“BBVA’s ability to combine profitability and growth is unique in the European banking sector”

Question: How have the first few months in charge of BBVA’s financial management been?

Answer: Finance is a highly important unit in any company, and even more so in a financial institution given its relevance in the decision-making process, support for the execution of the Group strategy and communication with the market, supervisors, regulators and corporate governance bodies, among others.  Although these first few months have been intense, they were also very exciting. I was lucky to have worked in the Finance area before becoming the Head of Corporate Investment Banking (my previous position), and now I am returning to an area where I know the teams well and they know me. And it also makes it easier that the Group’s momentum has been so positive – not only in financial results, but also in the way we are executing our strategy.

These months, right after the summer, have been intense because they happened to coincide with a series of very significant processes for the organization in which the Finance area plays an especially important role. Specifically, the budgeting process, which we spend a lot of time on, communicating quarterly results to the market and supervisors, and recently, the 2023 annual results, preparing accounts, planning capital and liquidity, the shareholder distribution proposal… And in addition, we also carried out our extraordinary share buyback program and placed debt issues on the market.

“In three years (from 2021 to 2023), we will have distributed €13.2 billion to our shareholders”

Q: BBVA will distribute a cash dividend of €0.55 per share against the 2023 results. It has also launched a new €781 million share buyback plan. What is your take on the higher shareholder distributions in recent years?

A: BBVA is firmly committed to creating value for shareholders, offering highly attractive remuneration that translates into a dividend against 2023 accounts that is very high in historical terms. The increase in cash dividends has been particularly significant over the past five years. It was €0.26 gross per share in 2018 and reached €0.55 in 2023 – more than double. In this same period, we have also more than doubled the recurring earnings per share (from €0.63 in 2018 to €1.32 in 2023), boosted by share buyback programs, while the total payout has gone from 37 percent of profit in 2018 to 50 percent in 2023¹.  In three years (from 2021 to 2023), we will have distributed €13.2 billion to our shareholders, including dividends and share buybacks.

In terms of share appreciation plus dividends (the so-called ‘total shareholder return’, or TSR), BBVA performed better than the average of its peers. In fact, BBVA’s TSR was 57 percent in 2023, or more than double that of the Stoxx Europe 600 Banks, and also that of the average of its competitors in Spain.

Q: What’s the impact of share buybacks in recent years? How does the market perceive them?

A: Since we started to carry out share buybacks in November 2021, we have reduced the number of shares by 12 percent – a very significant figure. With the new €781 million program that we just began, we estimate that the share reduction will be around 14 percent². The buybacks make complete sense if the share is trading below what we feel should be its value. In BBVA’s case, which has a growing profit and profitability that sets it apart in Europe, we clearly think that the current share price does not reflect the value we think our share has. The average price of the last three share buybacks completed to date was €5.52 per share. We are currently trading at around €10 per share³. Furthermore, the progressive reduction of the number of shares translates into a dividend per share that continues to grow, year after year.

“Our goal is organic growth through our strategic pillars: digitization, innovation and sustainability”

Q: At the end of 2023, the fully loaded CET 1 ratio stood at 12.67 percent, still above the bank’s target range of 11.5 percent to 12 percent. What will BBVA do with this excess capital?

A: This is a question we often get from investors. Our goal is organic growth through our strategic pillars: digitization, innovation and sustainability. BBVA’s ability to combine profitability and growth is unique in the European banking sector and it sets us apart from our competitors.

Having a solid capital position is good news for our investors, and also for supervisors. In BBVA’s case, the capability to generate capital is based on our solid business model: diversified retail banking with leading franchises, which together with our prudent risk management, generate recurring results and growing profitability. We are one of the most profitable banks in Europe, with an ROE of 16.2 percent and an ROTE of 17 percent, according to figures at the end of December 2023.

In the future, we will continue to invest in profitable growth under strict criteria for value creation, while maintaining attractive distributions for our shareholders. Thus, to the extent that we continue generating excess capital, we will continue to distribute it with the goal of creating incremental value for our shareholders, as we have been doing in recent years.

Q: It seems like interest rates have peaked and are expected to fall as early as this year. What impact could this have on BBVA’s accounts?

A: The market expects the first interest rate cuts to take place this year in both the U.S. and Europe. Therefore, yes, we foresee a progressive return to lower interest rate levels. This would mean a certain narrowing of customer spreads, but on the other hand, it should be positive in the future for greater growth in business and better credit quality metrics.

In order to prepare ourselves for this environment specifically, the financial management teams have done an excellent job covering and mitigating the level of financial margins in the various countries. This is clearly the case in Spain. In the case of Mexico, we will also continue having momentum in business and demand for credit, which will continue to support the growth of our business. And in all countries we have maintained and will maintain a proactive strategy for growth and gaining market share, especially in the most profitable portfolios. Because of all this, we are confident that 2024 will be another great year for BBVA.