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Economic forecasting 31 Jul 2019

Onur Genç (BBVA): "We have multiple management levers to mitigate the impact of low interest rates"

BBVA CEO Onur Genç underscored during the Group’s second quarter earnings conference call that the Group has “multiple management levers to mitigate the impact of low interest rates,” both in Europe and in the U.S.

Interest rate hikes or cuts have an impact on the net interest income of financial institutions. But at the same time, a lower interest rate environment “helps in the growth of the business in terms of volumes, it helps in the cost of risk, and it helps on other dimensions of the business as well,” explained Onur Genç. On one hand, lower-level interest rates could have a positive impact on demand for credit. On the other, transformation is already driving efficiency, pushing operating costs to a steadily decline. Finally, loan-loss provisions and cost of risk should remain at reasonably low levels.

Weighing on the ECB’s announcement of a tiered scheme for banks’ deposits, BBVA’s CEO rated it as positive. In combination with the bank’s management levers, this scheme would contribute to mitigate the impact of negative rates.

As for the negative rate scenario in Europe, BBVA’s CEO answered to some questions regarding the retail deposit policy in Spain. “We don’t charge retail deposits and this is not in our agenda,” he clarified.

We don’t charge retail deposits and this is not in our agenda.

BBVA CEO Onur Genç ahead of his statement on the Group's 2Q19 earnings.

Asked about the Spanish economy and the political situation until a new government is formed, Onur Genç emphasized that “for the time being, uncertainty’s impact on growth is still limited.” In fact, he noted that “Spain is growing much faster than the rest of Europe.” According to BBVA Research, Spain will continue growing above the EU average (which is expected to close at 1.1% in 2019 and 1.2% in 2020), thanks to the positive impact of lower oil prices and the ECB’s expansive monetary policy. BBVA Research has revised slightly upwards its growth forecasts for Spain to 2.3 percent in 2019, due to the solid performance of the tourism sector and machinery and equipment investments. For 2020, it maintained its forecast unchanged at 1.9%.

Onur Genç also referred to Mexico’s economic slowdown and its potential impact on the bank’s performance, given the downward revision of the country’s GDP growth outlook for 2019 (from 1.4 percent to 0.7 percent) and 2020 (from 2.2 percent to 1.8 percent). “We have a wonderful franchise in Mexico,” he said. In his opinion, what really matters, regardless of macroeconomic forecasts, is the bank’s recurring results in this market. In fact, lending has grown in average 3 or 4 times more than Mexico’s GDP in the past decade. “BBVA in Mexico has flourished year after year,” where “we grow close to double digits every year,” he noted. Net attributable profit grew 7.2 percent in the first half of the year excluding currency variations, driven by strong net interest income performance. This dynamism is explained, he said, “because the access to banking services (bankarization level) in the country is very low.”

As for the Cenyt case, he stated that “as of today, we haven’t identified any relevant direct impact caused by this situation on our business.” He also reiterated the Group’s “firm commitment to clarifying the facts and complying with the law,” for which the bank will continue to “actively collaborate with the authorities.”

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