BBVA CEO Carlos Torres Vila explained BBVA’s main competitive advantages in a context of profit pressure on the financial sector and a complex macroeconomic environment: an attractive, customer-centric business model; a solid risk management model; a sound capital position; and superior earnings power. “BBVA is well positioned to take advantage of the current environment,” he indicated during his speech at the Morgan Stanley European Financials Conference in London attended by a large group of institutional investors from across the globe.
Carlos Torres Vila's speech at the conference - an event aimed at the investor community which the bank is part of - was divided into three parts. First, he described the current situation of the financial sector and the expectation to make progress in the future. Then he described the key elements to understand the transformation BBVA is undergoing and the strategy to carry it out. And finally, he detailed the strengths of the BBVA Group and its franchises.
Regarding the first point, he affirmed that the “financial industry has a profitability issue”. The origin of this problem lies in a complex macroeconomic environment stemming from the impact of the slowdown of the Chinese economy in raw material prices and the global economy; the effect of lower oil prices on some economies; devaluation in some emerging countries; and low interest rates. He also referred to the regulatory pressure on financial institutions from higher capital requirements. Finally, he added the difficulty of competing with a multitude of players that offer a similar value proposition.
“Banks are changing at a fast pace,” he assured. In this regard, he explained that disruptive digital institutions specialized in finance (fintech) are disaggregating the industry and transforming each vertical. New technological developments related to big data, blockchain technology and artificial intelligence are emerging that are capable of changing the banking business. Most customers prefer to interact with the bank through mobile devices and expect an immediate and convenient response.
“This new landscape requires us to r edefine the value proposition in order to become a better bank for our customers,” the BBVA CEO indicated. Essentially, he explained that the way to achieve this is by assisting people understand their finances, offering them the best banking solutions and providing planning, decision‐making and tracking tools within their reach to make decisions. Without a doubt, “our purpose is to bring the age of opportunity to everyone.”
He then reviewed BBVA’s six strategic priorities to make this goal a reality.
- Offer the new standard customer experience through convenient and simple solutions
- Drive digital sales, especially using mobile phones
- Develop new business models, both internally and through partnerships
- Optimize capital allocation, giving priority to the investments and business decisions that offer the greatest returns on regulatory capital
- Unrivaled efficiency, simplifying processes and choosing the most efficient distribution channels
- A first class workforce
In addition, he specified BBVA’s aspirational objectives concerning customers (be the most recommended bank) business model (increase business done digitally), technology (reduce significantly average IT cost per customer) and profitability (reach double-digit ROTE rates).
The final part of his speech focused on BBVA’s strengths:
- An attractive business model that is customer-centric and geographically diversified.
- An solid risk management model. In this section, he paused to explain BBVA’s limited exposure to the oil and gas industry – currently in the spotlight for declining prices. This exposure represents 3% of BBVA’s total credit risk, or €15.8 billion.
- The sound capital position, with a 12.1% phased-in CET1 ratio, well above the regulatory requirements (235 basis points above the 2016 SREP requirement). He also recalled the goal of reaching an 11% fully-loaded CET1 ratio in 2017 and emphasized the high quality of BBVA’s capital, with the second-highest leverage ratio of its group of comparable European competitors.
- A superior earnings power thanks to the BBVA Group’s international presence
To conclude his speech, he reviewed the key elements of BBVA’s strategy and the main trends in each geographic region.
In relation to Spain, he stressed that results would increase due to the expected reduction in real estate and loan loss provisions. The key approaches to face an environment of low interest rates include price management, fee income growth and cost control. Regarding the U.S., he added that activity growth would continue to be solid, although less than in 2015. In Mexico, a market with great potential, he expects to see similar results to last year, both in economic activity and in net income and sound asset quality. In relation to South America, a region with a sustainable future growth, he indicated that the Andean countries could grow above 2% this year and that the impact of the economic slowdown in asset quality will be limited. Turkey will experience the highest economic growth in BBVA's footprint, which will translate into double digit activity growth.
He concluded by affirming that “BBVA is well positioned to take advantage of the current environment.”