Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) Q1 2024 Earnings Name Transcript

Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) Q1 2024 Earnings Convention Name April 29, 2024 3:30 AM ET

Firm Members

Onur Genç – Chief Government Officer
Luisa Gómez Bravo – Group’s Chief Monetary Officer
Patricia Bueno Olalla – International Head of Shareholder & Investor Relations

Convention Name Members

Maks Mishyn – JB Capital
Francisco Riquel – Alantra
Benjamin Toms – RBC Capital Markets
Marta Sanchez Romero – Citi
Antonio Reale – Financial institution of America
Sofie Peterzens – J.P. Morgan
Alvaro Serrano – Morgan Stanley
Ignacio Ulargui – BNP Paribas Exane
Britta Schmidt – Autonomous Analysis
Andrea Filtri – Mediobanca
Carlos Peixoto – CaixaBank
Chris Hallam – Goldman Sachs
Ignacio Cerezo – UBS
Fernando Gil – Bestinver

Patricia Bueno Olalla

Good morning. Welcome, and thanks for becoming a member of BBVA’s First Quarter Earnings Convention Name. I am joined right now by Onur Genç, our CEO; and Luisa Gómez Bravo, the Group’s CFO. As in earlier quarters, Onur and Luisa will firstly focus on quarterly figures after which we are going to open the road to obtain your questions. Thanks very a lot to your participation.

Now, I’ll flip the decision over to Onur.

Onur Genç

Thanks, Patricia. Good morning to everybody. Welcome and thanks for becoming a member of BBVA’s first quarter 2024 earnings webcast. Let’s bounce into it, beginning with slide quantity three. On the left-hand aspect, you possibly can see our web attributable revenue reaching EUR 2.200 billion, displaying one other quarter of report outcomes, clearly persevering with the constructive development that we now have been having for the previous years.

This determine is nineteen% above the outcomes of the identical quarter of final 12 months and virtually 7% above final quarter. I ought to remind you that this quarter’s quantity already consists of the EUR 285 million of extraordinary tax in Spain. If the extraordinary tax was not there, the web attributable revenue would have been clearly shut to EUR 2.5 billion.

Our outcomes symbolize EUR 0.36 earnings per share, 23% year-over-year progress, the next progress charge than the one of many web attributable revenue because of the share buyback packages we now have been executing. The graph on the right-hand aspect of the slide reveals our CET1 ratio, CET1 ratio at 12.82%, reflecting a 15 foundation factors improve within the quarter and stands clearly above our goal vary and likewise the regulatory necessities.

Transferring to web page quantity 4, behind the superb outcomes we now have been saying lies, in our view, the energy of our franchises and our efficiency on the core working earnings degree, core working earnings degree. In that sense, and acknowledging right here some inherent seasonality between the quarters of the 12 months and so forth, we’re displaying a really constant progress in our working earnings, greater than EUR 4.8 billion in present 12 months reported this quarter, very shut now to the EUR 5 billion working earnings line.

Web page quantity 5, our tangible guide worth per share plus dividends. It continues the excellent evolution of earlier quarters with a 20% improve year-over-year and a 6.5% progress within the quarter. Relating to profitability, we proceed to enhance on our profitability metrics, reaching 17.7% in return on tangible fairness and 16.9% in return on fairness. These numbers on this web page, for my part, are a number of the most spectacular figures of this presentation.

Web page quantity six, we speak about on this web page, it feels like a conceptual chart, however it’s pushed by numbers. We discuss concerning the actually distinctive profile of BBVA throughout the European banking sector, combining progress and profitability on the similar time. To be extra particular, on this map, within the x-axis, we use return on tangible fairness as a profitability metric, and within the y-axis, we present the mortgage progress in present Euros for comparability functions throughout 2023.

As a transparent indication of potential future worth creation, in our view, BBVA stands out, being within the high proper nook, with probably the greatest profitability metrics and the best mortgage progress among the many European friends. Clearly, we are going to see how our rivals have developed on this quarter, however in our case, after we replace the slide with BBVA’s first quarter 2024 figures, our positioning strikes even additional to the highest proper nook of the chart as we proceed to extend our profitability and as our progress additionally has improved within the quarter, year-over-year progress.

We’re very a lot dedicated to sustaining this differential worth creation profile, and a few of this optimism is said to the potential evolution of our core markets. And with that, I transfer to web page quantity seven, the place we want to present the constructive prospects that we see in Spain going ahead.

On the left-hand aspect of the slide, you possibly can see the GDP progress evolution in Spain versus the Eurozone within the final decade. Regardless of a stronger hit throughout COVID, there’s a constructive progress hole for Spain that we count on to widen throughout 2024 and 2025. Moreover, within the high proper chart, Spain, after a really lengthy interval of deleveraging, reveals in each households and firms, debt ranges leverage decrease than the Eurozone, in our view indicating a possible restoration to reach when charges come down in Europe.

Lastly, transferring to the underside proper chart, we need to spotlight that we’re one of many principal banks within the nation, as you all know, the place we now have seen an excellent observe report of accelerating market share in recent times, particularly in these most worthwhile segments, inserting us in a superb place to profit from Spain’s constructive prospects.

Transferring to Mexico, on web page quantity eight, on the left aspect of the slide, in the same development to Spain, Mexico has a GDP evolution with a constructive progress hole versus its comparable international locations within the area. Clearly, past the demographic dividend that Mexico has and clearly shares with the international locations within the area, the clearly differential positioning because of the proximity to the U.S., the newest traits round nearshoring, rising industrial and monetary flows between the U.S. and Mexico, it is price to spotlight right here.

Coupled with the constructive macro prospects, and as I’ve talked about many occasions up to now, within the high proper nook, Mexico additionally provides an much more spectacular progress alternative for banks like us, because it has a really low credit score to non-public sector over GDP, a transparent potential in comparison with its peer international locations.

Lastly, within the backside proper nook, on this context of a constructive and wholesome banking progress surroundings, we need to additional reinforce our declare that we will obtain double-digit mortgage progress going ahead, as we now have seen up to now. Over the last decade, in pre-COVID and post-COVID years, with GDP progress round 2%, the common mortgage progress that BBVA has achieved in Mexico has at all times been round double digits, as our steerage to you for the approaching quarters and years.

Having talked concerning the views for the long run, on web page quantity 9, I’m going again to the quarter. This web page is a abstract of the pages to observe, the place I’ll discuss to you concerning the P&L, the income progress, prices, asset high quality and capital, and clearly the execution of our technique. So please, fairly than repeating the messages right here, permit me to immediately transfer to slip quantity 10, the summarized P&L.

This slide focuses on the primary quarter outcomes and the quarterly comparisons, as you at all times have on this web page. You’ll find the year-over-year quarterly evolution within the second column from the left, in fixed, and the third from the left, in present phrases. Principally, the P&L it continues its spectacular evolution, thanks particularly to core revenues, with a rise in gross earnings, gross earnings line, with a rise of 31% in fixed and 18% in present Euros. Consequently, the final line, web attributable revenue, it grows 38% in fixed and 19% in present Euros.

Some mild into the income breakdown and the quarterly evolution on slide quantity 11. We very very like the traits that we see on this web page, as we proceed to enhance our income technology capability quarter-after-quarter. First, our web curiosity earnings, it retains rising, 25% versus final 12 months, 3.6% progress in comparison with final quarter, pushed by the strong exercise progress and likewise the great buyer unfold administration.

Second, clearly differential, this quarter clearly differential evolution of web charges and commissions, rising with an excellent 37% year-over-year and three.5% versus final quarter, levered primarily on funds and asset administration companies.

Third, one other sturdy quarter within the web buying and selling earnings heading, 124% year-over-year, pushed primarily by the great evolution in international markets. All in all, wonderful progress in gross earnings, 31% year-over-year, though it reduces minus 5.9% quarter-over-quarter attributable to hyperinflation impacts and the extraordinary banking tax in Spain that you just all know that we report beneath different earnings, which then impacts the gross earnings line.

Transferring to slip quantity 12, concerning prices, on the left aspect of the slide, we proceed displaying constructive jaws on the group degree. Due to the great efficiency of gross earnings, clearly, however as I discussed earlier than, rising 31% year-over-year. On the similar time, when the income is rising 31%, prices are rising at 19.5%, barely under inflation numbers. On the correct aspect of the slide, you possibly can see our effectivity ratio, which reveals an excellent enchancment to 41.2%, 398 foundation factors decrease than final 12 months. I imply, with these numbers, we clearly stay as one of the vital environment friendly European banks on the market.

Turning to slip quantity 13, asset high quality. On this web page, you possibly can see our asset high quality metrics. They continue to be in keeping with our expectation within the context of sturdy exercise progress, particularly in probably the most worthwhile segments and particularly within the context of upper rates of interest, utterly aligned with our expectations that we now have guided you.

On the left-hand aspect of the slide, on the backside, our price of threat, it will increase 14 foundation factors within the quarter to 139 foundation factors, barely higher, truly, than our steerage. The rise, quarter-over-quarter, is especially defined by two components. First, the aforementioned exercise progress in extremely worthwhile, however excessive price of threat retail segments and the rising market geography, so the blended impact. And second, Turkey, that confirmed a gradual improve after abnormally low ranges that we had in 2023. Then, MPL ratio on the correct backside stays pretty steady at 3.4%, and our protection ratio can also be broadly steady at 76%.

Slide quantity 14, on capital. Now we have elevated our CET1 ratio by 15 foundation factors within the quarter. The ratio now sits at a really sturdy degree of 12.82%, as I discussed earlier than. For sure, this degree is properly above our goal vary of 11.5% to 12%.

By way of the modifications within the quarter following the waterfall: First, our sturdy outcomes technology that contributes 60 foundation factors to the ratio. Second, the dividend accrual and the 81 coupon funds, detracting 33 foundation factors. Third, 43 foundation factors attributable to RWA’s progress, considerably increased than a typical quarter due to the expansion that we now have seen within the quarter. However because of the worthwhile nature of such progress, this may end in much more natural capital technology within the coming quarters. Lastly, a bucket of others of 31 foundation factors, which incorporates all of the market influence and deductions and so forth, along with the credit score and OCIs, that accounting-wise neutralizes the deductions within the P&L attributable to hyperinflationary accounting.

Web page quantity 15, our strategic progress. On this web page, we now have the brand new buyer acquisition. As I stated many occasions earlier than, we imagine that probably the most wholesome method of rising the steadiness sheet is thru rising our franchise of purchasers. Within the first quarter of 2024, we acquired 2.8 million new prospects, a report as in comparison with different first quarters of earlier years. Much more constructive, in our view, is the share of these acquired by means of digital channels, which comes at a decrease price, which elevated to 67% within the first three months.

Turning to slip 16, one other pillar of our technique, sustainability. It is an unbelievable enterprise alternative, as we hold saying, and we imagine we’re trendsetters on this space. This quarter, we now have channeled EUR 20 billion in sustainable enterprise, the second finest quarterly determine ever, and the whole of EUR 226 billion since 2018. Due to this fact, we stay dedicated to our elevated goal of channeling a cumulative EUR 300 billion to sustainability by 2025.

Transferring to slip quantity 17, I additionally want to spotlight our constructive influence on society on account of our exercise within the first quarter. We proceed to assist our purchasers obtain their life and monetary targets by means of our main exercise of lending. Now we have elevated our mortgage guide by 9.5% within the final 12 months, and extra particularly within the first quarter of this 12 months, we now have helped 35,000 households purchase their houses. Now we have awarded greater than 155,000 new loans to SMEs and self-employed people, and we proceed to finance round 70,000 bigger corporates of their progress.

On the right-hand aspect of the slide, we additionally mobilized EUR 4.9 billion in financing for inclusive progress, akin to social housing, social infrastructure, like hospitals. As we develop our exercise, in our view, we promote employment, funding, and welfare within the society within the communities that we function in.

Lastly, slide quantity 18, concerning our 2021, 2024 targets that we introduced on the Investor Day in 2021. As at all times, I’ll select to not go into every certainly one of them for time functions, however on all of the metrics, we’re as soon as once more properly on observe to appreciate our upgraded expectations and clearly beating our authentic targets.

And now, for the enterprise areas replace, I flip it to Luisa. Luisa.

Luisa Gómez Bravo

Thanks very a lot, Onur, and good morning to all. Beginning on slide 20 with Spain. Spain has begun the 12 months with very sturdy numbers and a really constructive outlook primarily based on better-than-expected exercise dynamics. We’re seeing our mortgage guide develop 0.8% year-on-year, 0.5% quarter-on-quarter on the again of sturdy new lending flows, and I want to spotlight client lending and mortgages, in addition to the sound exercise from CIB within the first quarter.

Certainly, in mortgages, for 3 quarters in a row now, the inventory stays flat on a quarterly foundation, supported by sturdy new mortgage manufacturing, the place we’re one of many market leaders, and decrease prepayments. Because of this we proceed to outperform our friends and the system retains deleveraging.

On the deposit aspect, the shift from demand to time deposits within the retail section has been decrease than anticipated, and this is among the key star dynamics, I might say, of the quarter, conserving the price of deposits properly contained. On the similar time, we proceed to develop strongly on off-balance sheet funds above 10% year-on-year, 3.4% quarter-on-quarter. Supported by these strong exercise traits, we’re delivering excellent ends in first quarter of EUR 725 million on the backside line, which might have been greater than EUR 1 billion with out the financial institution tax.

Robust core revenues proceed to drive earnings progress in Spain. NII is rising by 2% quarter-on-quarter, displaying a powerful 35% progress on a year-on-year foundation, pushed by our superior buyer unfold administration and mortgage progress in probably the most worthwhile segments. Together with excellent efficiency of charges, supported by very sound dynamics within the asset administration and insurance coverage companies, in addition to an rising contribution this quarter by CIB. Deficiency ratio due to this fact stands at 37.8%, displaying an bettering development because the franchise continues to ship vast working jaws.

Lastly, we’re seeing benign traits on asset high quality. Each the NPL ratio and the price of threat stay broadly steady and absolutely aligned with our steerage. All in, these spectacular ends in Spain assist a extra constructive outlook for the 12 months. Due to this fact, we’re bettering our steerage for NII to develop a double digit in 2024. As I discussed, we’re bettering our steerage to develop a double digit in 2024 in NII on the again of wonderful worth administration and better industrial dynamism. We even have an optimistic perspective on the efficiency of our enterprise in Spain past the NII.

Transferring on to Mexico and slide 21. In Mexico, we now have delivered additionally distinctive outcomes another quarter, reaching EUR 1.4 billion web revenue, supported by the undisputed management and structural strengths of our franchise. Excellent core income progress, which is rising 9% year-on-year, supported by sound exercise dynamics, signifies that NII continues to develop very soundly, pushed by continued sturdy mortgage progress of 10%, excluding the influence of a really sturdy appreciation of the Mexican peso within the quarter, and as you see, 8.8% year-on-year. This progress is geared in direction of probably the most worthwhile portfolios, as you see, bank cards, client loans, and SMEs.

On high of NII, we’re delivering a strong efficiency in charges, primarily pushed by funds and bank cards, but in addition with an rising contribution from asset administration. That is an under-penetrated enterprise in Mexico and undoubtedly represents a progress alternative for BBVA. On the similar time, we proceed to spend money on the nation for future progress whereas sustaining excellent effectivity ranges at 30%.

Lastly, asset high quality is performing in keeping with our expectations; threat metrics are in step with our progress technique within the retail section, extremely worthwhile, however with increased price of threat. In brief, we now have as soon as once more delivered a unprecedented set of ends in Mexico, the place we count on our progress story to proceed going ahead. The nation continues to profit from strong GDP progress, a sturdy labor market, resilient client demand, and a really constructive outlook linked to nearshoring.

Transferring on to Turkey on slide 22. In Turkey, additional coverage charge hikes throughout 2024, coupled with extra credit score tightening measures, bolstered the Central Financial institution’s dedication to orthodoxy with a view to curb inflation. Moreover, the fiscal stance after native elections will turn into extra restrictive, extra probably. In a nonetheless difficult surroundings for banking, Assure BBVA achieved EUR 144 million of web earnings within the first quarter of the 12 months.

Our franchise delivered a quarterly improve in gross earnings supported by sturdy charges on the again of superb dynamics within the bank card and funds, and better web buying and selling earnings. Lastly, asset high quality indicators stay contained regardless of the speed hikes. As anticipated, the price of threat rose to 77 foundation factors in first quarter from an uncommon low degree in full 12 months ‘23, and it remains within the guidance that we gave to the market for the year.

And moving on to South America, in slide 23, net profit reached EUR 119 million in the first quarter of the year. Core revenues have been really the main driver of the P&L, supported by sound activity trends across the region and outstanding management of customer spreads. I would highlight that in this regard, Colombia is growing 14.8% year-on-year, the core revenues, and Peru is also growing around 14% year-on-year, the core revenues.

On the asset quality front, impairments due to higher provisioning needs coming from the retail portfolios have been increasing and is still a very challenging macro environment. However, the easing monetary cycles across the geographies and the measures we have taken to adjust the risk appetite in some segments should be supportive for an improvement of risk metrics in the second half of the year.

And now, back to Onur, who will highlight the main takeaways. Onur?

Onur Genç

Thank you, Luisa. So for the summary of the first quarter on page number 24, let me not take time by repeating the key messages listed on the left and the middle, as we have already underscored them throughout the presentation. But in short, this was one of the best quarters that we have ever had. That’s how we feel about it.

But rather, I would highlight the two key points regarding our outlook for the year in the box on the right-hand side. So two messages, basically, in short, we are raising our 2024 core revenue outlook for the Group on the back of the upgraded Spain NII guidance to double-digit growth, as mentioned by Luisa, and due to the broader rate environment. As a result, the second bullet point, the outlook for 2024, net attributable profit for the Group, it further improves to double-digit growth as well.

Now, back to Patricia for the Q&A. Patricia?

Patricia Bueno Olalla

Thank you, Onur. So we are ready to start with the Q&A. So the first question, please.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And the first question goes to Maks Mishyn of JB Capital. Maks, please go ahead. Your line is open.

Maks Mishyn

Hi, good morning. Thank you very much for the presentation and taking our questions. I have three. The first one is on the outlook for loan book growth in Spain. You have been gaining market share in the last quarters, and I was wondering if you could tell us what’s the reason your gain in the market share and what outlook do you see for the coming quarters.

The second question is on the number of employees in Spain. You keep on increasing the headcount, and it would be very helpful if you could explain us why and what should we expect for the future. And then the final question is on capital. You keep on accumulating capital. When can we get an update on how you plan to deploy this? This would be very helpful. Thanks.

Onur Genç

Very good. Thank you, Maks. On all the three questions that stood quick. On outlook for loan growth for Spain, in the guidance that we have given to you at the beginning of the year, if you remember, we were saying that loan growth would be flattish. We do have a positive bias on this now, given also what we have seen in the first quarter numbers. Quarter-over-quarter also we have increased our loan book, and we have been gaining market share.

We do expect that, that market share gain will be there for the rest of the year, and you are asking why is that happening. I don’t know, Luisa, why is that happening? We are working hard, I believe. But in the segments that we are growing, when you look into the segments that we are growing, it’s on the presentation for Spain page, you do see that we are growing very nicely in mid-size company segment. That’s a segment that we like. We call it Banca de Empresas, BEC.

We do have very clear plans to grow in that segment, very profitable high-work segment. Then the other one is consumer. You do see that year-over-year in that segment, we have grown 7.8%. This is mainly given to our payroll clients, loans digitally dispersed to payroll clients. As you have seen, we go through it very quickly in the presentation, but this 2.8 million new customers that we acquire in the quarter, it’s the treasure for this growth in consumer and for the healthy growth of the consumer book.

In the case of Spain, you are asking Spain specifically, the new customer acquisition, this is the derivative of the growth, know. I mean, the new customer acquisition has grown by 9% in the first quarter. So, as we acquire new customers and as we get the payroll of these clients, as we extend consumer lending to them, you see that growth of 7.8%.

In the rest of the segments, mortgages, quarter-over-quarter, after a long while, quarter-over-quarter, you see also a growth in the mortgage book. As a result, all the line items, they are relatively strong, driven by our push, to be fair, to continue to gain market share.

I showed it to you in the page for the prospects for Spain, page number seven, our market share gain in the last five years, 2018 versus 2023. In the consumer book, it used to be 12.3%, now it’s 16.4%, so 410 basis points increase in market share. In the company segment, we also gained 130 basis points market share. So, in the segments that we wanted to grow, we are growing, that’s the key reason for this growth.

Number of employees in Spain, why is it going up? The core reason for the number of employees going up is basically technology. We are internalizing our technology employees. You see an increase in FTEs, but in the total costs, it’s actually better for us. In the case of Spain, especially Spain, a large part of our IT, FTEs were external and we do have a strategy of internalizing that capacity, which has an implication on the FTE growth.

But on the overall costs, it’s actually better for us to internalize. So technology, a bit more in data and sustainability, obviously aligned with our strategic plan, but in general, the core reason is internalization, which actually has a positive impact on costs.

The third question was capital. We are accumulating capital. What do we do with it? The same response as before. The same response as before. We do have this wonderful cycle of deliver, always deliver, deliver good results, invest in profitable growth, create excess capital even more, organic capital, and then continue to invest in growth and also rewarding shareholders. That’s what we’re going to be doing.

We told you before that in a typical year, excluding any M&A or regulatory impacts that we cannot judge, on a core operating income level, core operating and organic capital generation level, beyond the payout, the regular payout that we have, we expect to generate 50 to 60 basis points every year. That’s more than EUR 2 billion, again, beyond the regular payout.

After our WA’s growth, after market impact and so on, that’s our expectation for the next three years and we are on that path. This quarter, we added another 15 basis points to our CET1 ratio, which is clearly in line with what I was saying before, 50 to 60 basis points, additional capital creation every year. And as we told before, we don’t want to operate with excess capital. As long as we trade where we trade, we will continue to buy back our shares. We will continue to buy back our shares.

Anything you want to add, Luisa?

Luisa Gómez Bravo

No, I think that was very clear.

Onur Genç

Very good.

Patricia Bueno Olalla

Thank you, Maks. Next question, please.

Operator

Thank you. The next question goes to Francisco Riquel of Alantra. Francisco, please go ahead. Your line is open.

Francisco Riquel

Yes. Hello. Thank you. My first question is about Mexico. The stock of deposits fell by over 5% quarter-on-quarter, which is a bigger decline than last year with a similar seasonality. The cost of deposits in Mexico is also trending up, whereas it is starting to fall for some local peers in these first quarters now that interest rates have started to fall. I also see the migration of the balance sheet has accelerated. So, I wonder if this is all the way you are reacting to the aggressive deposit offering launched by Nubank. So if you can give guidance on the cost of deposits, EBITDA, what, which are expected in Mexico for the coming quarters would be appreciated.

Then my second question is a follow-up on capital allocation. Is your appetite for continuing buying back your own shares versus the appetite for M&A, for example, in the context in which Scotiabank might be looking to sell some assets in South America? Thank you.

Onur Genç

Do you want to take the first one, Luisa, on Mexico?

Luisa Gómez Bravo

Yes, sure. Okay. So in Mexico, indeed, we saw the demand deposits specifically coming down quarter-on-quarter. But, I would highlight that this is also as a result of the seasonality of deposits. As typically in Mexico at the end of the year, we have a very strong growth in demand deposits coming from the double pay that the employees get and the accumulation of balances in deposits.

So, we typically do understand that this quarterly trend is more based on the seasonality than otherwise. Year-on-year, we see a growth of 4.9% on demand deposits. I think that we are putting — focusing the delivery of the cost management in deposits very significantly. As you know, we maintain, we continue to maintain a very solid advantage in terms of cost of deposits in Mexico versus our peers. Cost of deposits in the quarter are around 2.9% versus peers at around 4.75%. So still a very solid competitive advantage there.

We’re trying to ensure that we provide our clients with the best possible investment products. That’s why you’ve seen the strong growth in assets under management and off-balance sheet funds growing 10% quarter-on-quarter and 25.6% year-on-year to be able to be, to delivering those clients the investment returns that they may require.

But, also I would say that the increase in cost of deposits in the quarter is a continued strategy as well of migrating wholesale financing to wholesale customer deposits in the quarter. That’s why you’ve seen a higher cost of deposits in that regard.

Onur Genç

Maybe Paco, one quick addition to this. I mean, it’s quarterly you see this, but it’s a switch between wholesale funding from the market versus wholesale deposits. It’s more the description of the quarter than anything else. You would also see that in the first quarter, we have done some wholesale issuances in Mexican peso as well. That wholesale issuances from the market has helped us in the deposits.

So as a result, if you look into the market shares, I mean the published market shares, you do see that our retail demand deposits in market share, we actually gained 17 basis points year-over-year. Some of the names that you mentioned, is it a competition topic and so on. We gained 17 basis points market share in retail demand deposits, which is the market where some of the players that you mentioned, again, are competing.

The loss is on the wholesale deposit side. The wholesale deposits, in demand deposits, we basically lost 91 basis points. That’s, again, basically the switch between the wholesale funding from the market versus wholesale deposits. So, if you want to acquire deposits in Mexico, we can do that. It’s basically optimizing the cost through the market.

Regarding your second question, continuing to buy back shares versus M&A, let’s start with the buyback side of this. As I mentioned before in the previous question as well, I mean, we put this relatively conceptual, some like bubbles in one of the pages that we have in the presentation. Paco, we do believe that we have something unique. In this quarter, we are announcing 17%, 17.7% return on tangible equity. In a quarter where we have had a 285 million extraordinary tax, which is the tax in Spain. Despite that, 17.7%.

On the growth, this quarter, year-over-year growth in current Euros, current Euros is 7%. So we are growing 7% our loan book. We are delivering 17.7% in a quarter where we have had some extraordinary one-off impact because of the Spanish tax.

Despite that, we trade where we trade. Sometimes some of you mention it to me very closely and very nicely, but saying that we kind of complain about the market. No, no, we never complain about the market. Who are we to complain about the market? What we are saying is that 17.7% return on tangible equity, 7% growth in current euro lending book, our belief of the intrinsic value of BBVA is much higher than where we are.

As a result, you can be — it’s very clear strategy that we have been applying since 2021. As long as we have the excess capital, we will continue to buy back those shares because our intrinsic value is, in our view, much higher.

You asked about M&A, on the M&A, I get this question every quarter. I give the same response, so it will be a repetition. But as before, let me repeat it once again. We have 121,000 people working at the bank, 121,000 people. The overwhelming majority, we focus on organic growth.

There is a small, small, small team who looks into opportunities all the time. We analyze opportunities, but obviously our focus for the majority of the organization is on organic growth, and we will always do capital decisions based on numbers, based on numbers.

Given what I said, the share buyback is a wonderful opportunity to create a value creation for our shareholders.

Patricia Bueno Olalla

Thank you, Paco. Next question, please.

Operator

Thank you. The next question goes to Benjamin Toms of RBC. Benjamin, please go ahead. Your line is open.

Benjamin Toms

Morning, both. Thank you for taking my question. I’ll keep it to one in line with your guidance at the top of the call. It’s a high-level conceptual one, please. You printed an ROTE this quarter of 17.7%. Global rates will likely come down from here. I’m just interested in your degree of confidence that 2024 isn’t as good as it gets and you expect in the next couple of years that profits and returns will keep growing from 2024 levels. Thank you.

Onur Genç

Benjamin, very straight answer to a straight question. We don’t think we have reached the peak. As I mentioned, 17.7% includes the Spanish extraordinary tax. It’s the one of impact that will not be in the coming quarters. But, more importantly, and that’s why we have had that little page and little bullet at the end of the document, basically saying that outlook for 2024 net attributable profit further improves to double-digit growth. That double-digit growth implies that we will continue to have even better return on tangible equities in the coming quarters.

Why is that? Because we do see very positive dynamics in Mexico, very positive dynamics in Mexico. The 8.8% loan growth that you see year-over-year for the Mexican page, if you isolate for the appreciation of peso, for the appreciation of peso if you isolate for that, the number is 10% growth, even in this quarter.

The first quarter of 2024 is, first quarter is in general, but especially this quarter, seasonally speaking, is very seasonal. First quarter, after the fourth quarter, and in this year, we also had Easter holidays falling into March rather than April, which had some impact.

But we see very positive pipelines in Mexico, and we are confident that double-digit growth, double-digit loan growth in Mexico, as we have guided you, is very feasible. We maintain and reinforce that guidance point that we have had in the first quarter.

As a result, Mexico is going to continue to do really well. Then you look into Spain, better than what we have been expecting. That’s why Luisa has mentioned from mid-single digit to double-digit guidance update on NII. Then Turkey and South America, we do think that, especially in the second half of this year, we will see better numbers in both geographies. Looking into every single part of our footprint, we are positive on what we see.

I think you’re also asking for next year, or the guidance in general. That’s the piece that we also continue to deviate significantly, actually, from the consensus. Looking into the underlying dynamics of our business, I see even a better 2025 versus 2024, in terms of underlying results, in terms of net attributable profit. We clearly see a growth in 2025 versus 2024, which also implies that the return on tangible equity that you would see is going to be very positive.

To cut the long story short, we are quite positive on what we see. In all the geographies that we are in, we are quite positive.

Patricia Bueno Olalla

Thank you, Benjamin. Next question, please.

Operator

Thank you. The next question goes to Marta Sanchez Romero of Citi. Marta, please go ahead. Your line is open.

Marta Sanchez Romero

Thank you very much. My first question is on South America. Its contribution to the group remains subpar. Just 5% of earnings this quarter, but it consumes 14% of capital. What are you doing to close that gap, which keeps widening, by the way? And related to this, what is the rationale of sticking around in Argentina?

Then my second question is on Mexico. Net NPL entries, they keep going up. When do you see a change in trend? And just a third quickly, what is your expectation for the Mexican peso and how much of your P&L have you covered? Thank you.

Onur Genç

Do you want to take the first one, Luisa, on South America?

Luisa Gómez Bravo

Yes. Well, in South America, I think that we are, showing a slower contribution that perhaps is the one that we would like. But primarily, this is because of the cycle that we’re in. I think the challenging macro context in the region is still affecting the capacity to grow the results. However, I would say that the strength and resilience of our franchise is still there.

When we look at Argentina, Argentina is, first, I think we need to talk about the macro perspectives in Argentina. The measurements and the measures announced by the new government are going in the right direction.

The main problems that Argentine economy faces are still very relevant. The focus there is in the short term on lowering inflation, solving monetary fiscal imbalances. I think the first steps have been taken. There’s been a strong devaluation of Argentine peso back in December. Gradual depreciation since, fiscal measures have been put in place. There’s a monetary policy rate cut as well to improve BCRA’s balance sheet.

All these measures are, in the right direction, and in the medium to long term, there is a pro-growth agenda that needs to take place. So, obviously, it’s a very challenging environment in Argentina. A lot of things need to be resolved, but the steps that are being taken are the right ones.

In this regard, I think that we’re managing our Argentinian business in a very solid way. The Argentina is well prepared to face a challenging macro environment. Despite the high quarter inflation, the fundamentals of the bank remain solid. The capital is very solid. 34.1% liquidity is also very good with loan to deposits at 79%. We are, doing very well in terms of gaining market share in the places where we want to gain market share, primarily, in the credit card business and some commercial businesses. I think this is a story that needs to play out on the back of the macro side.

With regards to Colombia and Peru, there are different dynamics going on in the different countries, I would say starting with Colombia. The macro outlook was significantly affected by economy decelerating last year, significantly at 0.6%. We do expect the macro to improve this year, especially from the mid-2024 onwards with a 1.5% growth of GDP.

Inflation continues to ease, and the central bank has started shyly to reduce interest rates. Again, this has to continue to play out. We need to see, the economy improve significantly. On the back of this improved growth, we have seen Colombia launching a strategic plan to strengthen its position in the country. It’s gaining scale. It’s improving its banks’ business mix, and it’s already delivering solid results in the past three years. We have increased market share by 90 basis points, and we’re moving towards a profitable or more profitable loan mix. So we are trying to work in that way.

In this regard, as I was mentioning before in the presentation, the P&L on a year-on-year basis has been negatively affected by higher expenses and impairments. But, I would say that NII growth remains solid, growing at 17.3%, supported by loan growth and customer spreads.

I would say that in Argentina, I mean in Colombia, really the main impact this quarter has been lower NTI. This has happened also in Peru. Lower NTI coming from global markets as the rate volatility continues. I would say higher impairments. In Argentina, impairments have increased in a relevant fashion. On the back of worse retail dynamics, we have already addressed this in terms of the origination, particularly on the consumer side. And we think, as we mentioned before, that as the rate scenario eases, the asset quality dynamics will improve towards the end of the year.

Peru, on the other hand, has been showing better macro dynamics. We’ve actually upgraded our GDP estimates for the year. We also are seeing very good positive growth in market shares and positive growth in activity. The P&L is very supported by the NII growth in the year at 15.4%. Again, this growth has been offset primarily with somewhat high still impairments, although we see the cost of risk decreasing year-on-year. So, we expect Peru also to be able to deliver improving results in the second half of the year with easing asset quality metrics.

Onur Genç

I would highlight just two very quick things that Luisa has mentioned. The asset quality, cost of risk, has been the story of the region in the past year, including this quarter. We have a clear expectation that in the second half of this year, the numbers will improve. The second thing that she said, especially in Colombia, but there is a rate. We are in general asset sensitive in all the geographies except Colombia. So, when rates start coming down, it will be positively affecting Colombia.

But South America, it’s a region that is a very critical part of BBVA. Our clients are there. We have to be supporting them throughout. We do think that the value creation will come along. Quarter-after-quarter, we might be deceived by the numbers that you see, but in the second half of this year, in the coming years, we are positive that we will deliver the value that is deployed in terms of capital in there.

Then the NPL entries in the second question, NPL entries in Mexico. I think to comment, Marta, first, our guidance to all of you was 325 basis points in Mexico for the year, which is basically what we had in the first quarter, 327 which is very close. So, it’s completely aligned with our expectation. But as you know, in Mexico, our monthly cost of risk provision numbers are reported to the Mexican regulators. So it’s public, monthly numbers.

You would see that in the month of March, you would see a slight jump in the cost of risk and NPL entries also. A big part of this in terms of cost of risk was basically the macro adjustment. You might have seen it. Our BBVA research team, they have reduced the macro growth from 2.9 to 2.5, slight decrease, but it did have an impact in the NPL, in the cost of risk number.

If you isolate for that, 3.27 becomes 3.11, and that 3.11 versus 296 basis points that we had in the previous year is basically the mixed effect. If you look into the growth of the different Carteras, different loan buckets, it’s mainly driven by the mix and the fact that we are growing much more in the high RORC, high capital return, but high cost of risk lending buckets. So, we are actually quite happy with what we are seeing in the cost of risk situation in Mexico.

Then you ask about the coverage of the P&L. 60% of the P&L, 60% is already covered for this year.

Patricia Bueno Olalla

Thank you, Marta. Next question, please.

Operator

Thank you. The next question goes to Antonio Reale of Bank of America. Antonio, please go ahead. Your line is open.

Antonio Reale

Good morning. It’s Antonio from Bank of America. I have two questions, please. The first one is a follow-up on your outlook for NII growth in Spain. You guided to double-digit growth in NII this year, which is remarkable. You’ve talked about better 2025 trends for the group. Can you maybe just directionally tell us how you would expect NII in Spain to perform in 2025? That’s my first question.

My second question is about efficiency, and of course, partly related to the first. Efficiency ratio remains within your guided range for the year, below 42%. You’ve a strong track record in maintaining positive jaws, while you continue to invest in your IT digital infrastructure. Now, the market, at least when I look at consensus numbers, doesn’t believe you can sustain this also in 2025. Can you talk about your expectations for operating jaws next year, and maybe remind us of the mitigates you have. Should growth be slower than you expect? Thank you.

Onur Genç

Thank you, Antonio, for the question. I said something about 2025, and now you are trying to get the jaws, guidance, and this and that for all the. Let me start for the first one, 2025, really in our planning, when we look into it, and we are not providing guidance today, obviously it’s too early. But when we look into our planning, given the huge gap, relatively large gap, let’s not say big, however comparatively giant hole, as I’m telling you, we expect double-digit progress for the group in 2024 for web attributable revenue. That is our steerage, that is our outlook, as a result of we by no means present steerage in that element, however that is our outlook for 2024.

We’re additionally telling you that in 2025, our planning tells us that we’ll have even a greater 12 months by way of web attributable revenue. By way of the breakdown of this by international locations, we see comparatively flat, slight decline or comparatively flat in Spain on the backside line degree.

Clearly we can be damage from the speed declines that can be coming alongside, however we do suppose that given the energy that we additionally see within the underlying mortgage manufacturing dynamics, the mortgage progress may be coming in a bit, and the asset high quality has been comparatively excessive for Spain, for our enterprise in Spain within the final 12 months or two, and there may be some constructive dynamics coming alongside there.

I might additionally spotlight that our charge earnings, quarter after quarter, a minimum of, each in asset administration, which could be very core for us, in insurance coverage and within the funds companies has been positively stunning us. All mixed, for the time being perspective for Spain can be comparatively flattish, slight decline or comparatively flattish backside line.

Then in all the opposite geographies, it’s totally powerful to guage, clearly, Turkey and South America this early. We do see some constructive dynamics, so 2025 can be higher in our view in these geographies, and extra importantly, and in our view most significantly, in Mexico, primarily pushed by the mortgage progress, and we did share some concepts on why we expect Mexico mortgage guide will proceed to develop in a wholesome method. Mexico will do even higher in 2005 versus 2004. So while you sum up all of the parts, it tells us that the underside line for the group can be higher in 2025 versus 2024.

Relating to the jaws, let’s not get into it, once more, this early within the cycle, however to have the ability to ship what I simply stated, the jaws scenario wouldn’t be as unhealthy as you see within the consensus.

Patricia Bueno Olalla

Thanks, Antonio. Subsequent query, please.

Operator

Thanks. The subsequent query goes to Sofie Peterzens of J.P. Morgan. Sofie, please go forward. Your line is open.

Sofie Peterzens

Sure, hello. Right here is Sofie from J.P. Morgan. Thanks for taking my query. So you’re guiding for double-digit web curiosity earnings progress in Spain. Might you simply elaborate what your underlying assumptions are, sort of by way of what charges that you’ve got assumed, what deposit beta you are anticipating, the place the deposit beta presently is, and I assume the amount of the stays unchanged flat, however in case you may elaborate on this.

Then a really brief second query, sort of the countercyclical buffer in Spain, what are your ideas right here? Thanks.

Onur Genç

Double-digit NII progress for Spain. Luisa, do you need to take it?

Luisa Gómez Bravo

Sure. Nicely, as we talked about in the course of the presentation, the exercise dynamics are fairly constructive. Now we have a steerage, maintained the steerage of flattish progress for the 12 months, however as Onur talked about earlier than, we do have a constructive bias. We’re seeing, as we talked about, mortgages fairly steady already within the third quarter in a row.

Pre-payments are coming down round 23% year-on-year, 11% quarter-on-quarter, and we’re making a number of effort within the new mortgage origination, which is rising year-on-year, 4%, very strong dynamics, I might say throughout all of the totally different segments, particularly in those who curiosity us extra from a profitability outlook.

However, I might say that the primary driver of the rise within the steerage has been actually the value administration, particularly on the deposit aspect. We expect now a decrease migration of sight deposits to time period deposits. Time period deposits elevated their weight from 13% to fifteen% within the quarter. It is a slower development than the one which we had forecasted, and the price of deposits have additionally been fairly contained at 91 foundation factors within the quarter.

We predict most likely going ahead, price of deposits are going to be at round these ranges. We’re seeing new time period deposits coming down at decrease costs than we had firstly of the 12 months. General, we are actually taking a look at a beta that as a substitute of being round between 25% and 30%, which is what we talked about in our outcomes presentation again in February, we’re seeing these betas now at under 25% as the primary quarter beta has ended up being round 20%, similar to the one which we had in the long run of final 12 months. These are primarily the dynamics.

Additionally, I might add that after we had given our steerage of mid-single digit progress this 12 months, we have been anticipating Euribor 12-month common numbers at 3%. We’re seeing now implicit on this steerage, Euribor 12-month common charges at round 3.35%. In order that can also be supporting the double-digit NII progress for the 12 months.

Onur Genç

I imply, the BBVA Analysis nonetheless estimates the common Euribor 12-months to be 3.55%, however within the numbers that we’re supplying you with right now, the double-digit progress NII in Spain, it assumes as Luisa says 3.35%. Let’s examine the place we find yourself.

Then the second query on countercyclical buffer. Sofie, technically talking, technically talking there shouldn’t be a countercyclical buffer in Spain. Everybody says, properly, all the opposite geographies has it and so forth. No, no, technically talking, it is about credit score to GDP hole and whether or not credit score is rising and so forth.

Given the truth that Spain has been deleveraging for therefore a few years and nonetheless, I imply, we’re displaying a constructive progress ourselves within the quarter, however the system remains to be deleveraging. So we’re gaining market share. That is why we’re constructive. On this context, once more, technically talking, there shouldn’t be a rise in countercyclical buffer, however we’re depending on others and we respect, clearly, the choices of our others, particularly our supervisors and so forth.

If it occurs, 100 foundation factors improve within the countercyclical buffer has a 32 foundation factors implication within the group CET1 requirement, 32. However given the truth that we do have this intensive buffer versus our requirement, we don’t plan to extend our administration reference if such a scenario realizes.

Patricia Bueno Olalla

Thanks, Sofie. Subsequent query, please.

Operator

Thanks. The subsequent query goes to Alvaro Serrano of Morgan Stanley. Alvaro, please go forward. Your line is open.

Alvaro Serrano

Good morning. I’ve obtained a few follow-up questions on NII. In Mexico, first, your steerage, if I bear in mind accurately, was excessive single digit NII progress, which given the expansion in Mexican pesos that I can see, implies a big acceleration within the subsequent few quarters. Is that right?

Might you perhaps elaborate on what you count on on the following few quarters that is totally different from Q1?

In Spain, simply to observe up, Luisa, from the element you’ve got given, on the mortgage yields, they’re up 7 foundation factors within the quarter. How rather more kind of repricing from the mortgage guide is left, or is that improve extra pushed by enterprise combine? Simply perhaps a little bit of coloration on that. Thanks.

Onur Genç

Let me take Mexico and you then observe up on Spain, Luisa. On Mexico, our steerage on the mortgage progress was double digit. We nonetheless preserve that. NII, to develop at excessive single digit, barely under exercise progress. That was the steerage that we now have given to you on the finish of the 12 months, on the finish of 2023, and we nonetheless preserve that.

However what’s the catch, or what can we see? As soon as once more, we do suppose that the mortgage progress can be taking place at double digit in Mexico. Within the first quarter, quarter-over-quarter numbers should not main into that. Yr-over-year quantity is once more 8.8, and the year-over-year quantity, while you modify for Mexican peso appreciation, while you modify for the divisa, the forex, it is once more 8.8 turns into 10.

So year-over-year we’re there, however quarterly, quarter-over-quarter determine is just not that sturdy to take us to that double digit. As soon as once more, I spotlight a couple of issues. First quarter is historically seasonal. On this first quarter, the Easter was in March, not like earlier than, which it was in April and so forth. It did have an effect. After we look in — after which there are elections, which isn’t creating a serious dent, however there’s that subject in June the two^nd, there are elections, as you realize, in Mexico.

The extent of charges, we see very sturdy pipelines, truly in Mexico, very sturdy pipelines. But it surely did take a few of that pipeline to be realized. Given the energy of the pipelines, given once more, what we now have seen up to now and the seasonality of the primary quarter, we nonetheless preserve mortgage progress at double digit.

Then how come the NII nonetheless, we hold the steerage at excessive single digit progress within the NII for Mexico. Then we glance into the spreads. Then we glance into the NIMs, truly. NIM is much more necessary as a result of we now have been investing in ensuring that we lock within the excessive charges. So, in case you look into the NIM, the margin NIM we see principally flat, 5 to 10 foundation factors, a slight decline or flat within the NIM. Consequently, NIM margin, the NIMS unfold, in consequence, that steerage nonetheless maintained.

On Spain?

Luisa Gómez Bravo

Sure, properly, by way of the mortgage yields, truly, we do not count on additional main repricing of the mortgage books as charges will begin to come down. So, we most likely have seen the height in that regard. In that sense, we most likely have seen additionally the height by way of — within the buyer unfold.

There could possibly be, as a matter of reality, a sure combine impact as we develop extra within the increased yielding mortgage books. However clearly, the burden of our guide by way of mortgages, and so forth., signifies that I believe that that blend impact, is just not going to be very, very materials going ahead.

Onur Genç

And I might focus as soon as once more on the NIM. The decline that we count on from right here to the top of the 12 months is lower than 10 foundation factors. Given the truth that we now have been locking within the sensitivity, the excessive charges, the NIM influence can be a lot decrease. So, double digit, as a result of the exercise progress is comparatively good, after which the spreads and the influence on the NIM is comparatively capped.

Luisa Gómez Bravo

I might additionally add, as a result of no person is asking, however on the ALCO, we now have, as you realize, been locking in our charge sensitivity, and proper now our sensitivity remains to be at round 5%. It is true that we handle this in a fairly dynamic foundation primarily based on the speed outlook that we might have. However we see clearly the ALCO contributing, identical to as we stated earlier, in a constructive trend to supporting the NII this 12 months.

We do see with the present charge scenario that there could possibly be alternatives to rising the scale of the ALCO going ahead if we see engaging charge ranges. Due to this fact we may even try to preserve the speed sensitivity at these ranges, contemplating the upper for longer charge surroundings and the speed surroundings coming down in direction of the second half of the 12 months.

Patricia Bueno Olalla

Thanks, Alvaro. Subsequent query, please.

Operator

Thanks. The subsequent query goes to Ignacio Ulargui of BNP Paribas Exane. Ignacio, please go forward. Your line is open.

Ignacio Ulargui

Thanks very a lot. Thanks for taking my questions. I simply have one query. Seeking to Turkey, in case you may present a little bit of coloration on the evolution of the Turkey’s NII, and the way can we count on the client unfold evolving from right here? And likewise in case you may additionally assist us to grasp a bit higher on the evolution of charges going ahead, given the sturdy efficiency we now have seen up to now quarters. Thanks.

Onur Genç

Thanks, Ignacio. We nonetheless count on spreads to be unfavourable within the second quarter, however we do clearly count on that within the second half of the 12 months, third and fourth quarter, that unfold can be coming again to constructive, so long as, once more, the nation continues on its path. We are literally fairly constructive on what we’re seeing in Turkey for the approaching quarters, and particularly for the second half.

You’ve got highlighted it, charge earnings is coming very sturdy, and the buying and selling earnings. The buying and selling earnings right here is just not, it is actually the client franchise enterprise. The buying and selling earnings that you just see for Turkey is principally purchase and promote of greenback and euro, which is a principal exercise of the, particularly the retail franchise, retail banking franchise, which could be very constant and really steady.

These two line gadgets can be very sturdy, and NII will come again up, in our view, within the second half. Consequently, once more, we do have a constructive bias additionally on what we now have guided you for Turkish backside line, which goes to be repeating 2023. However after hyperinflationary account, after accounting for all the pieces, we do have a constructive bias on that quantity as properly.

Patricia Bueno Olalla

Thanks, Ignacio. Subsequent query, please.

Operator

Thanks. The subsequent query goes to Britta Schmidt of Autonomous Analysis. Britta, please go forward. Your line is open.

Britta Schmidt

Yeah, thanks for taking my query. Two pretty fast ones. Might you maybe touch upon the Mexican charge outlook? What have you ever included for 2024 in your steerage? And what do you count on for 2025, given forwards have moved?

After which secondly, simply briefly on the revenue steerage, double digit progress year-on-year after what would have been EUR 2.5 billion Q1 and the banking tax with the run charge then falling to, as an instance, EUR 2.2 billion, whilst you’re guiding to a greater second half in lots of geographies. What are the primary drivers that you just see for that quarterly run charge to vary within the second half? Thanks.

Onur Genç

On the 2024, the underlying assumption for the NII in Mexico is the TA, which is the core charge, as you realize, in Mexico. We’re assuming a mean 10% charge for that one. However by way of the Central Financial institution charge, the BBVA Analysis for the time being is assuming 9.25% on the finish of the 12 months and seven.25% on the finish of 2025. They do have this, once more, increased bias on these numbers. In all probability it will likely be increased than these. However for the time being, BBVA Analysis estimates these figures.

Past that, although, in our personal NII calculation for this 12 months, we’re assuming, once more, 10% common, 10% common TA.

Relating to your second query, are we assuming a decline within the quarterly run charge of the earnings, as I perceive is the query, the reply isn’t any, we aren’t assuming that. We’re guiding double-digit progress in whole web attributable revenue for the 12 months.

In the event you bear in mind, final 12 months was 8 billion. At the very least 10% means 8.8 billion. We’re saying double-digit. We aren’t precising what that perspective, what that quantity is. However we’re fairly constructive on the approaching quarters. So double-digit is double-digit, Britta. We aren’t precising what precisely is double-digit.

Patricia Bueno Olalla

Thanks, Britta. Subsequent query, please.

Operator

The subsequent query goes to Andrea Filtri of Mediobanca. Andrea, please go forward, your line is open.

Andrea Filtri

Thanks. First query on buying and selling ends in Q1. In the event you may specify how a lot is from the FX hedges contribution. Second query is in your expectations on risk-weighted asset progress going ahead, given the excessive print this quarter and your elevated mortgage progress steerage. Lastly, in case you may simply elaborate in your expectations and in your assumptions on the NII trajectory in Spain in 2025, given that you’ve got given a lot indications on the web revenue. Thanks.

Onur Genç

Once more, we don’t present detailed steerage for 2025, however perhaps you are taking, Luisa, the NII trajectory in Spain for 2025. On the primary two, the buying and selling outcomes, we even have within the holding, within the holding, minus EUR 265 million of unfavourable ends in NTI. Why is that? As a result of it is Mexican peso appreciation. Given the truth that Mexican peso is appreciated, the hedges ship unfavourable outcomes. Additionally, we do produce other currencies there as properly, but it surely’s primarily Mexican peso. The whole is minus EUR 265 million recorded beneath holding in NTI.

Threat-weighted belongings, the query on this one, I could not get the total query, however are we anticipating risk-weighted belongings to develop or?

Luisa Gómez Bravo

Or is it aligned with mortgage progress?

Onur Genç

By way of the capital consumption. The 43 foundation factors that you just see by way of the capital consumption for RWA progress, it is comparatively on the excessive aspect, but it surely’s good that we now have that. As a result of if we now have that, so long as it is worthwhile, and we clearly make it possible for it’s worthwhile, we do ship higher returns within the coming quarters. That 43 foundation factors was comparatively excessive. In the event you look into the earlier quarters, it is round 35, 30, 35, 35 to 40, however not passing 40. So perhaps there’s some slight decline in that within the coming quarters, however RWA progress will proceed.

There may be an appendix web page within the presentation that we share with all of you while you look into the place the RWA progress is coming alongside. It is web page 50, you do see that 12 months over 12 months, the RWA progress is coming from Mexico, 25% improve in RWAs. We adore it, we do have 27% return on fairness in Mexico. In the event you put extra capital right into a geography the place you’re delivering that return, once more, it is going to make sure that you will proceed to ship nice outcomes going ahead.

Then NII trajectory in 2025 for Spain? We do not do particulars.

Luisa Gómez Bravo

Nicely we do not give steerage in Spain, however we’ll see. I imply, it relies upon clearly on the speed surroundings. If the charges come down as we expect them to return down, I believe we’re managing, we’re incorporating 75 foundation factors or three — decreases within the ECB charges this 12 months. We’ll see what the outlook is on exercise. Perhaps, it’s going to begin to be higher subsequent 12 months. I might say that, once more, relying on how we see the charges and the sensitivity that we now have, if we preserve it at round 5%, that can have a unfavourable or a barely unfavourable influence in NII.

However, I believe we now have administration levers as properly. We have seen these administration levers in motion this quarter by way of how we handle pricing, particularly on the deposit aspect. And we’ll see how these dynamics play out going ahead into subsequent 12 months. However I believe we now have levers to compensate, simply the pure sensitivity that we now have to rates of interest in our P&L.

Onur Genç

The baseline state of affairs that BBVA Analysis has, identified Luisa, is three cuts this 12 months, 25 foundation factors every, and 4 in 2025. Now we have been sharing this very overtly with you for a lot of quarters, however particularly we now have been speaking about it within the final perhaps three, 4 quarters. The NII sensitivity of Spain is 5%. So 100 foundation factors, step operate decline, step operate decline, 100 foundation factors, implies a 5% decline in NII.

And as Luisa talked about, we may be doing within the second quarter a bit extra actions to handle {that a} bit decrease, given the place the charges are. However let’s assume the 5% is the quantity. If that 5% is the quantity, we now have EUR 6 billion of NII in Spain, roughly talking, know? EUR 6 billion. 5% or EUR 6 billion, that is once more 100 foundation factors, step operate, however let’s go along with that quantity. It is EUR 300 million influence simply due to the unfold.

EUR 300 million, we do imagine, we do have the levers to compensate for this within the income line. That is why we’re saying that comparatively flat or slight decline for Spain within the coming 12 months. However we are going to discuss extra about that within the coming quarters. Do not push us into 2025 this early. The one cause that we now have given 2025 to you is that we’re seeing, once more, comparatively giant hole between what we see and what we expect for the approaching 12 months versus what the consensus is. We’re struggling to grasp the distinction. That is why we now have given you the general steerage, however that’s not – let’s go quarter-by-quarter. We can be updating you alongside the quarters.

Luisa Gómez Bravo

It is outlook, not steerage.

Onur Genç

It is outlook, not steerage. Superb.

Patricia Bueno Olalla

Thanks, Andrea. Subsequent query, please.

Operator

Thanks. The subsequent query goes to Carlos Peixoto of CaixaBank. Carlos, please go forward. Your line is open.

Carlos Peixoto

Hello, good morning. Thanks for taking my name, my query, sorry. So truly, most of them have already been answered, however I wished to debate a bit on the charge earnings outlook, significantly in Spain, but in addition in Mexico. In Spain, you had steerage in direction of slight progress in 2024, trying on the first Q, you truly are up 6% year-on-year, and so principally, I wished to grasp right here whether or not do you see this degree as being a kind of a one-off and count on it to return down all year long, or ought to this truly be recurrent going ahead? And due to this fact, you count on to beat the charge earnings steerage that you just’re offering.

And likewise in Mexico, in case you may give us some coloration as properly on how do you see charges evolving all year long? That might be nice. Thanks.

Onur Genç

Carlos, thanks for the query. I do not know what I used to be going to ask it, and I assumed it could have been a waste, however charge earnings is basically one of many, in our view, sturdy factors of this quarter. We do suppose that the most effective factor concerning the charge earnings, in our view, it is extra steady and constant and so forth.

I am trying into the important thing line gadgets of the charge earnings. In Spain, asset administration, year-over-year, is up 10%, 10%. Insurance coverage, which we’re pushing actually exhausting, is up 18%, truly, no, 17.4% to be particular. So, we’re seeing some clear push in Spain on the charge earnings. Mexico, asset administration, and we now have been discussing concerning the motion of deposits and so forth. However we like this, we would like this, we need to make it possible for particularly excessive earnings, personal banking, prosperous prospects have a few of their cash in mutual funds that we handle for them, which is healthier for them, which is healthier for us.

Asset administration in Mexico, and now its quarterly quantity is EUR 105 million. It is up 30% year-over-year, 30%. Cost companies, which is essential for us in Mexico, as you realize. The playing cards and POS is up 22% year-over-year. You recognize the scenario in Turkey. We’re over proportionally higher represented within the funds companies generally, but in addition in Turkey, and likewise in Turkey, it is up considerably, which drives the outcomes of Turkey.

To chop the lengthy story brief, in our view, these traits, and given the numbers that I quoted to you, they’re very constructive, and it will likely be ensuring that the consistency of the outcomes can be there for the approaching 12 months as properly.

Patricia Bueno Olalla

Thanks, Carlos. Subsequent query, please.

Operator

Thanks. The subsequent query goes to Chris Hallam of Goldman Sachs. Chris, please go forward, your line is open.

Chris Hallam

Thanks for taking my query. It is simply two on Mexico, two fast ones. So a lot of coloration earlier on deposits. Thanks for that. However simply considering, is there a kind of a flaw within the mortgage to deposit ratio by way of how far under 100% you would be comfy working out in Mexico? I.e., is there any kind of threat that we’re approaching a degree at which a number of the alternatives you see on the asset aspect aren’t absolutely realizable attributable to funding constraints?

After which second, on the peso, we noticed an enormous transfer in a single day a few weeks in the past. I assume, to begin with, does which have any distinct influence on the hedges you might have in place there, after I take into consideration web buying and selling earnings for the second quarter. After which extra medium time period, does that common volatility change in any respect how you concentrate on hedging out the FX threat? I believe you are presently round 60% hedged on Euro-Mex. So simply any replace there can be useful.

Onur Genç

So, on the primary one, the loan-to-deposit ratio in Mexico is for the time being 99%, and as I discussed firstly of the decision, it is purely within the quarter we now have chosen to fund ourselves on the wholesale aspect from the market fairly than from the purchasers. In order for you, we are able to, as we now have accomplished within the fourth quarter, while you look into the fourth quarter numbers, you’d have seen that. We will do this from wholesale prospects as properly by way of wholesale deposits.

So we’re far-off from the place you’d really feel uncomfortable with loan-to-deposit ratio. Given the energy of the franchise that we now have in Mexico, we are able to handle this ratio principally, principally, Chris.

Within the second subject on the hedges, I believe it was the hedges query. The road is just not so good right now, but when it is the hedges query, 60% is what we now have presently for the time being. Do we now have a transparent technique round this? Clearly, we do change this share from year-to-year a bit relying on the price of carry. And the price of carry can be coming down, for instance, in Mexico. We do nonetheless have 60%, though it is comparatively excessive carry. We hold the 60% on the P&L.

And by the way in which, we additionally hedge 64% of capital in Mexico as a result of we did suppose that there may be some devaluation of the forex this 12 months. That is why we’re comparatively over-hedged. However impartial of the degrees, we do modify a number of the price of carry. However we are going to preserve roughly these ranges as a result of we do suppose it is not solely, it is a threat administration device for us. We hold these hedging, we are going to hold these hedging ranges going ahead, though there may be some high-quality tunings round it, let me say it that method.

Patricia Bueno Olalla

Thanks, Chris. Subsequent query, please.

Operator

Thanks. The subsequent query goes to Ignacio Cerezo of UBS. Ignacio, please go forward, your line is open.

Ignacio Cerezo

Hello, good morning. I’ve obtained two fast follow-ups. One is on the deposit competitors in Mexico. In the event you are you able to give us a bit little bit of coloration on the overlap by way of the pipeline, the Fintech’s are capturing versus your pure shopper base, if there’s a vital diploma of overlap there or not? After which on the revenue outlook, as you stated on 2025, I imply is it logical to count on for you principally to count on {that a} hyperinflation and FX headwinds in Turkey are coming down fairly shortly for subsequent 12 months? Is that embedded principally within the steerage? Thanks.

Onur Genç

Thanks, Nacho, for the questions. We talked about it earlier than, however as soon as once more, we did achieve market share in retail demand deposits in Mexico within the 12 months, year-over-year, February-versus-February. The most recent introduced market quantity is February. We gained 17 foundation factors market share in retail demand deposits. That is the world the place Fintech’s compete. Are they making a dent? Clearly, they’re. I imply, on the finish of the 12 months, they haven’t introduced their, we do not know their newest outcomes, however on the finish of the 12 months, some dent has occurred. However that dent is just not taking place on us, given the market share quantity.

And why is that? As a result of we’re actually an important financial institution in Mexico. We hold saying this each quarter, and clearly, we’re a bit subjective on this, but it surely’s an exquisite financial institution that we now have. Now we have 44% market share in payrolls. As soon as once more, 44% of the quantity of nominees, of the salaries which can be paid by employers in Mexico goes by means of BBVA. That stream is there, and that stream protects us. We’re gaining one, within the quarters, within the first quarter of 2024, we gained 1.2 million new prospects in Mexico. 1.2 million, 85% of those prospects we acquired by means of digital means.

In case you are on the lookout for a Fintech in Mexico, we’re, if Fintech implies higher valuations and horny names, we’re a kind of. 1.2 million new prospects in Mexico within the first quarter. Final 12 months, we gained greater than 5 million new prospects in Mexico, once more, primarily by means of digital channels.

Within the context of who we’re and what we do in Mexico, and within the context of market share beneficial properties in retail demand deposits, we respect all of them, we respect them tremendously, however we’re competing very well, briefly.

Relating to Turkey, the alerts are very constructive, Nacho. The alerts are very constructive. What’s the watch? What’s the key metric to look at, to see that Turkey is evolving in the correct path? It is the inflation determine. As you realize, in January, it was greater than 6%. In February, it was greater than 4%. In March, it was 3.1%. In April, we expect round these ranges, round 3%.

Turkey appears to be doing the issues that they should do, and we handed an important election. After the elections, the important thing messages of the federal government have been orthodoxy, our key focus, our key precedence, our primary precedence. That is coming from the President even himself, saying that it is inflation. So long as the nation continues on its path to cut back inflation, and on this path of orthodoxy, we’re fairly constructive.

We’re being requested this influence of hyperinflationary accounting on this. Hyperinflationary accounting won’t disappear in our view, a minimum of till 2027. As a result of the rule there, as you realize, is the three-year cumulative inflation needs to be lower than 100% to take you out of hyperinflation, and it most likely won’t occur till 2027. However, what issues is just not hyperinflationary accounting, this and that. If inflation is contained, despite the fact that you apply hyperinflationary accounting, your P&L all of the sudden prospers. Your P&L is just not hit from the inflation influence.

So, impartial of the accounting customary, if the nation retains inflation beneath management, we are going to see a lot better figures coming from Turkey. This 12 months, our expectation, BBVA Analysis expectation, is 45% inflation, which goes to be a lot better than the 65% of 2023. Subsequent 12 months, the federal government says round 15%,16% our staff, most likely it will be round 20%. And the 12 months after, the federal government is placing a plan in place to say it will be single-digit inflation.

If that path is comparatively maintained, perhaps there are some modifications or there is a band round these figures and so forth. However, if roughly this path is delivered, you will note very constructive numbers coming from Turkey, from Assure BBVA to the BBVA consolidated figures.

Patricia Bueno Olalla

Thanks, Ignacio. Subsequent query, please.

Operator

Thanks. The subsequent query goes to Fernando Gil of Bestinver. Fernando, please go forward, your line is open.

Fernando Gil

Hello, thanks very a lot for taking my query. Simply two fast ones, please. One, on tax charges. I see Latin America tax charge being very low this quarter. Are you able to please touch upon tax charge on the group divisions and items throughout 2024? Second is on NPL protection. I see figures hold coming down quarter-on-quarter. Are you able to please touch upon overlays and outlook going ahead, please? Thanks very a lot.

Onur Genç

Let me take the NPL protection and you then touch upon the tax, Luisa, if that is okay. On the NPL protection, principally two impacts. Primary, we did promote, particularly in Spain, a couple of portfolios. In case you are speaking about year-over-year, all through final 12 months and likewise within the first quarter, that is primary.

Quantity two, the primary improve in NPLs in Spain has been the mortgage portfolio as a result of not like lots of our friends, we do apply this new definition of default, which is in case you restructure a shopper and if the NPV of that mortgage goes down by greater than 1% and 1% is a really low determine, however that is the rule, then we put that mortgage into NPLs.

On condition that, given the truth that the NPL progress is especially pushed by mortgages and mortgages, given additionally the collateral worth and so forth, sometimes comes with decrease provisioning, decrease protection, there’s that blended impact arriving primarily from Spain into the determine. In the event you take these two impacts apart, so the sale of the portfolios and likewise the mortgage influence in Spain, the quantity wouldn’t have been altering as you see within the determine.

On the tax numbers?

Luisa Gómez Bravo

Sure, properly the group efficient tax charge within the quarter stands at 33%, 33.3% which is I believe what we count on for the entire 12 months, very a lot in keeping with final 12 months. It is true that there are specific dynamics that examine, particularly with the top of final 12 months, with our, perhaps a bit bit sophisticated to grasp, primarily with state in Peru.

Bear in mind on the finish of final 12 months, we had a big, launch of a provision that we had associated to tax contingency in Peru. This was a big quantity and that is why you see a change within the quarter-on-quarter quantity within the tax quantity in Peru. And in Colombia, the efficient tax charges within the quarter is benefiting from the deductibility of the subordinated issuances that we have accomplished and better influence of tax exemptions coming from insurance coverage enterprise.

So, I might say these are the primary causes in Latin America for the modifications quarter-on-quarter or year-on-year by way of tax charges.

Patricia Bueno Olalla

So thanks, Fernando. Thanks. This was the final query. Thanks for all of your questions and for becoming a member of this primary quarter outcomes earnings name. As at all times, let me remind you that the complete IR staff can be out there to reply any questions you will have. Thanks very a lot.