Banco Bilbao Vizcaya Argentaria Q1 2025 Earnings Report

Banco Bilbao Vizcaya Argentaria EPS Results

• Actual EPS: $0.47
• Consensus EPS: $0.47
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Banco Bilbao Vizcaya Argentaria Revenue Results

• Actual Revenue: $10.61 billion
• Expected Revenue: $9.12 billion
• Beat/Miss: Beat by +$1.49 billion
• YoY Revenue Growth: N/A

Banco Bilbao Vizcaya Argentaria Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, April 29, 2025
• Conference Call Time: 3:30AM ET

Banco Bilbao Vizcaya Argentaria (NYSE:BBVA) provides retail banking, wholesale banking, and asset management services in the United States, Spain, Mexico, Turkey, South America, and internationally. The company offers savings account, demand deposits, and time deposits; and loan products, such as residential mortgages, other households, credit card loans, loans to enterprises and public sector, as well as consumer finance. It provides insurance and asset management business, including corporate, commercial, SME, payment systems, retail, private and investment banking, pension and life insurance, leasing, factoring, and brokerage. The company provides its products through online and mobile channels. Banco Bilbao Vizcaya Argentaria, S.A. was founded in 1857 and is headquartered in Bilbao, Spain.

Banco Bilbao Vizcaya Argentaria Q1 2025 Earnings Call Transcript

Presentation

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Good morning, and welcome, everyone, to BBVA's first quarter results presentation. Following yesterday's massive power shortage in Spain, the situation in Madrid is now almost fully restored, so we expect to be able to conduct today's earnings call normally. As usual, I'm joined today by our CEO, Onur Gent and Luisa Gomet Bravo, the group's CFO. After their review of the quarterly figures, we will open the line to receive your questions. Let me remind you that in addition to asking questions live through the conference call operator, you also have the option to submit your questions in writing via the ask a question section located just below the video you are watching.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

This option is available in case you experience any issues with the phone line. Any questions submitted through this channel will be read during the Q and A session and answer accordingly. We apologize for any inconvenience caused by this situation and sincerely thank you very much for your understanding and cooperation. Now I will turn the call over to Anur.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Thank you, Patrizia. Good morning to everyone, and welcome, and thank you for joining BBVA's first quarter twenty twenty five earnings webcast. The ones who are connecting from Spain or the ones who have friends and family in Spain, I hope everyone is safe and sound after the days blackout. And let's just jump into it, starting with Slide three. In line with our strategic priorities of value creation and profitable growth, I would like to start the presentation today by highlighting the two financial metrics that best reflect these priorities, tangible book value growth and profitability.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

On the left hand side of the slide, you can see the strong evolution of tangible book value per share plus dividends, which increased by 14.1% year over year and 3.3% in the quarter, in our view, very good figures despite the relatively high currency depreciations that we have experienced in the quarter. On the right hand side, our profitability, it continues to improve. In the first quarter of twenty twenty five, we reached an outstanding return on tangible equity of 20.2% and the return on equity of 19.3%. These profitability metrics would most likely place us, others have not announced yet, but would most likely place us once again as the most profitable European bank among the 15 largest banks of the continent. Page number four, on the left hand side, you can see our net attributable profit in the quarter reaching EUR 2,698,000,000, another very strong quarter.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

This represents, as you can see also on the page, a 23% increase compared to the same quarter last year and also 10.9% higher, this number versus the previous quarter. These results are due to the repeated excellent performance, in our view, of our core business, as can be seen in the growth of our core revenues that I will be explaining in a second. This profit figure translates into earnings per share of zero four five, a 24% increase year over year. And finally, and very importantly, regarding our CET1 fully loaded capital ratio on the right hand side of the page, it's improved by an exceptional 21 basis points during the quarter, reaching 13.09%, obviously, well above our target range and regulatory requirements. Moving to Page five.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

This page is a summary of the pages to follow, so I will not dwell too much on the page, but just a quick introduction to different highlights of the quarter. First, net interest income grew by 8.5% year over year, driven by very strong business activity, up a superb in our view, 15.1% growth in activity. Second, net fees and commissions showed an excellent evolution, increasing by 19%. Third, our industry leading efficiency ratio, it continues to improve, reaching 38.2% this quarter. Fourth, asset quality, it remains solid and is performing better than expected with a cost of risk at 130 basis points.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Fifth, our robust capital position, as I just mentioned and sixth, continued outstanding growth of our underlying business franchise, attracting a record 2,900,000 new customers and reaching EUR 29,000,000,000 in sustainable business in the quarter. Slide six, as always, the summarized P and L of the quarter. You can find the year over year quarterly evolution in the second column from the left in constant. And right next to it, in current terms, the third column from the left. Basically, the P and L continues its impressive evolution, thanks to the strong core revenue growth with a year over year increase in gross income of 28% in constant and 13% in current euros and maintaining positive jaws.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

On this one, regarding the banking tax in Spain, please note that last year, net attributable profit in the first quarter of twenty twenty four had a EUR $285,000,000 annual impact recorded in other income and expenses heading. This year, in the first quarter of twenty twenty five, we have booked an EUR 85,000,000 charge in the income tax heading for the quarterly accrual of the new banking tax because the structure of the of the tax has changed. So it's only for the three months, eighty five million under the income tax line versus the 285,000,000 in the other income line of last year. The broader messages do not change, but as you compare the figures, the columns, please take into account this set of one off impacts. Slide seven.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

As usual, let's look into the revenue breakdown. First, net interest income growth remains at very strong levels despite declining rates in our core geographies. NII growing by 8.5% year over year and 1.7 quarter over quarter, again, supported by very robust activity growth. Second, net fees and commissions continued their excellent trajectory, 19% up versus the same quarter last year. This growth was mainly driven by our payments and asset management businesses.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Compared to the previous quarter, there was a 2.7% decline, but this is completely explained by the seasonal success fees that we record in the fourth quarter in Spain for asset management activity in Spain. Third, we have had another very strong quarter in net trading income, driven by solid performance in Global Markets unit, as many other banks have experienced. And also, as a result of all of this, income growing by an excellent 28% year over year and 3.9% quarter over quarter. Moving to Slide eight, let me now focus on activity and loan growth, which increased, again, very strong 15.1% year over year at the group level. This is very encouraging for the coming quarters, especially, as I always say, this growth is delivered profitably.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

I mean, we measure this loan by loan on a marginal basis through our return on capital framework. So the profitable growth and the increase in the activity will be helping us in the coming quarters. But in Spain, on right hand side of the page, you see the breakdown by the countries. Loan growth in Spain has continued to accelerate, reaching 6.6% year over year growth, a growth level unforeseen for quite a long time, actually. And within that, our key segments are performing really well.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Consumer and credit cards, they grew by 7.5%. And aligned with our new strategic priority, lending to enterprises, it grew better than average by 8.5. In Mexico also, loan growth accelerated significantly, reaching 17.2% year over year growth. If you isolate for the FX effect, tipo de cambio, the currency impact, the growth is still a very strong 14% for Mexico. Consumer and credit cards, they grew by 15.3%, while lending to enterprises, again, a strategic priority for us, better than average, remarkable 25%.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Page nine, looking forward, obviously, we live in some uncertain times, clearly uncertain times, but given the relatively low leverage levels in our footprint countries, we do believe in the potential of further credit growth without creating too much cost of risk in our core geographies. In the page, see that, but for example, in Spain, after so many years of deleveraging, we are now less than the EU average in leverage. And given all the relatively positive macro factors for Spain, we expect the strong loan growth trend to continue. And in the case of Mexico, we discuss it from time to time, we see one of the lowest levels of leverage even in the emerging markets landscape. And with increased bankerization, we do believe that the Mexican financial system is bound to grow healthily, in our view, going forward.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Slide 10, you can see all that positive trend in activity in Spain and Mexico, how it translates into solid core revenue growth in the P and L, even in a declining rate environment. So looking at the charts in the middle, in Spain, NII, it grew by 1.2% year over year despite a decline in the ECB depot rate from March 2024 to March 2025 of 150 basis points. In Mexico, NII, it rose by a strong 7.6% year over year, once again driven by the robust activity, again, despite a decline in the Central Bank, Mexican Central Bank rate of 200 basis points in the last year. As you know, over the last two years, we have actively managed our balance sheet sensitivity to rates, both in Spain and Mexico, in the context of higher rates. We increased the size of our ALCO portfolio, and we extended the duration, and we are seeing the benefits of this.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We sacrificed some margin, by the way, in the short term in that time, and we did that. But we were trying to protect our margin in the future. And again, you are seeing that in the figures. This strategy, combined with the solid growth in the business activity, makes us confident in the future's NII evolution. Turning to fee evolution on the Page, right hand side, 6.8% year over year increase in Spain, Five Point Eight Percent year over year increase in Mexico, mainly driven by asset management.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So very good numbers there as well. Slide 11, left hand side of the page. We have widened our positive jaws at the group level, driven by a strong performance in gross income. As we said, 28% increase year over year. Slower pace of growth in costs, 14%.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

It is also below the group's average inflation rate. As a result, on the right hand side of the page, you can see our leading efficiency ratio, which has further improved to 38.2%, an improvement of four sixty nine basis points versus last year. Slide 12. This page shows the positive evolution of our asset quality, asset quality metrics. They are performing ahead of expectations, better than expectations.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

At the bottom left, you see the cost of risk. It stands at 130 basis points. This improvement is due to better than expected performance in most of the business units, but notable improvements in Mexico and Spain. And on the bottom right, both our NPL and coverage ratios are at their best levels for quite some time, standing at 2.9% for NPL and 82% for coverage. Slide 13, on capital.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We have generated an exceptional 21 basis points CET1 in the quarter, bringing our CET1 ratio to 13.09. And in the waterfall, you see it from left to right, our results, 68 basis points, then dividend accrual and 81, deducting minus 37 basis points. Third, minus 30 basis points due to the RWA's growth. This figure reflects for yet another quarter our ability to reinvest part of our capital generation into profitable growth. It also includes the result of several risk transfer transactions that we did, which positively contributed 13 basis points to the ratio.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So in line with our new strategic framework, which puts even more focus on value and capital creation with potential uses of risk transfers. Our RWAs in the quarter, they are growing much less than our activity. And you have in the page also a bucket of others, 20 basis points, which comprises, among others, the market related impact, which was relatively muted in the quarter and the credit in OC that, accounting wise, it neutralizes the deduction in the P and L bucket due to hyperinflationary accounting. Page 14, to show you how we continue growing our franchises through new customer acquisition. And I said it many times before, but we believe that the most healthy way to grow the balance sheet is by expanding our client franchise across all segments.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

In the first three months of twenty twenty five, we acquired a record 2,900,000 new customers, 66% of them joined us through pure digital channels. I mean populations and the company count in our markets, they don't grow at this pace. So maintaining such a strong rate of new customer acquisition, it requires a significant and ongoing effort. And thanks to that effort, our active customer base, it has grown from 56,000,000 at the March 2020 to more than 78,000,000 as of March 2025, an outstanding increase, in our view, over the past five years. Turning to Slide 15, sustainability, another strategic priority for us, a key driver of our differential growth.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We have set an ambitious goal to channel 700,000,000 between 2025 and 2029, more than double the previous target of EUR 300,000,000,000 set for the 2018 and 2025 period, which we achieved one year ahead of schedule, as you know. And this higher, more ambitious objective will be targeted over a shorter time frame, five years instead of eight. So we are determined to push our business through sustainability as well, and we are creating very good numbers. We are the results are quite self explanatory. Record sustainable finance figure in the first quarter.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

And now for the business areas update, I turn it to Luisa. Luisa?

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Anwar, and good morning, everyone. On Slide 17, starting with Spain. Spain delivered yet another impressive set of results, surpassing EUR 1,000,000,000 net profit in this first quarter of the year, thanks to a strong gross income increasing by more than 6% quarter over quarter. NII has performed remarkably well, growing by 1% quarter over quarter despite the lower interest rate environment. This performance is driven by very sound loan growth, particularly in the most profitable segments, as Onur said, consumer and enterprise lending and a higher contribution also from ALCO portfolios.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Loan growth accelerated during the quarter reaching 6.6% year over year driven by a nearly 20% increase in new loan origination compared to the same period last year. It was also a strong quarter for fees, which grew by 5% on a like for like basis with solid growth across all lines. The quarter on quarter decline was mainly due to the recognition of asset management success fees in the fourth quarter of last year. All in all, strong gross income growth both in the quarter and year on year. This, along with well contained costs, has brought the efficiency ratio to an exceptional 32%.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

For its part, risk metrics continued to improve during the quarter with a further decline in the NPL ratio and an increase in the coverage level, driven by the positive evolution of NPLs. Cost of risk declined 30 basis points better than expected. Looking ahead, and despite the more uncertain environment, we are maintaining or slightly improving our full year guidance for Spain. In this regard, we are expecting low to mid single digit loan growth for the year with a positive bias considering the strong start of the year. We reaffirm our guidance for a slight decline in NII even in a context of lower than anticipated rates.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

We remain confident in achieving low single digit growth in fees subject to market volatility. And finally, we are improving our guidance on cost of risk to around 35 basis points supported by the solid start of the year. Now turning to Mexico, once again Mexico delivered exceptional results with net profit growing by nearly 8% year over year, driven by strong core revenue growth of 7.3 year over year. Net interest income continued to grow robustly, supported by increased lending activity growth. Credit demand remains remarkably strong with solid growth across both retail, mainly driven by consumer and SME lending and commercial, where we continue to see healthy dynamics following a very strong fourth quarter, particularly in short term lending.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

In addition, we are seeing an increasing contribution from our ALCO portfolio, which we expect to continue in the coming quarters as rates continue to decline. Fees continue to grow at a healthy pace, increasing by nearly 6% year over year. In addition to strong credit card and payment fees, which represent over 50% of total fees in Mexico, we are seeing an increase in contribution from asset management and CIB related fees. Overall, strong revenue growth has allowed us to maintain our efficiency ratio at an impressive 30% despite higher expenses, mainly reflecting the carryover effect from salary reviews and headcount increases, particularly related to internalizations and IT profiles during 2024. We expect cost growth to gradually slow down over the course of the year in line with our high single digit growth for the year guidance.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Finally, asset quality metrics are performing ahead of expectations. Impairments declined driven by improved performance in retail portfolios and the cost of risk decreased to three zero five basis points in the quarter. All in all, after a very strong start of the year, we remain confident in our ability to continue delivering on our guidance for Mexico throughout the rest of the year. We reaffirm our guidance for loans growth at high single digit and for NII to also grow at high single digit although below that of activity. Despite the expected economic slowdown and the potential impact of provisions from the IFRS nine macro adjustments, we are maintaining our cost of risk guidance at three fifty basis points supported by the positive evolution of risk metrics at the start of the year.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Going to Slide 19, Turkey reported a net profit of EUR 158,000,000 for the first quarter representing a 10% increase compared to the previous year. Higher revenues and a lower impact from the hyperinflation adjustment more than offset the increase in impairments. As expected, net interest income increased driven by a significant expansion in the Turkish lira customer spread, up 91 basis points during the quarter. This improvement was largely driven by a decline in Turkish lira deposit costs in the context of declining interest rates. Our positive sensitivity to lower rates in Turkey enables us to benefit from a faster downward repricing of our customer deposits.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

In addition, loan growth continued across both Turkish lira and foreign currency portfolios. We also see strong performance in fees supported by payment services and higher contributions from asset management and insurance. On the asset quality front, the cost of risk continued to normalize standing at 189 basis points in the first quarter in line with our full year guidance. This reflects higher provisioning needs in the retail segment consistent with the elevated interest rate environment. Looking ahead, in a context of temporary monetary tightening to anchor inflation expectations, we expect a progressive but more gradual improvement in the Turkish lira customer spread through 2025.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

As such, given slightly higher than initially anticipated inflation and interest rates by the year end, we now expect Guaranty BBVA's net profit to close somewhat below EUR 1,000,000,000 in 2025. And finally, let's turn to South America. South America continues to deliver a solid earnings contribution to the group with net profit exceeding EUR 200,000,000 in the first quarter. Solid results this quarter were supported by revenue growth, lower impairments and a reduced impact from the hyperinflation adjustment in Argentina as the disinflation trend continues. Net interest income performed well, driven by loan growth across the most profitable segments and improving customer spreads in Peru and Argentina.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Beyond NII, we also saw a positive contribution from fees and stronger net trading income. Additionally, this quarter we recorded significantly lower impairments in Peru and Colombia, reflecting the improving asset quality trends that we had anticipated supported by a more favorable economic environment including lower interest rates and some adjustments to our risk appetite in the most vulnerable portfolios. Overall, the cost of risk for the region stood at two thirty basis points below our full year guidance. All in all, the outlook for the region is becoming more positive, supported by an improving economic environment. Now back to Onu for the final remarks on the quarterly results.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Thank you, Luisa. And lastly, the last page, Page 21, the main takeaways. Let me not take the time by repeating the key messages that are already on the page. There are so many positive adjectives in the page. But in short, in very short language, we are quite happy, very happy with the performance in the quarter.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We continue to focus on creating value, value for our stakeholders. As I just mentioned, we are quite optimistic going forward. Despite all the macro uncertainties, we are quite optimistic. I very positive dynamics in our businesses, thanks to our diversified model with leading franchises in high growth markets. As such, despite the uncertainty, we maintain our guidance of return on tangible equity of high teens, similar to levels of 2024 that we shared with you in the last quarterly call.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We maintained that guidance, but it's an uncertain environment. We have to see how it evolves, obviously, in the coming weeks and months. And now back to Patricia for the Q and A. Patricia?

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you. Thank you very much, Anur. We are now ready to start with the Q and A. So operator, first question, please.

[Operator]

Thank you. We will now begin the Q and A session. Our first question today comes from Antonio Reel from Bank of America. Antonio, please go ahead.

[Antonio Reale, Co-Head - European Banks Equity Research at Bank of America]

Hi, good morning. It's Antonio from Bank of America. Just two questions for me, please. My first one is a follow-up on your guidance on Turkey. It's really around NII and cost of risk in the region.

[Antonio Reale, Co-Head - European Banks Equity Research at Bank of America]

We've seen the rates hike I think which wasn't late in the quarter. So I wonder how would you expect the sequencing of NII to trend in Turkey and your expectations on cost of risk which was slightly above your full year guidance, which seems to be suggesting in general for the region a stronger second half versus the first half. So if you can share a little bit more color on those two lines and the sequencing, that will be great. My second question is on Spain. We've seen strong activity levels in Q1.

[Antonio Reale, Co-Head - European Banks Equity Research at Bank of America]

On loan growth, you're gaining market share. And even on deposits, despite the usual Q1 seasonality, we've seen positive growth in deposit. Can you talk a bit more about how this has changed, if any, post tariffs and your expectations for when you would expect to see a trough point in NII in Spain this year? Thank you.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Perfect. Thank you, Antonio. Maybe I take Turkey and you take Spain, Luisa. On Turkey, as Luisa has mentioned also in his presentation, we're expecting somewhat lower than the 1,000,000,000 that we guided you. But if you remember, in the first quarter's call, in the end of year quarterly call for in January, was it, we did provide a guidance of 1,000,000,000.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

And we were very, very specific. I remember it very clearly. It's in the documentation as well, that this depends on three very important macro parameters. Those three parameters were inflation, interest rates and also the currency level. The interest rates that we were planning or that we were foreseeing at that moment was 31%.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Now we do think it's going to be five basically five percentage points higher at the end of the year, 36%, thirty six point five %. Inflation at the time, we were expecting we were foreseeing the inflation to be at 26.5%, twenty six %, twenty six point five Now we are expecting the inflation number to be 31% at the end of the year. And then there is also the currency. We were expecting 30% devaluation, reaching euro dollar euro Turkish lira, reaching 48 at the end of the year. And there might be some also higher more devaluation that might be coming along, given all the developments in Turkey.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So these three numbers drive the figure. 1% inflation more, the sense I'll give you the sensitivity so you can also do the math yourself, Antonio. The 1% inflation has an impact of EUR 15,000,000 to EUR 20,000,000 in the bottom line profit for BBVA. So 1% inflation mainly due to hyperinflationary accounting. Also, drives many other things indirectly.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

But 15,000,000 to €20,000,000 not net profit impact. 1% more interest rate has EUR 25,000,000 to EUR 30,000,000, 20 5 million to EUR 30,000,000 negative impact if it's a higher interest rate in the Turkish case. And devaluation, if you have 1% more devaluation, it's EUR 5,000,000 to 6,000,000. Again, it has many other indirect impacts. I'm giving you only the change in that respective independent parameters.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Given all these numbers, that's why Luisa has mentioned that the number that we have guided you, 1,000,000,000, will most likely depends on the macro parameters, once again. It depends on these three parameters. But would be most likely slightly lower, somewhat lower than $1,000,000,000 But given this, we are also activating some levers. The cost lever, obviously, is something that we are working on. That's why we are saying it's going be somewhat lower than EUR 1,000,000,000.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

In short, how all of this will be affecting the bottom line? I gave you all the detailed sensitivities. You would see that it's still a very positive figure. It's going to be a growth versus last year, but there's a huge dependency, obviously, on the macro parameters. On Spain, Luisa?

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Yes. Well, I would start by highlighting maybe perhaps the macro environment. As you were mentioning, obviously, with the recent news, we expect decreasing GDP global environment in general. But I would like to highlight that Spain within the context of the tariffs is one of the countries in Europe that is least affected because it is a services economy. It is driven by exports and services, by tourism.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

It's been enjoying a strong job creation, wage increases, and that has led to actually quite robust growth in the market as a whole. And as I was saying, the tariffs in Spain will have less of an impact than in other geographies. And within that context, we do expect Spain to continue to be growing above the European Union average for this year and going into next year. And within this backdrop, we expect activity trends to be resilient. And we are not seeing in these activity trends even today, you know, changes in the pipelines that would indicate that we are not, you know, maintaining that guidance in terms of activity growth with that positive bias that we mentioned at the beginning of the call.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

So within that context, with regards to NII, I would highlight several things. The first one is that we have been, as you know, managing the sensitivity of NII to the interest rate environment. We ended last year with circa 55 sorry, 55% NII sensitivity. And today, that sensitivity is around 4%, so a slightly lower sensitivity to the rate environment. And in that context, we expect that to be gradually feeding through the NII line during these quarters.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

In addition, we have increased our ALCO book by $5,000,000,000 this quarter, which will also be supportive of the NII and leading to that confirming the guidance of a slight NII decline in the year despite a rate outlook that today is slightly more negative or biased to the negative from our 2% terminal rate scenario that we were managing at the beginning of the year. So all in all, a gradual impact and decrease and slight decrease in NII for the year. But again, supported by strong activity dynamics even in the post tariff world and good management, I think, on the ALCO side.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

I'll just add two little data points regarding Spain. We always look into spread in our presentations and so on, which is which has been and which still is a very critical metric, obviously. But as we have invested in this ALCO strategy that Luisa was talking about, we have to also start looking into NIM. And in the quarter, the NIM of Spain has gone up, up by seven basis points. So we are seeing the benefit of what we have been doing already in the figures.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Then regarding the volumes, Antonio, when you look into the market, we are gaining market share. But when you look into the market, the February numbers came out. The March numbers are not out yet from supervisor. But the new loan production in the first two months of the year versus the last two months, the first two months of 2024, so year over year comparison of the two month cumulative, it's up 10% in the market. And we have not seen any decline in that pace in March, in April and so on.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So the pipelines are quite strong, so the activity levels continue to be strong independent of all the uncertainties surrounding the world.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Antonio. Next question, please.

[Operator]

The next question comes from Maxime Machine from JP Capital. Maxime, please go ahead.

[Maksym Mishyn, Managing Director at JB Capital Markets]

Hi, good morning. Thanks for the presentation and taking our questions. I have two on Mexico and one on the special tax. So on Mexico, I was just wondering what's the reason you are not improving the guidance for loan book growth given the 17% increase in the first quarter? And then was there any specific reason for the cost of risk to be lower in the first quarter than what you're guiding for the full year?

[Maksym Mishyn, Managing Director at JB Capital Markets]

And then on the special tax, I was just wondering if you apply any deduction related to the 25% threshold of net taxes paid in Spain on the special tax calculation. You.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Perfect. Gustaf, maybe you take the tax topic. On Mexico, Max, the two questions, the loan book growth, why aren't you revising our guidance? Because we are in this uncertain world that was triggered by these tariff discussions and so on, and Mexico is obviously at the core of it. As you do know, relatively speaking, if the tariffs stay as is, Mexico, relatively speaking, will be benefiting from this.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

But there is too much uncertainty. And we do see that in the growth of the loan book. The 17% growth that you have seen in the first quarter is mainly short term loans. We have seen some decline in the long term part of the loan growth. As a result, we have to be cautious, and we have to be careful.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

In a normal environment, if I had seen this 17% growth versus our high single digit guidance that we have for the loan growth for the year for Mexico, In a normal environment, we would have upgraded our guidance. But we need to be cautious, and we need to see how things pan out in the coming weeks and months before we can certainly say that it will be a higher figure. So we have some positive dynamics. The pipelines are quite strong. The April numbers are quite strong.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

But it's let's be cautious, and let's see what how things turn out. Then on cost of risk, the underlying fundamentals are quite strong. And we are not, again, upgrading the guidance for the same reason. We have to see how things pan out in the coming weeks and months. We have to see the impact of all these tariff discussions in The U.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

S, which is going to be reflected also in the activity, the economic activity of Mexico. We don't see a very clear direct impact from the tariffs. But if U. S. Slows down, it all the time, obviously, hurts Mexico.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So we have to see all those dynamics coming out. I will repeat what I say for both. We would have upgraded our guidance in a normal environment, but we have to see how all this uncertainty come out before we definitely change the guidance. On the tax, Luisa?

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

It's a very short answer, yes. We are applying the deductions that are established in the law that was approved and came into effect at the January.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Max. So next question, please.

[Operator]

The next question comes from Marta Sanchez Romero from Citi. Marta, please go ahead.

[Marta Romero, Director - Equity Research at Citi]

Thank you very much. My first question is on capital optimization. So thank you, Ono, you've said 13 bps in the quarter. How much do you expect to generate going forward? And what kind of impact on the P and L we should expect from that?

[Marta Romero, Director - Equity Research at Citi]

And then my second question is on the cost of deposits in Spain and Mexico. We've seen a very good performance in Spain, so you've managed to bring it down to 66 bps in the quarter. Where do you see it going forward? And in Mexico, we've seen a bit of something different. So the cost of deposits actually increased despite lower rates.

[Marta Romero, Director - Equity Research at Citi]

It's true that your loan to deposit ratio has increased has improved as well to 103. So can you explain what to expect there and the balance of loan growth and deposit growth? Thank you.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Thank you, Marta. On the capital topic, the architect is Luisa. So Luisa, do you

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

want to take?

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

It's going be an objective for you for the year as well.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Yes, realize that, yes. So no, I mean, I think that definitely this is, as I mentioned, I think before, an ongoing dynamic and ongoing process. We will be obviously doing more SRT's going forward. It's difficult to pinpoint a specific number because these deals take quite a lot of time to come to market. They need to be reviewed by the regulator.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

But I would say that definitely, there's going to be a good pace of SRT contributions on a quarter on quarter basis throughout the year.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Very good. Regarding the cost of deposits, you asked for the 66,000,000

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

It obviously depends on the ECB rate profile. Martha, you quoted very, very correctly for both cases. But as I said, we should focus more a bit on NIM going forward in both cases, in both Spain and Mexico. And in the context of NIM, we see a slight decline in the NIM in the coming quarters, but a very slight decline, whereas in the customer spread, you would see the number coming down. The cost of deposits will be coming down along with that as well.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

But the spread, to me, is less relevant in the coming quarters. It's more the NIM. And what I can tell you is like two, three basis points in the coming every quarter, but not much than more than that. So the NIM number is a very positive figure. Regarding Mexico, again, you quoted very correctly in your question.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We did take in some institutional large corporate and public sector deposits in the quarter. That's why the growth in the deposit is very robust. But that obviously comes with a higher cost of deposit, which has been then increasing or influencing the figure that you have seen, the cost of deposits going up to $2.68. Once again, the key number to look into is NIM. And in the case of Mexico, in the quarter, NIM has increased, I repeat, increased by six basis points.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

And going forward, we do expect this NIM levels to remain more or less constant, more or less constant. These ALCO strategies these ALCO strategies that we have been talking to you about in the past few years, obviously, is helping in this current context.

[Operator]

The next question comes from Francisco Racao from Alantra. Francisco, please go ahead.

[Francisco Riquel, Head of Equity Research at Alantra]

Yes, thank you. So my first question is a follow-up on previous question is the loan growth in Spain, which has been accelerating, meaning that you are widening market share gains that you have you were reporting in previous quarters. So I wonder if you can comment on what is the profitability of the new lending given the tough competition in the sector in Spain. I also see the quarter on quarter growth in loans is mostly geared towards CIB and public sector, which are typically with lower margins. So overall, it's the profitability of the new lending in Spain.

[Francisco Riquel, Head of Equity Research at Alantra]

And then also in Spain, the costs are flat year on year with lower admin costs. So you can explain what are you changing here to reduce the cost base? And if you can update your guidance for the costs for the year? Thank you.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Okay. So very quickly on both questions. On the profitability of the new lending, as we discussed many times before, we have this loan by loan, and I repeat, loan by loan profitability framework. So every single loan has to pass a certain threshold of return on capital. In that context, what you see is, as you said, the 10% growth in corporate and CIB, but you are also seeing, natural, 10% in midsized companies, midsized companies also, which comes with very high rock.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

But independent of the segment, those 10%, they have to deliver the cost of equity. If they don't, they cannot be admitted. We are very strict on this. We have a very clear micro capital planning framework around this. Even I, I personally can see every single loan that are granted in any part of the world, and what is the respective ROSA return on capital that comes with it.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

It's all profitable. That's why you also see that's why you also see, in Spain, the mortgage, the growth is 1.7%. And the quarter over quarter is, I think, 0.3%. We are not growing in mortgage at the moment because the ROCE, the return on capital for those loans, in our view, are less than justified. It doesn't deliver the cost of equity.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

But in all the other areas, you would see a very high return on capital. And that return on capital, if it's not there, we would not be giving that loan in any case. Then costs in Spain. There was a relatively small but one off in those numbers. In general, there's like EUR 16,000,000, if I'm not mistaken, related to VATs and so on.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

If you add back that EUR 16,000,000, the number will be around 2%. Two % growth is the quarterly growth number, which is what we have guided you already. So the real number or the without the one off number is exactly in line with what we have been telling you.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Paco. Next question, please.

[Operator]

The next question comes from Ignacio Ullargi from BNP Paribas. Please go ahead.

[Ignacio Ulargui, Analyst at BNP Paribas]

Hi, thanks for the presentation and for taking my questions. I have just one question. I'm trying to get a bit of a sense of the corporate loan book growth that you see in Mexico, then other commercial and SME performance. If you could give us a bit of a sense of what is that growth coming, if it's more CapEx or if it's OpEx, if it's working capital or more longer term lending, just to get a bit of a sense of what is driving the growth there? Thank you.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

There is obviously some long term natural growth in that as well. But as I mentioned previously, it's mainly as compared to before, the profile is changing and the profile is much more short term working capital now. This is basically upfronting the tariff discussion. Many of our clients, basically, they have been working really hard, building up inventory and sending the inventory. The working capital needs in Mexico, it has they have gone up.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

And as a result, the short term lending has gone up. So it's mostly short term lending.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Natto. Next question, please.

[Operator]

The next question comes from Benjamin Holmes from RBC. Benjamin, please go ahead.

[Benjamin Toms, Director - Equities at RBC Capital Markets]

Firstly, just given the ongoing volatility in global trade wars, can you just talk a little bit about how hard you have to stress your financial plan in order for you to not achieve a higher teen RoTE over the next couple of years? And then secondly, on capital, it intends to trend higher relative to the 15 relative to the 11.5% to 12% target range. Can you just provide us with the latest expected capital impact from the Sabodaw transaction? And can you just reconfirm for us there's no intention in the short term to increase your capital target range? Thank you.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Very good. On the first question, hope I got it, but you're asking in this current context, what do we do with the goals and so on. We have guided in the last quarterly call that our mid- to long term goal in the new strategic plan, 2025, '20 '20 '9 strategic plan is to deliver mid teens tangible book value per share plus dividends growth, mid teens. As it stands now, it's too early to tell how all this will be panning out once again, but we stick with that guidance. We are already delivering the 14% this quarter independent of the fact that there was a huge currency devaluation, especially in Turkey, and there was a currency impact in that number.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So we stick by that number. As long as we deliver, as we have been delivering today in the last quarter, nothing changes. Regarding the capital, the two topics, the only numbers that we can provide you is what was made public in the F4, the SEK reporting. You would see that last year, when we started the deal a year ago, it was 30 basis points, the impact. Then we updated that number to 38, and the latest number that you will see there is 51.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

All this change is because of the dividends that we pay. Because when we pay our dividends based on the transaction detail, we also reserve a piece of that dividend to be paid to Sabodell shareholders when we join forces. And that dividend impact is the key reason. The 30% has become now 51 basis points in the latest public disclosure. When the numbers are updated just before the transaction, obviously, we will give you more details on the final figures.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

But the latest public figure, as I mentioned, is 51%. Obviously, this is 100%, one hundred % takeover. If it's 50% takeover, then the number changes. EBIT, it goes up to 60% because there is there are some minority inefficiencies in that process. But again, we will update you on these figures once we get to the transaction, the expectation period stage.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

You were asking about the capital requirement. Are we going to be increasing our capital requirement? The answer is no. We have said it many times before, rather than looking at the absolute figure, in our view, we should look into the difference between the requirement and our target. We have a target.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

The upper end of our target is 12%. Our requirement, regulatory requirement is 9.13%. The difference is two eighty seven basis points. So we have a buffer. In our management target, we have a buffer of two eighty seven basis points with the latest requirement that we have from the regulators.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

What is that same number, two eighty seven basis points? What is that same number for the rest of the European banking sector? Our peer group is the largest 15 European banks. The EU banks in that group is they are 10. The average of that 10 is two nineteen basis points.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So when you look into the absolute figure, you would see other banks with potentially higher requirements and potentially higher management references. But the requirement is much higher. So in this gap, we have a very nice buffer in our view. As such, we will maintain our 12% guidance 12% target.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Benjamin. Next question, please.

[Operator]

Our next question comes from Carlos Peixoto from CaixaBank. Carlos, please go ahead.

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

Hello, good morning. A couple questions from my side as well. First one being on Spain. So basically, you have fee income going up by 7% this year. However, you're sticking to low single digit growth guidance for the year.

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

I was wondering here, is this just being conservative or whether there are rationale this growth in fees to slow down? And a bit the same rationale on the cost of risk. So you have a 45% guidance 45 basis points guidance for the full year, 30 basis points in the first Q. Is this because you're expecting the inputs in macro updates or something like that to drive a bit further the cost of risk? Or it's more of a conservative standpoint?

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

I'm just trying to understand the rationale there. And then second question on Turkey. Just a clarification actually. You mentioned now net profit should be below 1,000,000,000. But are you maintaining the 200 basis points cost of risk indication for the unit?

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

Thank

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Thank you, Carlos. On the Spanish guidance, Luisa?

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Well, with regards to the fee income, I think we do maintain the low single digit growth, especially I think in this context, as you know, about 40% of our fees in Spain come from asset management. Asset management has been growing significantly year on year, but we do see that obviously the mark to market has an impact also potentially on growth going forward. And that's why we feel comfortable in maintaining those single digit growth fee guidance for the year, again, subject to market volatility. The underlying dynamics on the fees, as you were mentioning, quite positive aside from the asset management, also on the banking services, payments and insurance particularly. I would highlight that the insurance fees are also growing quite nicely.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

But I think the guidance captures all of that positive growth going forward. And with regards to the cost of risk number, we are guiding for a lower cost of risk number this year. We're move our cost of risk guidance at the beginning of the year, you may remember was at or slightly below 38 basis points. The underlying dynamics of the quarter have come in significantly stronger than than what we were anticipating. And I think that has allowed us that even despite the uncertainty in general, we feel comfortable in lowering the guidance of cost of risk to around 35 basis points in Spain for the year.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

And then regarding Turkey, Carlos, I just realized that I didn't answer one of the previous questions also on this. So the cost of risk in the quarter was 189 basis points in Turkey. Our guidance was actually 180 basis points. So the guidance that we provided in the last quarter was 180. It's not that different from our guidance.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We stick to our guidance. But as I just mentioned, Turkey, the macro parameters, they have moved, and they might move even more. Even the profit figure that we are guiding today, I gave you, that's why, the full sensitivity on the independent variables that drive that number. So we have to see how things again also develop in Turkey. As it stands, we stick with our guidance of 180 basis points.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much. Next question, please.

[Operator]

The next question comes from Sophie Peterson from JPMorgan. Sophie, please go ahead.

[Sofie Peterzens, Executive Director at JP Morgan]

Yes, hi. Thanks for taking my question. So my first question would be, we've seen quite a lot of FX volatility in the recent months. Could you just remind us of how much hedging you have done both on the capital side, but also on the P and L side, especially of Mexico and Turkey? And then my second question would be, we have seen a quite strong performance once again in rest of businesses with a reasonably big beat versus consensus estimates.

[Sofie Peterzens, Executive Director at JP Morgan]

Could you kind of give us a little bit more detail around the rest of businesses? Like are we going to get some additional details on Italy soon? And how should we think about this bucket? Thank you.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Very good. Thank you, Sofie. On hedging, as you know, we do two sets of hedges by currency, but one of them is to protect against currency for capital. We hedge excess capital. We our policy is that we usually hedge 60% to 70% of the excess capital, the piece that is not naturally hedged because we also have in the denominator, as you know, the respective currency loan book and so on.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So the excess capital, 60% to 70 in context. In Mexico, at the moment, we are hedging 56% of the excess capital. And in Turkey, we are hedging 24% of the excess capital. Then we have another set of hedges for P and L. And the P and L hedges go looking to the next twelve month profit expectation, and we hedge 40% to 50% as a policy in general.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

And we change that policy depending on cost of hedging, depending on the environment and so on. But typically, 40% to 50% of the next twelve month profit is also hedged. In that context, at the moment, we have 62% hedges for Mexican peso, and we have 30% hedges in Peru, Colombia and Turkey. You would see that the Turkish numbers are a bit below the typical policy that we have, mainly for the cost of hedging. And as you know, the interest rate and the forward curve and so on, it entails a very high cost to do the hedging.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

As such, we are slightly lower than our usual policy for Turkey. And we are slightly above in Mexico for the Mexican peso. There is also a dollar sensitivity that the bank has for you to know. And in this current context, it's very important because we do have, in dollar, some RWAs, we don't have equity in dollar too much. That's why we also for the capital conservation, we also do a dollar hedging.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

The hedging of that goes through P and L because accounting rules tell us that it has to go through P and L. So there is that U. S. Dollar euro hedging that we do also in the policy. And then rest of business?

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Yes. Well, as you know, the rest of business area includes primarily the CIB business that is carried out in the branches that we have in CIB, primarily the European, UK, Asia and New York where the I would say the more relevant activity comes from CIB Europe and CIB the U. S. On the back of the strategic initiatives that took place already a few years ago of increasing our presence in CAB. And this result of rest of business is quite consistent with the enterprise segment and particularly the CIB business being a core part of our strategic roadmap going forward.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

And so what you're seeing here is a strong growth year on year on activity. Loans have been growing around 23% year on year, boosted as I said by CAB primarily well, I would say across the board. And it's been in investment banking and finance, project finance, corporate lending, basically accompanying our clients to these footprints where they want to work. And we're basically going with them in this sense. In this regard, aside from a PLM perspective, aside from this strong growth in activity coming from the development of our strategic initiatives and growth, we have seen NII being a good driver of the rest of business year on year supported by activity, but also price management, the activity and the profitability as Andre mentioned of the CIB business is quite high.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Fees have also had a remarkable increase year on year also quarter on quarter arising by extraordinary results in Investment Banking and Finance, relevant deals across the different geographies, a typical activity that you would expect. And NTI has been quite remarkable also from Global Markets perspective across the different activities. I would highlight that this is more and more driven by recurring client activity, not by one off transactions. So all in, I think the gross revenues are highlighting the investments that we've been doing in the business, and we expect that the contribution of rest of business going forward will continue to increase as these strategic initiatives are deployed.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Very good. Sofie, one final thing. In terms of all I gave you all the percentages, but the final impact of all of this is the sensitivity in capital, sensitivity of the capital to the currency devaluations. And you have that page in Page 43, I think. In the back up, there is a clear page which says after all of this, after all the hedging that I just talked to you about, the sensitivity of the Mexican peso is nine basis points.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

So if there is a devaluation in top 10% devaluation in Mexican peso, our CET1 would be reducing by nine basis points. And the same number is four basis points for Turkish lira and the other way around, plus 17 basis points for dollar. You have it in the details, okay?

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you, Sofie. Next question, please.

[Operator]

The next question comes from Hugo Cruz from KBW. Hugo, please go ahead.

[Hugo Cruz, Director at Keefe, Bruyette & Woods (KBW)]

Hi, thank you. I just wanted to ask you about Eurozone NII, mainly in Spain. Should we start thinking about yield curve stiffness? I think people are still thinking a lot about rates are going to go down, so therefore your NII goes down. But we have steep yield curve, which you haven't had for many years.

[Hugo Cruz, Director at Keefe, Bruyette & Woods (KBW)]

So as we go a little bit further two, three years out, could we actually see higher NII than we have this year given that steepness? If you could give any guidance, that would be very helpful. Thank you.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

The steepness would help, Hugo, but the level the short term level is also very important for a single reason. We do all the hedging and so on that we talked to you about from time to time. But most of the lending book that we have in Spain, the reference rate for the repricing of that loan book is short term. Basically, the corporate and mid corporate lending book, the reference is Euribor three months. And for the mortgage book, the reference is Euribor twelve months, independent of the we price it properly.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We price it based on the duration of the product. But the reference itself is the short term. So your question of would the NII go up in two, three years? My question back to you is what is the forecast of the not only the curve, but also the different parts of the curve. The steepness helps.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

As you might have seen this, in the quarter, we have increased our ALCO book by EUR 5,000,000,000 in Spain. There was a period, I think it was the March, no? You said March, when the yields have picked up in the long end, and we benefited from that, and we increased the ALCO book. So the steepness helps, and we take some certain strategies out of this. But given the nature of the lending book and the references for the lending book, I wouldn't discard also the level of the short term rates in the NII calculation.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Uwa. Next question please.

[Operator]

The next question comes from Britta Schmidt from Autonomous Research. Britta, please go ahead.

[Britta Schmidt, Senior Analyst at Autonomous Research]

Yes. Hi there. Thank you for taking my questions. I've got a couple on Mexico. You commented on the Mexican loan growth being primarily short term lending.

[Britta Schmidt, Senior Analyst at Autonomous Research]

How should we think about that in the context of the net interest margin? Or shall we assume that this lending still meets your profitability hurdles? I think you also had some severance payments in Mexico. Could you tell us how much that was? And is that an indication maybe of you trying to manage the profitability with a weaker outlook?

[Britta Schmidt, Senior Analyst at Autonomous Research]

And then just two clarifications. What is your expectation on the recognition of the Spanish bank tax for 2024 that hasn't been booked yet. What are the discussions there? And maybe just an update on the Sabadell deal and whether or not you've had any recent discussions with the government on this situation? Thank you.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Very good. The second one I couldn't get, it's about payments. Did you get it,

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Lucia?

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Severance payments.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Severance payments. Okay. So you have it, we're going to do that. On the profitability of the loan book and the short term, whether we can take it for the coming quarters. Britta, once again, independent of the duration of the loan, short term, long term, the product, it doesn't matter.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Every single product, every single loan, depending also on the currency, has a threshold to pass. Don't take me wrong. We also invest in clients. We call it exception pools. So you can be below the threshold for a certain period of time, but it has to be a scarce resource, that exception pool.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

And when you invest in a client in a certain period of time, you still need to get to profitability. Otherwise, that client will be there forever in that exception pool. I'm giving you the details of how we manage this. What I can tell you is that independent of short- or long term, we are making sure that this growth is profitable. Otherwise, it wouldn't be it would be then otherwise coming into the exception pool, it would be over passing the exception pool limits and so on.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Quite profitable. The thing that we are not upgrading our activity or NII and maintaining our guidance is, once again, we don't know how sustainable this growth will be in the coming quarters. And the short term has been really good. And by the way, it continues to be good, and the pipelines are very strong. April numbers are quite strong.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

But there is a big uncertainty that encircles us, all of us. And we have to see how things pan out once again. I'm repeating myself, but it's important that you understand that uncertainty. Regarding the severance payments, you didn't ask it nobody asked it before. But in the cost number of Mexico, you see a slight jump in the quarterly growth, in the year over year growth also for one single reason.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

We have been increasing our employee base, as you know quite well, in the last three years. There were a lot of competitive discontinuities in the market, and we wanted to benefit from the fact that we can gain clients, gain market share, gain profitable business when there is that competitive discontinuity. And from time to time, we relook into that growth, and we do programs. In the first quarter of this year, we have done a program of redundancy or severance. 5% of our employees in Mexico have been affected from this.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

It's It was a very normal process. It wasn't like a suddenly there is a huge program. No. Based on a periodical review, we do this from time to time, but you do see that in the employee figures in Mexico. It affected around 2,500 people and so on.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

As a result of that restructuring program, the severance indemnifications as a cost came into that figure. So this 11 if I'm not mistaken, 11.7% that you see in the cost growth of Mexico year over year, around 3% of that is driven by that one off indemnification payments for the severance. And that is that has led to this figure. Spanish banking tax, Luisa, twenty twenty four?

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Well, we are waiting to have clarity on the legislation to be applied for the 2024 number and how that will be translated into the definition of the tax, the accounting of the tax and the payment of the tax. So basically, it's more a wait and see, I think, at the moment.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

It's more a wait and see. On the Sabadell deal, you are asking for the process. The process, we are at the final, final stages, as we understand, of the CNMC. The Competition Authority of Spain is taking their final decision on the topic. Once that decision is taken, then there is a process of the government, and it continues, as we have discussed many times before.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

There's fifteen working days plus potentially fifteen days and potentially thirty days of the government after the decision of the CNMC, then the expectation period will start. But we are in the final stages of the CNMC. We are waiting for the decision to come in the coming days, basically.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Britta. Next question, please.

[Operator]

There are no further questions. So I will now hand back to the management team.

[Patricia Bueno, Head of Investor Shareholder Relations of Finance at Banco Bilbao Vizcaya Argentaria]

So well, that was the last question. Thank you very much for joining the call and for your questions. What we keep in touch, so we are at your disposal for any further questions you may have.

[Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria]

Thank you, everyone.

[Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria]

Thank you. Thank you very much.

Participants

Executives

• Patricia Bueno, Head of Investor Shareholder Relations of Finance
• Onur Genç, CEO & Executive Director
• Luisa Gómez Bravo, Global Head of Finance

Analysts

• Antonio Reale, Co-Head - European Banks Equity Research at Bank of America
• Maksym Mishyn, Managing Director at JB Capital Markets
• Marta Romero, Director - Equity Research at Citi
• Francisco Riquel, Head of Equity Research at Alantra
• Ignacio Ulargui, Analyst at BNP Paribas
• Benjamin Toms, Director - Equities at RBC Capital Markets
• Carlos Peixoto, Equity Research Analyst at CaixaBank
• Sofie Peterzens, Executive Director at JP Morgan
• Hugo Cruz, Director at Keefe, Bruyette & Woods (KBW)
• Britta Schmidt, Senior Analyst at Autonomous Research