Business Context and Reporting Period
Company: BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (BBVA)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2024
Overview: BBVA is a global financial services group with primary operations in Spain, Mexico, Turkey, and South America. The Group reported strong profitability growth driven by higher net interest income and fee income, despite headwinds from currency depreciation in key non-euro regions and hyperinflationary adjustments in Turkey and Argentina.
Key Financial Metrics
| Metric (€ Millions) | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change (%) |
|---|---|---|---|
| Net Interest Income | 18,861 | 17,843 | 5.7% |
| Gross Income | 26,161 | 22,104 | 18.4% |
| Operating Profit Before Tax | 11,647 | 9,487 | 22.8% |
| Profit Attributable to Parent | 7,622 | 5,961 | 27.9% |
| Impairment on Financial Assets | (4,279) | (3,203) | 33.6% increase in expense |
| Total Assets | 769,341 | 775,558 | (0.8%) |
| CET1 Capital Ratio (Fully Loaded) | 12.84% | 12.67% | +17 bps |
| Total Capital Ratio (Fully Loaded) | 17.09% | 16.58% | +51 bps |
Material Changes vs. Prior Period
- Profitability Surge: Profit attributable to the parent company increased by 27.9% to €7.62 billion. This was primarily driven by a 27.9% increase in fee and commission income (€9.26 billion) and a 5.7% rise in net interest income.
- Fee Income Drivers: Fee income growth was led by higher payment systems fees in Turkey (due to regulatory increases in credit card fees) and increased transaction volumes in Mexico and Spain.
- Impairment Costs: Credit impairment expenses rose 33.6% to €4.28 billion, attributed to higher Stage 3 entries in retail portfolios in Mexico and Turkey, and deteriorating macroeconomic forecasts.
- Hyperinflation Impact: The Group recorded hyperinflation adjustments in Turkey (€1.179 billion loss) and Argentina (€1.178 million loss) within "Other operating expense." While the Turkish loss decreased compared to the prior year, the Argentine loss increased.
- Segment Performance:
- Spain: Profit increased 37.6% to €2.87 billion, driven by higher yields on loan portfolios.
- Mexico: Profit increased 5.6% to €4.19 billion, despite peso depreciation, supported by volume and yield growth.
- Turkey: Profit increased 18.5% to €433 million. At constant exchange rates, operating profit before tax increased by 183.6%, though reported euro figures were dampened by a 24.1% depreciation of the Turkish lira.
- South America: Profit decreased 3.4% to €471 million due to currency depreciation (Argentine peso down 65.9% vs. euro) and higher impairment costs, masking a 108.7% increase at constant exchange rates.
Guidance, Outlook, Risks, and Unusual Items
- Share Buyback: BBVA completed a €781 million share buyback program in April 2024, reducing share capital by approximately 1.28%.
- Banco de Sabadell Offer: BBVA launched a voluntary tender offer to acquire 100% of Banco de Sabadell, S.A. following the rejection of a merger proposal. The offer ratio was adjusted to 1 BBVA share + €0.29 cash for every 5.0196 Sabadell shares. Regulatory approvals from the ECB and UK PRA have been received; CNMV and Spanish antitrust approval are pending.
- Capital Management: The Group issued €750 million in contingent convertible instruments (CoCos) and various subordinated bonds to reinforce capital buffers. The fully-loaded CET1 ratio stands at 12.84%, well above the ECB requirement of 9.13%.
- Key Risks:
- Geopolitical & Macroeconomic: Ongoing conflicts (Ukraine/Russia, Middle East), US-China tensions, and potential global growth slowdowns.
- Currency Volatility: Significant depreciation of the Turkish lira, Argentine peso, and Mexican peso against the euro negatively impacts consolidated results.
- Regulatory: Changes in deposit guarantee schemes in the EU, "liraization" policies in Turkey, and potential new taxes in Spain.
- Interest Rates: High interest rates may lead to increased default rates and reduced credit demand.
Investor Verification Checklist
- Exchange Rate Sensitivity: Verify the impact of constant exchange rate adjustments on Turkey and South America segments, as reported euro figures significantly understate local currency performance.
- Hyperinflation Accounting: Review the specific impact of IAS 29 adjustments on the income statement for Turkey and Argentina, which are recorded as operating expenses.
- Banco de Sabadell Transaction: Monitor the status of the CNMV and Spanish antitrust approvals for the tender offer and the potential dilution from the capital increase required to fund the acquisition.
- Credit Quality Trends: Analyze the 33.6% increase in impairment charges, specifically the drivers in Mexico and Turkey retail portfolios, to assess future provisioning needs.
- Capital Adequacy: Confirm the sustainability of the CET1 ratio (12.84%) against the ECB's Pillar 2 requirements and the impact of the ongoing capital reduction from the buyback.