Within the context of a complex environment, BBVA leads the digital transformation of banking and is evolving its business model in order to create value for its various stakeholders. This is how Jaime Sáenz de Tejada, Global Head of Finance at BBVA, summarized the bank's position at the 26th Financial Sector Summit (XXVI Encuentro del Sector Financiero), organized by Deloitte in Madrid. "Our business model is creating more value for customers and shareholders," he said.
Jaime Sáenz de Tejada began his presentation by describing the main challenges facing BBVA: the current macro environment, the threat of new digital competitors, and the pending progress to be made in the areas of the European Banking Union and financial regulation.
Regarding the macro environment, BBVA's CFO reiterated that a slowdown in global growth has been palpable in recent quarters, and the central banks have responded promptly. "Expectations for interest rate hikes in the developed economies have been completely sidelined,” he pointed out. In his opinion, Europe and the U.S. are not starting off from the same position. The U.S. has been benefiting from an unusually long expansionary economic cycle (the longest in the last 100 years), record low unemployment, and it had moved away from a countercyclical monetary policy; whereas there are several economies in Europe that have not made the necessary structural reforms in recent years. Sáenz de Tejada advocated for member states to take over from the ECB – which is more and more limited in its ability to react – in order to carry out the necessary reforms.
Nonetheless, he stressed that in emerging countries within the BBVA footprint, the global downturn is making it possible for central banks to implement countercyclical policies. Still, the ability to adopt these policies will depend on the prior reforms undertaken by each country. These countries experience more growth – although more volatility too – than developed economies, and the performance outlook for raw materials is reasonable. Sáenz de Tejada also stressed that the persistent geopolitical risk represented by Brexit and the economic sanctions against China and Iran could stem global growth.
According to the BBVA CFO, the financial sector is reacting to the emergence of new competitors, as well as to the arrival of new services and business models, which in turn have resulted in further technological advances. "More than a threat, I think all this represents an opportunity for those business models that can adapt at a speed that customers are increasingly demanding,” he said. He also commented on the new and growing opportunities that have resulted from the success of smartphones and cloud computing.
Regarding the third challenge raised by Sáenz de Tejada, the banking union and industry supervision, he believes its goal is to ensure that the European banking sector is more transparent, better protected, and is uniformly regulated. "Any progress toward uniform, homogeneous regulation and supervision is good," he said. "Being more transparent and secure, making progress in consumer protection and data access are positive goals.” He pointed out that to do this the regulators are focused on increasing levels of supervision accompanied by greater capital requirements in order to reduce risks; there is a shift to a greater convergence in supervisory practices and to applying common regulation to the same kind of business activities even if they arise in different sectors. Sáenz de Tejada also advocated for the creation of a European Deposit Insurance Fund.
Opportunities for BBVA
In the face of these three challenges, Jaime Sáenz de Tejada pointed out the opportunities that exist for BBVA: the business model, leading the transformation, and value creation.
The BBVA CFO singled out the following aspects of the Group’s business model:
- geographic diversification representing both emerging and developed markets;
- top-class subsidiaries in each country;
- a multiple point of entry (MPE) business model;
- the development of transformation-leading, global solutions;
- a robust, high-quality risk control model;
- a strategy focused on the creation of shareholder value,
- and the ability to effectively manage in complex environments.
BBVA’s global head of finance stressed that, with its value proposition, BBVA can grow in the open banking market without the need for costly investments in physical distribution. He also reiterated that customers can do all their banking from the bank's app, while still having the physical branch offices available, without forgoing the efficiency and efficacy offered by new tools that provide greater predictive capabilities to the advisors.
"This kind of assistance doesn’t necessarily have to be in-person. We broke new ground in the area of remote support, which today benefits some million and half of the bank’s customers in Spain,” he stated. "The key is in providing guidance. Customers have to feel that the bank is relevant when it comes to solving their day-to-day problems.” Sáenz de Tejada provided different examples of the bank’s advisory models (Valora and BBVA Invest), which provide customers with automated tools to assist with decision-making.
He explained that BBVA's business model has facilitated the creation of value for its customers. This is attested to by the fact that BBVA is the bank most recommended by its customers in Spain, Mexico, Peru, Uruguay, and Paraguay. Furthermore, digitization provides some interesting metrics: the churn rate is 47 percent lower for digital customers than for non-digital customers.
In short, BBVA’s CFO stressed that the bank’s leading role in the digital transformation and its value proposition has enabled the bank to create a more efficient business model, with enduring positive jaws (when gross income growth exceeds the growth of operating expenses) and an efficiency ratio of 48.1 percent, which is lower than the group average for comparable organizations in Europe.
Lastly, Sáenz de Tejada underscored the creation of value for BBVA shareholders. The tangible book value per share plus dividends is seeing higher growth than the average of the bank’s European peers. Furthermore, BBVA’s profitability ratios are better than the average of its European competitors, with return on tangible equity (ROTE) at 11.9 percent (compared to a 7.7 percent peer group average) and return on equity (ROE) of 9.9 percent (compared with an average of 6.4 percent for its peers).