Speaking this morning at the 22nd annual meeting organized by Bank of America Merrill Lynch in London, Chief Financial Officer Jaime Sáenz de Tejada explained some of the key aspects BBVA’s strategy to investors. "BBVA is well positioned for the new growth cycle", thanks to a solid balance sheet and capital position, as a result of the company’s efforts in recent years, its geographic diversification and forward-looking transformation strategy.
BBVA’s CFO started his presentation with a positive message on the beginning of an economic growth cycle, as the global economy starts pulling out of an extended period of crisis. Growth prospects in the eurozone and the United States for this year, the 12-month euribor increases expected by the markets and the improvement in bank profitability are good indicators of a change of cycle, he said.
In this context, BBVA is well positioned to benefit from the improvement in the economic climate, mainly for several reasons:
- Its "exceptional progress" to strengthen its balance sheet with more provisions and capital. After allocating over €52 billion in provisions and impairments on non-financial assets since 2008, in June 2017, the company’s coverage ratio of NPLs & foreclosed assets reached 68%. In addition, BBVA has proven its capacity to generate capital. Since December 2008, BBVA has more than doubled its high-quality capital (CET1 fully-loaded) to over €41.4 billion at the end of last June. The fully-loaded CET1 capital ratio (11.1% at the end of June) is in line with the 11% target. Also, in terms of high-quality capital ratios – density of risk-weighted assets and leverage ratio – BBVA ranks first in its European peer group.
- The Group also holds a “unique and non-replicable footprint,” with an operating structure that encompasses a balanced mix of emerging and developed markets, with solid growth prospects: In average, the countries where BBVA operates will grow 2.8% this year, compared the Eurozone and UK combined 1.6% .
- BBVA has anticipated changes in the financial industry with a transformation strategy.
- The company offers superior profitability, with ROE of 8.6% at the end of June 2017, compared to 5.3% of its EU Peers.
Sáenz de Tejada then went over the prospects of the different business areas.
- BBVA’s Banking Activity in Spain is poised to benefit from the economic recovery climate, which will drive credit quality and loan growth. For the time being, BBVA's overall lending activity volumes remain flat (-0.4% year-to-date), but consumer and SME loan segments are already growing visibly. In addition, the area's net interest margin has a positive sensitivity to interest rate hikes: For every 100 basis points of rate hikes, 12-month NII could increase up to 15%. Cost control remains a key management priority: Operating expenses dropped 4.4% year-on-year in the first half of the year.
- Spain's real estate area (Non-Core Real Estate) is leveraging the sector’s increasing activity to accelerate asset sales. Net exposure to real estate sector has decreased 20% year-to-date, as a result of the wholesale Buffalo, Boston, Testa, Metrovacesa or Jaipur transactions. At 63%, BBVA’s foreclosed RE asset coverage ratio is one of the highest.
- USA will benefit from loan growth in the second half of the year. The country’s macroeconomic outlook remain solid (+3.9% GDP growth in 2018), even after Harvey and Irma. Hurricanes Harvey and Irma have had a modest impact on the company’s cost-of-risk guidance for the year. BBVA Compass’ profitable growth strategy combines a successful management of the customer spread and a focus on growing the consumer portfolio.
- In Mexico, the economy shows strength and stability in growth (2.2% expected this year and 2.0% in 2018). Growth in lending remains at double-digit rates and the quality of assets is better than expected. BBVA Bancomer remains a leader in profitability and recurring revenues.
- Turkey is set to keep posting solid GDP growth rates, with an estimate 5.0% for this year and 4.5% for 2018. The increase in BBVA's stake in Turkish bank Garanti (up to 49.85%) reinforces the Group's growth prospects. Garanti is experiencing significant loan growth, combined with better-than-expected asset quality.
- South America hit a turning point this year, and the region is expected to grow by 2.8% in 2018. BBVA expects to grow sustainably in the region while keeping reasonable asset quality levels.
Finally, Jaime Sáenz de Tejada focused on the key milestones covered in the bank’s transformation strategy to anticipate with the pace of changes in the financial industry. Of all of them, he pointed out that BBVA is the highest ranked institution in customer experience in seven countries, according to Net Promoter Score (NPS); the digital customer base continues grow exponentially (22% year-on-year as of June 2017), especially in mobile (+42% year-on-year); and digital sales already account of almost a quarter of the total and as of July 2017 already broke the one million a month mark. Spain is one of the leading geographies, with the best world banking app (according to Forrester) that offers access to almost the whole product portfolio (currently 82% and expected to reach 92% at year-end).