crisis from a position of strength and to front-load in this first quarter the provisions to hedge against the impact of the pandemic”.
BBVA’s ordinary profit during the first quarter of 2020 reached €1.258 billion, 6.4 percent more at current exchange rates. Taking into consideration the front-loaded provisions to anticipate the macroeconomic impact of COVID-19, the attributable profit reached €292 million. Factoring in the impact of the USA goodwill impairment, the result reflects a loss of €1,792 million.
Core revenues of the banking business. BBVA Group’s net interest income closed at €4.56 billion between January and March, which represents a y-o-y increase of 7.5 percent at constant exchange rates (+3.6 percent at current exchange rates). Net fees and commissions reached €1.26 billion, +6.3 percent at constant exchange rates (+3.6 percent at current exchange rates). Recurring business revenues grew a combined 7.2 percent in the quarter at constant exchange rates (+3.6 percent at current exchange rates).
Operating income and efficiency. The Group’s operating income grew 20.3 percent at constant exchange rates (+14.1 percent at current), on the back of the strength of its core revenues and its cost containment efforts, to close at €3.57 billion, the highest figure in ten years. Operating expenses remained contained, with a growth of just 2.2 percent compared to same period of 2019, comfortably below the average inflation across the bank’s footprint. All these factors resulted in an improvement in the Group’s efficiency ratio, which dropped to 45 percent in the quarter, the lowest level since March 2011.
Risk Indicators. The crisis caused by COVID-19 had a substantial impact on risk indicators. As a result of the loan-loss provisions set aside in the quarter, the coverage ratio increased to 86 percent in March 2020 (compared to 77 percent in December 2019) and the cumulative cost of risk to 2.57 percent (1.16% excluding financial asset impairments due to COVID-19). The NPL ratio improved to 3.6 percent in March, compared to 3.8 percent at the end of 2019.
Capital adequacy and Liquidity. BBVA has consistently proven its high capital generation capacity: It’s capital base has increased by a factor of 2.3 since 2008. The Group’s CET1 fully-loaded ratio reached 10.84 percent as of March 31, 2020, in line with the Group’s goal to keep a 225 to 275 basis points buffer with respect to its CET1 requirement (currently 8.59 percent), Finally, regarding liquidity, the Group kept a comfortable position, with a Liquidity Coverage Ratio (LCR) and a Net Stable Funding Ratio (NSFR) above the 100 percent required by regulatory authorities.
Response against COVID-19. BBVA has identified its three priorities during the COVID-19 crisis: safeguarding the health of its employees and their families, its customers and the community; continue delivering an essential delivery in the communities in which it operates; and provide financial support to its customers. In this sense, the bank implemented telework across all its geographies and currently 95 percent of core service employees and 71 percent of its branch network staff are working from home. BBVA has also been encouraging its customers to use digital channels. As a result, digital sales (measured in units sold over the total) reached 63 percent in March. Digital customers already account for 59 percent of total customer base, and mobile customers for 54 percent. Also, the Group rolled out financial support initiatives across its entire footprint to support customers bearing the brunt of the crisis. BBVA has pledged a €35 million global donation to support health authorities and social organizations, as well as to promote scientific research.