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Dividends Act. 19 Oct 2020

Onur Genç: "Our expectation is that the supervisor’s dividend restrictions will be lifted in 2021"

Onur Genç participated this Monday in the 11th Financial Meeting, organized by KPMG and financial newspaper Expansión. In this forum, the BBVA CEO said that “our expectation is that the supervisor’s dividend restrictions will be lifted in 2021”.

According to data from the European Banking Federation, banks’ dividend payments declined 39 percent during the first half of the year, compared to an average 23 percent in the rest of industries. In the case of European banks, dividend payments dropped 86% compared to 44% in the remainder of industries. This decline, in turn, results in a higher cost of capital for banks, making it very difficult for capital to be used in productive economic areas to drive growth, he explained.

While the rest of European companies or U.S. banks are paying dividends, European banks are not allowed to. “I think there should be some balancing to be done there. But again, it’s the call of the regulators. We do expect that in 2021 it will be released,” he noted.

As for dividend payments, Onur Genç announced at a recent conference hosted by Bank of America that BBVA’s ability to pay dividends remains solid, and that bank’s intention is to resume dividend payments once the existing supervisory recommendation is eliminated.

Regarding the level of provisions, the BBVA CEO explained that in the second half of the year the bank is expecting “much less provisioning as compared to the first.” This is possible thanks to the front loading effort during the first and second quarters and the improved performance of the portfolio, especially concerning payment deferrals in Mexico. Genç explained that “we are seeing some good positive signals on the cost of risk.” In fact, a few weeks ago BBVA announced an improvement in its cost of risk outlook for this year, 150 to 160 basis points, compared to its previous guidance of 150-180 bps and to 204 bps in the first half of the year.

Onur Genç also talked about the uptick in retail activity: “despite the fact that the health situation is not any better, the economic activity is giving some positive signals.” Thus, the indicator that BBVA analyses each week since March now shows total spending done with the credit cards and debit cards has increased in all markets in which BBVA operates compared to one year ago; 5 percent higher in the case of Spain.

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Onur Genç during his speech at the XI Meeting of the Financial Sector, organized by KPMG and the newspaper Expansión - BBVA

Asked about BBVA’s behavior on the stock market, Onur Genç assured that the banks is “undervalued”. In his opinion, the bank’s current stock price does not reflect its fundamental value. In this sense, he underscored that the bank has traditionally proven its ability to generate value, year after year, with little volatility, while posting profitability levels that, every year, are one of the best in Europe; and BBVA’s ability to generate capital organically, as well as a consistent and predictable dividend policy.

In his opinion, the volatility of the current crisis should not cast doubts about the bank’s diversified model. “The core strength of BBVA is having the best bank or one of the best banks in each country, as in the case of Mexico and Turkey,” he stressed. About BBVA Mexico and Garanti BBVA in Turkey, Onur Genç underscored the high-growth potential of both franchises, both due to their population pyramids and to their growth potential in the banking sector, given the low levels of banking penetration.

Asked about the ongoing consolidation process in the Spanish banking system, and about BBVA’s  intent to play a role in this process, Onur Genç reiterated that the entity’s focus is “on organic growth,” leveraging its digital capabilities. He added that, the bank looks into opportunities as they arise: “Bottom line is, if there is shareholder value creation, you might get engaged. If not, we are very comfortable with where we are.”

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Onur Genç, together with the CEO of Banco Santander, José Antonio Álvarez - BBVA

“It is essential that we channel this big amount of money to the right things.”

One of the topics discussed at the event was the role of banks in relation to the EU funds of the Next Generation EU program that Spain will receive to deal with the impact of the economic crisis. Onur Genç stressed that the European plan is “very important for Spain” at a time of enormous change, due to the need to digitize the economy and due to sustainability.

“We have to make sure that we invest this money in things that will matter in the future,” he said. And here is where banks should play a “critical” role in generating a multiplier effect of the European funds to boost the economy, both by leveraging their project assessment and advisory expertise, as well as providing financing beyond the European funds, thus multiplying their positive impact.

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