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: Six months ended June 30, 2024
Business Overview: BBVA is a customer-centric global financial services group with operations primarily in Spain, Mexico, Turkey, and South America. The Group focuses on retail banking, asset management, and wholesale banking, with a strategic emphasis on digital transformation and sustainability.
Key Financial Metrics
| Metric (€ Millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 |
|---|---|---|
| Net Interest Income | 12,993 | 11,410 |
| Gross Income | 17,446 | 14,148 |
| Operating Profit Before Tax | 7,780 | 6,122 |
| Profit Attributable to Parent Company | 4,994 | 3,878 |
| Total Assets | 759,534 | 775,558 |
| Total Equity | 57,091 | 55,265 |
| Customer Deposits | 455,229 | 437,405 |
| Loans and Advances to Customers | 416,510 | 403,384 |
Capital Ratios (Fully-Loaded as of June 30, 2024):
- CET1 Ratio: 12.75%
- Total Capital Ratio: 16.77%
- Leverage Ratio: 6.77%
Asset Quality:
- Impaired Loans: €14,677 million (3.38% of loans at amortized cost)
- Allowance for Credit Losses: €11,242 million (2.59% coverage ratio)
Material Changes vs. Prior Period
- Profitability: Profit attributable to the parent company increased by 28.8% to €4,994 million, driven by higher net interest income (+13.9%) and net gains on financial assets (+217.4%).
- Net Interest Income: Increased primarily due to higher yields on loan portfolios in Spain and Mexico, and volume growth in wholesale and retail loans. This was partially offset by higher funding costs and currency depreciation in Turkey and Argentina.
- Fee Income: Net fee and commission income rose 36.7% to €6,149 million, largely due to increased payment systems fees (credit cards/POS) in Turkey and Mexico.
- Impairment Charges: Impairment on financial assets increased 42.5% to €2,839 million, reflecting higher Stage 3 entries in retail portfolios (credit cards/consumer loans) in Mexico, Colombia, Peru, and Spain.
- Hyperinflation Impact: The application of IAS 29 in Turkey resulted in a net loss of €1,008 million for the period (€868 million attributable to the parent), primarily due to the loss on the net monetary position.
- Share Buyback: BBVA completed a €781 million share buyback program in April 2024, reducing share capital by approximately 1.28%.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Macroeconomic Environment:
- Interest Rates: The ECB cut rates in June 2024, and the Federal Reserve is expected to begin easing in H2 2024. BBVA expects rates to remain above pre-pandemic levels due to geopolitical risks and fiscal policies.
- Growth Forecasts: BBVA Research forecasts global GDP growth of 3.1% in 2024. Spain is expected to grow 2.5%, Mexico 2.5%, and Turkey 3.5%. Argentina is forecast to contract by 4.0%.
- Inflation: Inflation remains a key risk, particularly in Turkey (71.6% in June) and Argentina, though moderation is expected in some regions.
Key Risks and Contingencies:
- Geopolitical Risks: Conflicts in Ukraine and the Middle East, US-China tensions, and political instability in key markets (Spain, Mexico, Turkey, Argentina) pose risks to economic stability and credit quality.
- Regulatory Risks: Changes in banking regulations, including the "liraization" strategy in Turkey and potential tax changes in Spain, could impact margins and operations.
- Legal Proceedings: BBVA is subject to a criminal investigation in Spain regarding alleged bribery and revelation of secrets involving a third-party service provider (Cenyt). The pre-trial phase ended in January 2024, and abbreviated criminal proceedings were authorized in June 2024. Outcomes are unpredictable.
- Merger Activity: BBVA launched a voluntary tender offer to acquire 100% of Banco de Sabadell, S.A. after a merger proposal was rejected. The offer is subject to regulatory approvals and shareholder acceptance thresholds.
Unusual Items:
- Hyperinflation Adjustments: Significant monetary losses were recorded in Argentina (€1,020 million) and Turkey (€190 million) due to hyperinflation accounting adjustments.
- Temporary Tax in Spain: A €285 million expense was recorded for the temporary tax on credit institutions in Spain for 2024.
Important Facts for Investor Verification
- Merger Status: Verify the progress and regulatory approval status of the tender offer for Banco de Sabadell, S.A., including the 50.01% acceptance threshold.
- Turkey Operations: Monitor the impact of hyperinflation accounting (IAS 29) and the Turkish Central Bank's regulatory changes on Garanti BBVA's profitability and liquidity.
- Argentina Exposure: Assess the credit quality and currency risk in Argentina given the severe economic contraction and high inflation environment.
- Legal Investigation: Track developments in the Spanish criminal investigation regarding Cenyt and potential financial or reputational impacts.
- Capital Management: Confirm the execution of capital issuances (CoCos, Tier 2 bonds) and their impact on maintaining regulatory capital buffers above ECB requirements.