Banco Bilbao Vizcaya Argentaria SA Q3 FY2026 earnings call

• Profitability & Growth: BBVA maintains its position as Europe’s most profitable large bank, with Return on Tangible Equity (ROTE) at 22% and Return on Equity (ROE) at 20.8%. Tangible book value per share grew 14.3% YoY, or nearly 20% excluding buybacks.
• Revenue Drivers: Net Interest Income (NAI) grew 16.5% YoY, fueled by volume expansion in Spain (7.3%) and Mexico (12%). Net fees and commissions rose 12.4%, led by payments and asset management.
• Efficiency: The efficiency ratio improved to 37.9%, an 81 basis point improvement when excluding non-recurring items, demonstrating disciplined cost management alongside investment in growth.
• Asset Quality: Cost of risk remained stable at 144 basis points for the first nine months. NPL ratio held steady at 2.6% with coverage at 84%. Turkey saw elevated provisioning due to retail credit pressure, while Spain and Mexico remained solid.
• Capital Management: CET1 ratio stood at 12.21%, down 20bps due to RWA growth from lending and share buybacks. BBVA executed a €2 billion extraordinary buyback tranche and paid a record interim dividend of €0.37 per share.
• AI Strategy: BBVA is industrializing AI across the bank, with voice assistants achieving 90% resolution rates and AI tools reducing financial program preparation time by 30% for enterprise clients.

The Group delivered a net attributable profit of over €3 billion in Q3, up 19.1% year-over-year, with total nine-month earnings surpassing €9 billion (up 13.6%). Spain contributed €934 million in quarterly net profit (€3.1 billion for the first nine months), driven by strong lending growth of 7.3% and stable core revenues. Mexico reported strong performance with nine-month net profit reaching 4.5 billion pesos (up 8.4% in constant euros), supported by accelerated loan growth of 12%. Turkey achieved close to €260 million in quarterly net profit (€799 million YTD, up 22%), benefiting from improved customer spreads despite higher asset quality pressures. South America generated €265 million in quarterly net profit (€821 million YTD, up 42%), driven by sustained lending growth and improved efficiency. The 'Rest of Business' (CIB) segment posted €291 million in quarterly net profit (€800 million YTD), characterized by strong cross-border corporate banking activity.

• Group Level: Management revised upward the Return on Tangible Equity (ROTE) guidance for the full year to be above 20% (previously ~21%), citing upside potential.
• Spain: Maintains full-year guidance with cost of risk expected around 33 basis points. Expects slight improvement in customer spread in Q4.
• Mexico: Lending growth is tracking well above the ~10% guidance, likely to beat targets. Customer spread is viewed as having bottomed out, with expectations for improvement as rate cuts stabilize.
• Turkey: Net profit guidance remains around €1 billion with a downward bias. Cost of risk is expected to exceed the initial 220 basis points guidance (likely slightly above) due to prolonged high interest rates impacting asset quality, but NII growth is expected to offset this.
• South America: Cost of risk may slightly exceed the <250 basis points guidance depending on Argentina developments, but strong gross income should support overall earnings.

• Interest Rate Sensitivity: While margins are improving, rapid repricing of wholesale deposits in Spain has increased funding costs temporarily. Future ECB rate hikes could further impact deposit costs.
• Turkish Macro Environment: Higher-than-expected inflation (approx. 30%) and end-of-year interest rates (35-36%) have pressured asset quality, leading to higher provisions than initially modeled.
• Regulatory Capital: Implementation of SHREP requirements and the Danish compromise may impact capital ratios, though current buffers remain robust compared to peers.
• Market Volatility: Trading income was negatively impacted by interest rate curve movements, highlighting volatility in non-interest income streams.

Q: Analyst asked if rising wholesale deposit costs in Spain signal future pressure given a 100% loan-to-deposit ratio, and requested a trading income run-rate view.

A: Management clarified that retail deposit costs rose only 4bps (2bps for auto-repricing segments), with increases driven by short-term wholesale repricing. They noted strong retail customer acquisition momentum (targeting 1M new customers) offsets wholesale reliance. Regarding trading income, they described it as volatile and hard to predict, attributing the Q3 dip to interest rate curve dynamics rather than structural issues.

Q: Analyst inquired about Mexico’s lending growth trajectory for 2027, whether margins had bottomed, and the duration of Spanish wholesale deposits.

A: CEO confirmed lending growth (12%) is healthy and expects to beat guidance, remaining positive on 2027 prospects. He stated customer spreads have bottomed as central bank rates stabilize at 6.5%. CFO added that Spanish wholesale deposits are very short-term and already repriced; any future cost increases would depend on unexpected ECB hikes.

Q: Analyst questioned if BBVA intends to raise its CET1 target above 12% given SHREP changes, and if ROTE will rise further.

A: CEO affirmed no intention to increase the management target range (11.5%-12%) because their buffer against regulatory requirements (264bps) exceeds peer averages (258bps). He reiterated confidence in the mid-term plan’s profitability goals but did not provide specific 2027 ROTE figures.

Q: Analyst asked about CIB exposure to risky sectors (e.g., AI infrastructure projects) and if the 100% loan-to-deposit ratio constrains international lending.

A: CEO explained CIB growth is strategic, focusing on client internationalization where BBVA has local presence, generating 90% client-driven revenue. He denied specific involvement in troubled AI projects. Regarding liquidity, he stated the 100% ratio is manageable via diverse funding sources and does not constrain growth, noting the Spain unit itself has an 80% ratio.

Q: Analyst asked about market share gains in Spain/Mexico and how capital distributions (€36bn goal) affect CET1 transition.

A: CFO detailed that BBVA is gaining share in profitable consumer/commercial segments in Spain (+6bps/+51bps) and wholesale/consumer in Mexico, losing only in mortgages. CEO highlighted SRTs as a key capital optimization lever, noting Q3 impact was low due to seasonality, but expecting stronger execution in Q4 to support the €36bn distribution commitment.