BBVA earned €2.82 billion in the first nine months of 2015, up 45.9% in y-o-y terms, without considering the one-off impacts from corporate deals closed so far this year (partial sale of CNCB and sale of CIFH and acquisitions of Catalunya Banc and of a 14.89% stake in Garanti). After factoring in these impacts, net profit totaled €1.7 billion, down 11.8% from a year earlier.
“In such a complex environment, double-digit income growth rates testify to the BBVA Group’s growth capacity and recurrence of results,” said BBVA COO Carlos Torres Vila.
The results BBVA presents today stand out for the strong recurring revenues of the banking business – net interest income plus commissions and fees. Furthermore, after adding the increased stake in Garanti to the bank’s accounts, quarterly gross income grew to a record €5.98 billion, up 14.5%. The evolution of operating expenses, which grew more slowly than gross income between January and September, also had a positive impact, as did the decline in loan-loss and real-estate provisions, mostly in Spain.
To describe the cumulative results between January and September, we must bear in mind the changes in the scope of consolidation aforementioned. Furthermore, the valuation at fair value of the 25.01% stake that BBVA already held in Garanti, had a negative accounting impact, without a cash outflow, of €1.84 billion.
Between January and September, net interest income (NII) increased 10.5% in y-o-y terms to €12.01 billion. Stripping out the currency effect, NII rose 19.4%. The double-digit growth rates reflect the dynamic activity in emerging countries and of the United States, as well as the decline in the cost of deposits in Spain. All of this shows BBVA’s ability to generate recurring revenues in historically low interest-rate environments.
Trading income in the last three months was affected by market volatility. Still, in the cumulative accounts up to September, gross income totaled €17.53 billion (+12.5% y-o-y). At constant exchange rates, gross income rose 14.8%.
The y-o-y growth of operating expenses in the first nine months of the year remained below that of gross income, despite the high inflation in some regions and the cost of integration of Catalunya Banc in Spain. Therefore, the efficiency ratio improved at the close of September from a year earlier, reaching 51.5%. It also supported the operating income trend, which increased 12.8% to €8.51 billion, or 17% without the currency effect.
To obtain a more uniform comparison with last year’s results, below we have summarized these lines on the income statement without the change in the scope of consolidation in Turkey and excluding Venezuela, given that the new exchange rate applied in this country distorts the numbers in relative terms. Between January and September, NII rose 16% y-o-y, to €11.16 billion. Excluding the currency effect, NII rose 11.9% during the period. Gross income grew 13.8% to €16.7 billion (+9.8% at constant exchange rates). Operating income rose 15.2% (11.7% excluding currency effect) to €8.09 billion.
The risk indicators continued to register a positive trend. The BBVA Group’s NPL ratio improved to 5.6% at the close of September, compared to 6.1% a year earlier, with coverage of 74% (63% at the close of September, 2014).
As for capital adequacy, CET1 stood at 11.7% at the close of September, according to the current regulation in Europe. If we apply the fully-loaded criteria, the ratio would stand at 9.8%, affected by the market volatility and the depreciation in emerging markets currencies in the third quarter, the steepest in a quarter since the Lehman Brothers crisis. The market evolution from the end of September until now would increase the ratio in about 20 basis points. The bank’s capital also stood out for its high quality, with a leverage ratio of 5.7% (fully-loaded) at September 30, the highest among its peers.
BBVA continued to broaden its base of customers who interact with the bank through digital channels. At the end of September, it had 14 million digital customers (+21% y-o-y), of which 7.6 million interact via mobile. At this pace, the bank expects to meet its target of reaching 15 million digital customers by the end of 2015, of which 8 million would be mobile banking customers.
And, in turn, the transformation led to greater digital sales. In September, 23.7% of new consumer loans in Spain were sold through digital channels.
2015 3Q BBVA Results Press Presentation
Regarding activity, in the banking business and as a reflection on the balance sheet, gross lending to customers increased 18.1% in the last year, rising to €426.3 billion. The increase in new loan production continued to gather steam in Spain. Excluding Catalunya Banc, new loans saw significant increases over the first nine months of the year in mortgages (+43%) and consumer loans (+39%) in y-o-y terms. Customer deposits expanded at a similar pace, totaling €388.86 billion, with growth across all the business areas. Below, we describe the main aspects for each business area.
BBVA continued to reduce its exposure to the real-estate sector in Spain with a y-o-y drop of 3.2%. If we exclude the assets of Catalunya Banc, the reduction was 11.3%. In line with the previous quarters, the area generated capital gains through the sale of property and narrowed losses, resulting in a net loss of €-407 million in the first nine months of the year (a 36.0% improvement from a year earlier).
The combined result of both businesses –banking and real estate activities- in Spain was €694 million in the first nine months of the year, a y-o-y increase of almost €500 million.Banking activity in Spain boosted recurring revenues (NII plus commissions and fees) by 8.2% y-o-y in the third quarter. Gross income grew in y-o-y terms at a double-digit pace during the same period, while operating income increased 3.4%. The impairments on financial assets continued to decrease, falling in the nine months to September by 13.4% from a year earlier. The NPL ratio improved from June to 6.7%, with coverage of 60%. Between January and September, the area posted a profit of €1.1 billion (+32% y-o-y).
To better explain the trend of business areas that use a currency other than the euro, the exchange rates described below refer to constant exchange rates.
Business activity in the United States registered y-o-y growth of 12.7% in lending and 7.8% in customer resources. All the margins expanded at positive y-o-y rates between July and September, particularly operating income (+12.3%). Risk indicators remained at minimum levels. The United States earned €410 million (+12.1%) in the first nine months of the year.
In Turkey, the results already reflect the integration of Garanti by the full consolidation method. The robust activity pushed NII plus commissions and fees higher in the third quarter. Turkey’s good credit quality indicators held steady. Between January and September, Turkey posted a profit of €249 million (+7.3%).
In Mexico, lending and deposits grew at a double-digit pace again. NII plus commissions and fees rose 9.4% y-o-y in the third quarter, with greater participation of the wholesale segments. The risk indicators continued to improve. BBVA posted a profit of €1.51 billion in Mexico (+9.6% y-o-y) in the first nine months of the year.
South America –excluding Venezuela- continued to make considerable strides in business with customers and a favorable and recurring revenue trend. In the third quarter, NII plus commissions and fees grew 12.1% y-o-y. Once again, this area boasted very stable risk indicators. Attributable net profit for the first nine months totaled €689 million (+7.1% more than during the same period a year earlier). Including Venezuela, profit was €693 million.